The most lucrative investment banking division

[magellan1]

Mergers and acquisitions are the most popular segment of investment banking and the one which is responsible for the biggest share of all fees earned by big banks. This is not surprising, given that many corporations were flooded with cash after the pandemic and needed to deploy it somewhere. Moreover, many CEOs prefer to build big empires giving them more power and higher compensation instead of returning excess cash to shareholders through dividends or paybacks.
On the other side, Equity which includes activities like IPOs, Research, Trading is the smallest category of investment banking. One of the reasons for this is the trend of companies being acquired by PE/VC funds and staying private for longer if not forever. Other reasons are the rising interest rates, higher levels of uncertainty and geopolitical conflicts.​

Investment banking fees by product​

Product​	% of Fees collected in 2022​
M&A​	34%​
Bonds​	29%​
Loans​	25%​
Equity​	13%​

Source: FT - 2023

M&A bankers usually earn higher salaries than people in Equities but the workload and competition are also higher. If you decide to work in M&A, you will be a small fish in a very big pond while if you go to Equities you will be a bigger fish in a smaller pond. I personally prefer the latter.
How important do you believe the size of the market is for one's career? Which categories are likely flourish and which will decline in the future?
​

Leading investment banks by product
​

Category​	Bank​	Fees - 1Q23 ($m)​
IBD​	JP Morgan​	1554,55​
M&A​	Goldman Sachs​	719,29​
Bonds​	JP Morgan​	402,87​
Loans​	BofA Securities Inc​	359,26​
Equity​	CITIC​	217,98​

​

Source: FT - 2023

Naturally, IBD and M&A are dominated by the American powerhouses JP Morgan and Goldman Sachs.
It is interesting to note that CITIC, a Chinese investment bank is the leader in the equity segment. Most large companies in China have been owned by the government in the past but the government is continuously reducing foreign ownership limits and supporting the equity market (IPOs of private companies, increasing transparency, improving corporate governance rules, etc.)

Do you think that Chinese banks will also be able to surpass American banks in other categories like M&A in the future?​

 

[HowardM1]

Mergers and acquisitions are the most popular segment of investment banking and the one which is responsible for the biggest share of all fees earned by big banks. This is not surprising, given that many corporations were flooded with cash after the pandemic and needed to deploy it somewhere. Moreover, many CEOs prefer to build big empires giving them more power and higher compensation instead of returning excess cash to shareholders through dividends or paybacks.
On the other side, Equity which includes activities like IPOs, Research, Trading is the smallest category of investment banking. One of the reasons for this is the trend of companies being acquired by PE/VC funds and staying private for longer if not forever. Other reasons are the rising interest rates, higher levels of uncertainty and geopolitical conflicts.​

Investment banking fees by product​

Product​	% of Fees collected in 2022​
M&A​	34%​
Bonds​	29%​
Loans​	25%​
Equity​	13%​

Source: FT - 2023

M&A bankers usually earn higher salaries than people in Equities but the workload and competition are also higher. If you decide to work in M&A, you will be a small fish in a very big pond while if you go to Equities you will be a bigger fish in a smaller pond. I personally prefer the latter.
How important do you believe the size of the market is for one's career? Which categories are likely flourish and which will decline in the future?
​

Leading investment banks by product
​

Category​	Bank​	Fees - 1Q23 ($m)​
IBD​	JP Morgan​	1554,55​
M&A​	Goldman Sachs​	719,29​
Bonds​	JP Morgan​	402,87​
Loans​	BofA Securities Inc​	359,26​
Equity​	CITIC​	217,98​

​

Source: FT - 2023

Naturally, IBD and M&A are dominated by the American powerhouses JP Morgan and Goldman Sachs.
It is interesting to note that CITIC, a Chinese investment bank is the leader in the equity segment. Most large companies in China have been owned by the government in the past but the government is continuously reducing foreign ownership limits and supporting the equity market (IPOs of private companies, increasing transparency, improving corporate governance rules, etc.)

Do you think that Chinese banks will also be able to surpass American banks in other categories like M&A in the future?​

I would be interested to understand the breakdown and definition of the "Equity" segment.

I can't see any chance that Chinese banks move to the top of the leader board, because they are seen as pseudo state controlled entities and the US (and others) are actively trying to limit China's global influence. Yes they will be used where they need to be, like an IPO of a Chinese company or if someone want's to engage in M&A on the mainland but they won't eat into the western banks pie on their home turf IMO.

