The improved economy will drive activity up, but heightened legislation will limit growth
Los Angeles, CA (PRWEB) August 05, 2012
The Investment Banking and Securities Dealing industry generates the majority of its revenue from trading activities and from fees charged for financial advisory services (e.g. mergers and acquisitions) and underwriting services (e.g. debt and equity underwriting). Most macroeconomic factors affect this highly cyclical industry, including the level of trading and business activity, interest and employment rates, income levels and consumer confidence. Because of the industry's reliance on the overall economy, revenue has experienced severe highs and lows over the five years to 2012. The industry has been on a roller coaster since it achieved a record-high revenue of $219.9 billion in 2007, according to IBISWorld industry analyst Doug Kelly. The 2008 recession, highlighted by contracting equity markets and low business confidence, destroyed initial public offerings (IPOs) and merger and acquisition (M&A) activity. The decline in stock and bond markets also significantly hurt trading revenue. As a result, industry revenue fell 42.0% in 2008. Revenue rebounded 30.4% in 2009 and 12.7% in 2010, but it still remained well below 2007 levels. Overall, revenue has decrease at an average rate of 4.1% annually over the past five years. Recovering from a dip in 2011, however, industry revenue is expected grow 3.3% to $178.7 billion in 2012.
Regulation and consolidation have been major trends in the Investment Banking & Securities Dealing industry. During the five years to 2017, regulation will continue to be a dominant trend as a reaction to the recession, Kelly says. Increased regulation will be an added expense to banks and will limit profit and push investment banks into new financial services areas. The recession also shook up some of the major players, leading to consolidation: Lehman Brothers went bankrupt, Bank of America acquired Merrill Lynch, and JP Morgan Chase acquired Bear Stearns.
Looking ahead, slowly improving revenue growth in IPOs, M&A activity and trading services will primarily drive industry growth over the next five years. However, legislation limiting proprietary trading, a major source of industry revenue, will partly mitigate this growth. As a result, IBISWorld projects that industry revenue will during the five years to 2017. One overriding outcome of the current financial crisis is the rapid consolidation in the market for financial services, Kelly says. Concentration within the investment banking sector has increased for a number of reasons. Many significant players such as Bear Stearns and Lehman Brothers no longer exist, since existing players have bought up their operations. Bank of America purchased Merrill Lynch in 2008 to form Bank of America Merrill Lynch Investment Bank. JP Morgan Chase and Bank of America have used their respective acquisitions in 2008 to move into the list of the top four providers of investment banking services in the United States. Five major investment banks will continue to dominate the market: JPMorgan Chase, Bank of America, Morgan Stanley, Goldman Sachs and Citigroup. For more information, visit IBISWorld’s Investment Banking & Securities Dealing in the US industry report page.
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IBISWorld industry Report Key Topics
This industry comprises investment banks and firms that engage in investment banking activities. This includes corporate finance activities such as debt and equity underwriting, financial advisory services (M&As and IPOs) and corporate lending. Investment banks also undertake trading for clients and trade on their own account (principal trading). Other activities may include asset management, investment advice and securities services (prime brokerage).
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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