Forget investment banking, commercial banking will be the place to be over the next few years, says Dick Bove, analyst at Punk Ziegel & Co.
After US brokerages' third quarter results you'd have to be pretty naïve to assume investment banks won't be making job cuts soon. Following the sub-prime crisis, cuts will come across the board.
Job losses will be a direct result of the contraction of markets served by those business areas, and the re-intermediation of loan business to traditional commercial banks. The past few years have seen dramatic growth in debt capital markets businesses. But with the viability of new derivative products open to question and losses rising, that trend is now set for reversal.
In the next few years, entities that want to borrow money - be they individuals, corporates, or governments - will no longer seek funds in the capital markets to the same degree. Instead, they are going to have to go back to the traditional banking system and ask for straightforward loans. Pure investment banks will lose out and universal banks and commercial banks will be among the beneficiaries.
Jobs will follow the money. A former CDO salesman at Goldman Sachs may, in future, become a commercial lender at Bank of America. The pay hit will be considerable, but not as huge as it might once have been. In the past few years, commercial banks have adjusted to the realities of their marketplace and raised pay to try and prevent staff from defecting to brokerage firms. Now they may need to prevent brokers beating down their doors.