The Impact of COVID-19 on Investment Banking Industry

From retail (the worst hit) to manufacturing, the worldwide lockdown to prevent the spread of coronavirus, every industry is hit badly. The investment bank industry felt its share of jerks too. After the unprecedented situation, the industry’s dynamics have changed and a few shifts to recover and adapt to the present times and prepare for the future are underway.

Investment banking market

The investment banking market covers establishments primarily engaged in undergoing capital risk in the process of underwriting securities and excludes firms that act as agents or brokers (between buyers and sellers of securities and commodities). The aforementioned companies are involved in underwriting, originating, and /or maintaining markets for the issue of securities.

The investment banking outlook 2020

Analysts at JPMorgan predict that fixed income currencies and commodities (FICC) sales and trading revenues will rise over the next few months. Growth in revenue is expected to moderate, considering the unprecedented situation. Furthermore, analysts predict that they predict the fixed income sales and trading revenues will rise 14% year.

Further, JP Morgan analysts report that equities sales and trading revenue are estimated to will stay flat in 2020. Revenue in the investment banking division is expected to fall by 20%. Fixed-income trading, FX desks, and credit desks (investment grade) will likely have a strong return in the quarters ahead.

Good time to work in debt issuance

This may all sound honky-dory, which may be the case, but employees need to be cautious. Investment banking analysts and others in investment banking roles may find themselves in turbulent times. Analysts predict revenue will decline by over 40% year-on-year in the coming months.

Good time to work in U.S. cash equities

U.S. cash equities desks had a good trading in April. The trading volume went up by 63% year-on-year. Despite this fact, Analysts at JP Morgan predict flat revenue in equities sales in the times ahead.

Analysts further suggest that prime finance divisions could slump in the next few months, due to a decline in hedge funds’ balances in March, which still hasn’t recovered fully. This raises a major question – Did Deutsche Bank sell its prime business to BNP Paribas at the just the right moment?

If you’re planning to switch to investment banking or find a new investment banking job, now is probably not a good time or the coming few months for that matter. However, you can make yourself more knowledgeable and adept at work, by taking an investment banking certification or course.

Looking at the impact of coronavirus on the investment banking industry, several investment banks have changed the course of their strategy. Banks are moving towards businesses that require less regulatory capital. Barclays, Deutsche Bank, and Credit Suisse among other global banks have announced their plans to move to activities such as mergers and acquisitions and fundraising, away from their original and traditional underwriting business.

This movement is driven by regulatory changes that have made some investment banking activities highly expensive. However, this movement came with its impediments, restricting a few banks and forcing them to specialize in a niche. A few global banks including JP Morgan and Citibank continue to offer a complete range of services.

What’s ahead?

In the past few months, investments banks have witnessed a lot. Fortunately, not as bad as the 2008 crisis, but lockdown worldwide did nothing less. Banks are devising ways to navigate this challenge, while a few are re-working their business strategy, some have pivoted their services completely. What lies ahead for investment banks, it is too early to tell.