This week in charts
High-yield bonds vs. US$-equivalent loans – par amount outstanding
US$ high-yield vs. Institutional leverage loans – issuance ratings
High-yield issuers by rating – public vs. private
Leveraged loan issuers by rating – public vs. private
Private credit, leveraged loans and high-yield bond issuances vs. U.S. private credit %
Syndicated vs. private credit markets
U.S 10-year bond yields – before and after Liberation Day (Apr. 2, 2025)
Russell 1000 Index – growth vs. value
S&P 500 Index – Total return breakdown
S&P 500 Index – foreign sales & U.S. import exposure, by region
Is investment banking still a jewel in Wall Street’s crown?
Wall Street investors were braced for carnage this week. Analysts were forecasting a 10 per cent drop in quarterly investment banking revenues for the five largest American firms. Their pessimism came after bank chiefs had aggressively guided down expectations in May.
But the bloodbath failed to materialise. JPMorgan, for example, was expected to post a 14 per cent decline in investment banking fees. Instead, it posted a 7 per cent increase.
Overall, this marks the 14th consecutive quarter in which investment banking revenue has accounted for less than a quarter of Wall Street income. The numbers were better than feared thanks to a late recovery in mergers and acquisitions and debt underwriting, but the structural challenges remain the same.
It’s not all doom-and-gloom. Global M&A volumes are up by a quarter over last year, albeit with wide regional variations. The resurgence of activity by crypto firms and special purpose acquisition companies (Spacs) has helped. But overall, big-ticket deal flow remains patchy and subdued. According to Dealogic, investment banking revenues are up just 4 per cent year-to-date — and this follows a middling 2024.
The problem isn’t simply that revenues are lagging; it’s that the hitherto glamorous business of investment banking may be losing strategic relevance within the modern universal banking model.
Part of the stagnation reflects a hangover from the pandemic-era boom, which pulled forward several years’ worth of activity into a wildly frenetic 18 months. But that’s not the whole story. Geopolitical uncertainty, threatened trade wars, confusing policy signals and regulatory unpredictability have all created a climate in which corporate leaders are favouring caution over boldness.
Understanding the two-tier performance of trading desks and investment banking requires an understanding that, to some degree, these businesses are built for different environments. Trading operations, if well-managed, thrive in volatile and uncertain conditions. Interest rate swings and geopolitical flare-ups prompt institutional investors to reposition quickly, generating the kind of flows that banks can profit from through spreads and commissions. But these are also the very conditions that tend to stifle dealmaking.
For decades, Wall Street’s diversification strategy relied on an implicit cross-support arrangement. If investment banking revenues are soft due to slow markets, they can be offset by stronger performance elsewhere. Trading may profit from volatility, while corporate banking and wealth management provide steady income from lending and transaction services. Together, the mix can help generate consistent earnings and ensure that the disparate franchises have enough resources to ride out any slowdown in one. But that logic only holds if the weakness is temporary. Three-and-a-half years of underperformance by investment banking is starting to look less like a cyclical phenomenon and more like a structural issue.
The investment banking model isn’t broken. It still generates (relatively) capital-light, high-margin and relationship-driven revenues, along with the “soft power” of prestige and visibility. Stock market investors typically assign a premium to these revenues over those from trading. But that halo effect only stretches so far if top-line growth is petering out while costs (especially banker compensation) remain elevated.
At some point, someone or something has to pick up the slack. That could mean pressure on investment banker pay, slower hiring to compensate for natural attrition, or a rethinking of the scale and scope of investment banking operations. It may also entail reallocating capital towards trading or other higher-return areas. Yet this raises another tension, since balance sheet commitment represents a critical component of securing jumbo investment banking mandates for the large firms.
Markets have rebounded. But dealmaking revenue hasn’t. If the gap doesn’t close soon, investment banking risks becoming less of an industry crown jewel and more of a sideshow
This week’s fun finds
After learning that Churrasco Villa reopened for catering, Matilde jumped at the chance to organize an unforgettable lunch for the team. It was a trip down memory lane since they fed EdgePoint partners at our very first moai (hosted by Sarah). The food was just as good as we’d remembered and never disappoints.
Man cuts Fiat down to 19.7-inch, mind-bending ride
Compact cars are a popular choice for drivers looking for a smaller, more fuel-efficient ride. But is there such a thing as too compact? Based on one man’s DIY project, the answer is a resounding “Yes,” at least for anyone larger than 19.7 inches wide. But even if you can fit into the shaved-down Fiat Panda, the experience may descend into an uncomfortably claustrophobic commute.
The Fiat Panda has earned itself a devoted fan base in the decades since its 1980 debut. Its name isn’t a reference to the black-and-white bear, but the Roman goddess of travelers, Empanda. By 2020, Fiat had sold approximately 7.8 million of them, and there’s even an annual festival dedicated to the city car called Panda in Pandino that’s held in an Italian castle. At just 57.5 inches wide and around 1,576 lbs, they remain popular for navigating the tight streets of European towns—but for Andrea Marazzi, that apparently wasn’t small enough.
