24th June 2024

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Business Industry and Financial

Investment bank luminaries cautiously bullish for next year

  • Investment banks are looking to expand into private credit
  • They are facing hiring and cost pressures
  • There are reasons to be cautiously optimistic about 2024

This year has not been a great one for investment banks from a deal-making perspective. Corporate mergers and acquisitions, alongside initial public offerings (IPOs), have been limited. And Wall Street bankers have faced a degree of uncertainty stemming from what the final Basel III rules will look like.

The influence they might have on lending and capital markets activity at the biggest US banks was mentioned several times by keynote speakers at the Financial Times and The Banker’s Global Banking Summit. 

Yet, a panel that looked at the future of investment banking on the third day of the conference (Wednesday, November 29) offered a more optimistic outlook for 2024. There was a consensus that activity will pick up next year; the only questions are what areas will be the most lucrative and when they will take off.     

Anu Aiyengar, managing director, global head of mergers and acquisitions, JPMorgan Chase, said that equity M&A should be stronger next year and it was “hard to imagine how it could be worse” given how weak 2023 has been.

She added: “We at JPMorgan have the longest list of companies that want to IPO in a decade. People are preparing so there is an enormous amount of supply that could come to the market. The only thing to note is most people will wait and see how the market shapes up.” 

While corporates face higher refinancing costs and it is more expensive for private equity (PE) firms to do deals, the need to privatise assets remains extremely high, Ms Aiyengar argued. 

“People are developing multiple options; some want to think about an IPO, other large corporates might spin or split up their businesses, and others might do an M&A. Clients need to think about ‘what market and deal do I want?’

“What has not yet happened to the extent it should have is the revaluation between buyers and sellers. The difference between buyer and seller expectations needs to be a bit closer,” she continued.

Robert King, CEO, Acuity Knowledge Partners, said that he sees PE driving deal activity rather than public market listings. 

“There is a lot of PE capital out there and they need to do deals. That is where the market drive will come from and not IPOs. The PE activity will crystallise in the second half of the year.”

Mr King also said that the banking sector has a tightrope to walk between making attractive offers to recruit top talent but also keeping business costs down. This means banks are looking to outsource some functions to third parties to keep a lid on costs. 

“There are less MBAs and CFAs coming out of the US and UK. And there is a rise of talent coming out in the east. People who go into financial services reflect how the world has changed. It is not just about economics degrees anymore,” he said.

Ms Aiyengar observed there are three challenges to running teams at investment banks: the multigenerational workforce [where older managers need empathy for younger workers]; cultivating ways to be more creative in structuring deals [in the context of higher interest rates and volatility]; and how to train younger bankers who might not be used to downturns.  

Jon Weiss, CEO, corporate and investment banking, Wells Fargo, was among the most bullish on the panel and said the sector has come through a very difficult time. 

“Central banks have avoided hyperinflation and a recession, so 2024 looks reasonably positive. Costs are going to have to come down within banks. That brings you to artificial intelligence. AI could lead to higher-quality work: both in output and what bankers get to do.” 

Private credit was also discussed as an area investment banks are expanding in. “Taking the risk off bank balance sheets began with securitisation and syndicated loans. Private credit is just the latest iteration of this,” Mr Weiss said. 

He added: “We are big sponsors of that. We have tried to come up with our own solution and have partnered with a private equity fund, it is early days. 

“There is a certain level of certainty private credit can offer in a buy-out situation that a bank or public market cannot provide. 

“We have not seen yet how credit markets will respond when things get difficult. That will be an interesting thing to see how a deep recession affects behaviour,” he continued.    

Fabrizio Campelli, head of corporate and investment bank, Deutsche Bank said that the firm has launched DB Investment Partners to find opportunities in the private credit space. 

“We have seen a convergence of investment partners to help banks access those lending opportunities.”