However bleak the outlook may be for the industry, things will almost certainly get better. They always do…My latest column for Financial News
If you own an item of clothing long enough it will eventually come back into fashion. And if you wait long enough, then headlines from many years ago in a financial newspaper will eventually be true again.
Last week I found myself browsing through old copies of Financial News from 2002. Given the transformation in the industry over the past 10 years, you might have thought that the headlines and news from a decade ago would have seemed a world away.
Instead, what struck me most – apart from how young everyone looked in the photographs – was how similar many of the concerns for the future and warnings of structural change for the securities industry were 10 years ago to the doom and gloom that dominates coverage of the industry today.
As markets bottomed out after the dotcom crash, bankers complained that equity capital markets activity had hit a seven-year low. Investment banks were frantically trying to juggle their cost base with declining revenues, prompting headlines such as “Deutsche Bank to fire more staff”, “BNP Paribas gives up the ghost in equities”, and “Wall St plans more lay-offs”.
A banker who has since risen to greater things was explaining why his bank’s austere travel policy – including taxis only after 9pm, economy class on any flight under five hours – was “entirely appropriate” for such straitened times.
Fresh from the Enron scandal and the conflicts of interest between equity research and investment banking, Merrill Lynch was busy hiring hundreds of compliance staff. Today, JP Morgan has taken its place (although the sums involved are a little larger).
A youthful-looking banking veteran Michael Zaoui was predicting an imminent recovery in M&A activity – just as every M&A banker has been doing for the past three years.
Most pertinent, however, was the headline “Pay bonanza may never return”, with straight-faced bankers and consultants warning that “bonuses may never again reach the giddy extremes of 1999 to 2000”, that the change in pay structures was “non-cyclical” (ie permanent), and that shareholders would be rewarded more for bearing the risk of owning investment banks, while employees and their bonuses would suffer.
The point of all of this is that the doom and gloom about the future of the investment banking industry back in 2002 was completely misjudged. Within a few years the industry was back on steroids, capital markets activity soared, investment banks couldn’t hire people fast enough and there was no limit to what they would pay them. It took little more than five years for gloom to turn to boom and then to ka-boom, with the spectacular blow-up in 2008.
Of course, we always think that this time it is different and we always believe that we will learn from our mistakes. But both are true only until the point that they cease to be.
One article in particular – from April 2002 – caught my eye . It was a column by the former senior banker and UK government minister Sir John Nott, who had started work in the City of London in 1959 but who warned that it had become an unpleasant and uncivilised place in which to work.
He wrote: “For many of today’s bankers, both their position in society and how they see themselves are entirely dictated by how much they earn. They are like battery hens, encapsulated by their place of work and by how many eggs they lay. This obsession with money for its own sake – something rather different to the creation of wealth – is quite offensive.”
Wise words that are as true today as they were back then – and they will still be true when the industry is booming again in X years’ time.
- This article first appeared in the print edition of Financial News dated September 30, 2013