The improved economy will drive activity up, but heightened legislation will limit growth.
Los Angeles, CA (PRWEB) November 17, 2013
The past five years were a trying time for the Investment Banking and Securities Dealing industry as it struggled to recover from a financial crisis that brought its business model into question. According to IBISWorld Industry Analyst Stephen Hoopes, "From 2008 to 2013, revenue for investment banks and securities dealers is expected to increase slowly at an annualized rate of 0.5% to reach $133.5 billion, still well below prerecessionary revenue levels of $226.3 billion in 2007." Entering 2007, the top five investment banks generated substantial portions of their revenue from the securitization of risky subprime mortgage loans and the leveraged principal and proprietary trading of these securities with other major financial institutions. In turn, this practice significantly magnified their risk of losses.
Falling housing prices caused this model to lose some relevancy. Higher defaults on subprime mortgage loans triggered unprecedented losses that quickly spread throughout the entire financial system and sent the US economy into recession. By the end of 2008, all five of the top independent investment banks had either failed, been taken over by larger commercial banks or rechartered as bank holding companies. Ultimately, government intervention and stimulus funds prevented the collapse of the financial sector and slowly restarted economic growth by restoring access to capital and credit.
The industry is expected to decline further in 2013, with revenue anticipated to fall 2.3% as the US economy continues to carry the burden of the economic cost of the recession. "Weak economic growth and investor uncertainty have kept business and financial activity below pre-recessionary levels, damaging both traditional investment banking and trading revenue," says Hoopes. In response, the industry consolidated and aggressively cut wage costs through layoffs over the five-year period. Five institutions now dominate the industry: JPMorgan Chase, Bank of America, Goldman Sachs, Morgan Stanley and Citigroup.
Over the five years to 2018, industry revenue is anticipated to grow. The industry will continue to decline through 2014, tasked with costly regulations that require investment banks to deleverage, hold higher capital reserves and restrict certain trading practices. However, rebounding corporate profit and general improvements in the US economy are anticipated to spur a recovery from 2015 onward by increasing underlying business and trading activity.
For more information, visit IBISWorld’s Investment Banking and Securities Dealing in the US industry report page.
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IBISWorld industry Report Key Topics
The Investment Banking and Securities Dealing industry is composed of firms and individuals that provide a range of securities services, including investment banking and broker-dealer trading services. They also offer banking and wealth management services and engage in proprietary trading (trading their own capital for a profit) to varying degrees. Investment banking services include securities underwriting and corporate financial services while trading services include market-making and broker-dealer services.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
About IBISWorld Inc.
Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.