 

[magellan1]

Thanks for sharing your opinion. The breakdown of the "Equity" segment (2022) is IPO (46%), Follow-on (46%) and Convertible (8%).
One of the problems of Chinese investment banks is that unlike American banks they hire mostly people from China. They need to hire more Europeans and Asians (Indians, Koreans, etc) if they want to become global players.
On a different note, I see that China is gradually becoming more capitalist (encouraging entrepreneurship and FDI in other countries) while the US is becoming less capitalist (introducing tariffs, populist policies, etc) and the gap in ideology (on capitalism) is narrowing.

 

[Shane H Norman1]

Mergers and acquisitions are the most popular segment of investment banking and the one which is responsible for the biggest share of all fees earned by big banks. This is not surprising, given that many corporations were flooded with cash after the pandemic and needed to deploy it somewhere. Moreover, many CEOs prefer to build big empires giving them more power and higher compensation instead of returning excess cash to shareholders through dividends or paybacks.
On the other side, Equity which includes activities like IPOs, Research, Trading is the smallest category of investment banking. One of the reasons for this is the trend of companies being acquired by PE/VC funds and staying private for longer if not forever. Other reasons are the rising interest rates, higher levels of uncertainty and geopolitical conflicts.​

Investment banking fees by product​

Product​	% of Fees collected in 2022​
M&A​	34%​
Bonds​	29%​
Loans​	25%​
Equity​	13%​

Source: FT - 2023

M&A bankers usually earn higher salaries than people in Equities but the workload and competition are also higher. If you decide to work in M&A, you will be a small fish in a very big pond while if you go to Equities you will be a bigger fish in a smaller pond. I personally prefer the latter.
How important do you believe the size of the market is for one's career? Which categories are likely flourish and which will decline in the future?
​

Leading investment banks by product
​

Category​	Bank​	Fees - 1Q23 ($m)​
IBD​	JP Morgan​	1554,55​
M&A​	Goldman Sachs​	719,29​
Bonds​	JP Morgan​	402,87​
Loans​	BofA Securities Inc​	359,26​
Equity​	CITIC​	217,98​

​

Source: FT - 2023

Naturally, IBD and M&A are dominated by the American powerhouses JP Morgan and Goldman Sachs.
It is interesting to note that CITIC, a Chinese investment bank is the leader in the equity segment. Most large companies in China have been owned by the government in the past but the government is continuously reducing foreign ownership limits and supporting the equity market (IPOs of private companies, increasing transparency, improving corporate governance rules, etc.)

Do you think that Chinese banks will also be able to surpass American banks in other categories like M&A in the future?​

The rise of China is an intriguing subject. We've become so used to this being called 'the Pacific century' that we've almost come to accept that the Middle Kingdom will dominate. I'm not so sure. Certainly, the economy is the largest in the region (and #2 in the world), there's plenty of brainpower, labour, and ingenuity, and a humungous mountain of domestic savings to provide capital.

On the other hand, the demographic profile is a huge barrier. I don't think a nation has ever led the world economically that didn't have a dominant and growing proportion of people under the age of 30. China's average age is over 38 (about the same as the USA) - and rising.

Increasingly, I think India has more to offer. It now has the greater population overall and matches China for collective brainpower, but far exceeds it in the growing availability of cheap labour (average age of the population is about 29). What ails the sub-continent is, of course, its fragile politics and fractured society. Time and increasing economic well-being could fix those.

However, given the past animosity between the two countries, the likelihood of India achieving regional dominance seems bound to lead to trouble with China.

 

[HowardM1]

The rise of China is an intriguing subject. We've become so used to this being called 'the Pacific century' that we've almost come to accept that the Middle Kingdom will dominate. I'm not so sure. Certainly, the economy is the largest in the region (and #2 in the world), there's plenty of brainpower, labour, and ingenuity, and a humungous mountain of domestic savings to provide capital.

On the other hand, the demographic profile is a huge barrier. I don't think a nation has ever led the world economically that didn't have a dominant and growing proportion of people under the age of 30. China's average age is over 38 (about the same as the USA) - and rising.

Increasingly, I think India has more to offer. It now has the greater population overall and matches China for collective brainpower, but far exceeds it in the growing availability of cheap labour (average age of the population is about 29). What ails the sub-continent is, of course, its fragile politics and fractured society. Time and increasing economic well-being could fix those.

However, given the past animosity between the two countries, the likelihood of India achieving regional dominance seems bound to lead to trouble with China.

Yes its a multifaceted one for sure, too much to unpack here. I would say that we are moving into a word where economic policy is being driven to an extent by foreign policy. National security is now more important than economic growth, we are deglobalizing, but China seems not to care and will continue to push.

