Investment banking is back, but not quite as we know it. Notwithstanding jitters over the US Federal Reserve’s cautious path to a normal monetary policy, the past year has witnessed probably the most sustained period of market stability since the financial crisis began in 2007. Emboldened investors have been willing to buy into anything from Rwandan sovereign bonds to Greek bank shares. And executives are confident enough to undertake blockbuster merger and acquisition (M&A) activity, with Vodafone selling its stake in Verizon for $130bn.
But the face of investment banks has changed. Most are now run by a new generation who rose to the top as the crisis unfolded. From their first day in charge, they have managed organisations through straitened times. Tougher capital and liquidity requirements and the clampdown on proprietary trading are coinciding with the expansion of electronic trading across almost every kind of asset. This combination erodes margins in one business line after another.
