Dream turns to nightmare
“THE best countercyclical indicator of the health of capital markets is when investment banks cut staff,” says a senior banker at a large American investment bank. “We always cut just before the cycle turns.” But what if the cycle doesn’t turn? An industry that once seemed to offer banks the opportunity to earn juicy returns and expand internationally is now in retreat almost everywhere.
Some of this withdrawal has been going on since the crisis—the fees paid to banks for trading in capital markets as well as for advising on takeovers and sales of shares and bonds have been falling for a few years now. But lately retreat has turned to rout. Early this month Nomura, which had made a gutsy bet on expansion when it bought the European and Asian businesses of Lehman Brothers in 2008, in effect pulled the plug on its global investment-banking business. Peers express little surprise. “Nomura was dead before it started,” says the boss of one large bank. “It was a totally ill-conceived foreign expansion.”