In a world where AI increases productivity massively I'm not sure demographics matter all that much anymore, for manufacturing and service driven economies I think its inflationary, this is something I believe we are seeing in Japan, does it matter for China when they control much of Africa I'm not so sure. But equally I don't think Chinese dominance is quite so obvious as people have made out in the past so I share your scepticism.

India is most certainly a country with massive potential, they are working with Australia to build new critical mineral supply chains to allow them to clean up some of their industry and switch to electric vehicle production etc. But its a country that has massive challenges as well. I do think India will become more an more relevant as time goes on. As for running into trouble with China that's the case for most countries with any ambition for economic/national security independence.

Probably something to explore in another post.

 

[JustAnotherHuman1]

Steered quite away from the original subject, hehe. I’ll add an obvious point to the above at the risk of sounding incompetent and that is the difference in the size of the land of these countries surely matters? Isn’t China like 10x over the other, so even if the population is the same, this dimension is very different.

 

[Shane H Norman1]

Steered quite away from the original subject, hehe. I’ll add an obvious point to the above at the risk of sounding incompetent and that is the difference in the size of the land of these countries surely matters? Isn’t China like 10x over the other, so even if the population is the same, this dimension is very different.

I don't think the geographic extent of a country makes much difference, e.g., the UK and the British empire. Or Rome.

 

[JustAnotherHuman1]

I don't think the geographic extent of a country makes much difference, e.g., the UK and the British empire. Or Roused to not matter

Historically for sure, those were very different times. You can’t really replicate the same things in today’s world, and productive land matters. Country borders are pretty much fixed and I guess the more land you have the more output you can produce..

 

[Shane H Norman1]

Historically for sure, those were very different times. You can’t really replicate the same things in today’s world, and productive land matters. Country borders are pretty much fixed and I guess the more land you have the more output you can produce..

HowardM's point about AI implies that size is of little consequence, especially if the most valuable national output is technological creativity.

 

[JustAnotherHuman1]

HowardM's point about AI implies that size is of little consequence, especially if the most valuable national output is technological creativity.

I’m a contractor in the tech industry. ChatGPT is impressive and can write better and faster than anyone. Fact. But the notion that it’ll replace software developers is nonsense. I mean, yes, it’ll probably automate rather a few job roles but the smoke is bigger than the fire. People tend to think of AI as important advancements as the first internet, the CPU or the GPU were… it really isn’t. It might reduce some manual tasks software developers do, but in my humble opinion will never replace them. AI is nothing more than Input -> Output and the data it uses to learn, it’s not magic. Have you ever tried chatting with chatgpt? It bullshits and inaccurate all the time. I’m not saying there are no applications of it with an element of human supervision but the idea that it will automate EVERYTHING and superhuman intelligence can ever become a reality is a joke. Also, do you know how much water it consumes per conversation, though, and how much water it requires for training? Same with crypto currencies, the cost is almost more than the benefit; BTC uses as much electricity as Argentina. Let’s cook the planet so we can have fancy tech tools, if it isn’t already.

 

[Shane H Norman1]

I’m a contractor in the tech industry. ChatGPT is impressive and can write better and faster than anyone. Fact. But the notion that it’ll replace software developers is nonsense. I mean, yes, it’ll probably automate rather a few job roles but the smoke is bigger than the fire. People tend to think of AI as important advancements as the first internet, the CPU or the GPU were… it really isn’t. It might reduce some manual tasks software developers do, but in my humble opinion will never replace them. AI is nothing more than Input -> Output and the data it uses to learn, it’s not magic. Have you ever tried chatting with chatgpt? It bullshits and inaccurate all the time. I’m not saying there are no applications of it with an element of human supervision but the idea that it will automate EVERYTHING and superhuman intelligence can ever become a reality is a joke. Also, do you know how much water it consumes per conversation, though, and how much water it requires for training? Same with crypto currencies, the cost is almost more than the benefit; BTC uses as much electricity as Argentina. Let’s cook the planet so we can have fancy tech tools, if it isn’t already.

I've had a little experience with it myself and agree: impressive, but not a revolution. Still, I think HowardM is right to suggest that the future lies in a country's technological resources, more than in its demographics, oil reserves, or size.

 

[HowardM1]

I've had a little experience with it myself and agree: impressive, but not a revolution. Still, I think HowardM is right to suggest that the future lies in a country's technological resources, more than in its demographics, oil reserves, or size.

Thanks Shane,

I guess my point around AI is not limited to generative AI, but that is a good example, so lets run with it....ChatGPT or its open source competitors won't make software dev people extinct I agree. But it will increase the productivity of the ones that use it, so it does not matter if you have less software developers a smaller number will be able to produce the same or maybe more, hence my comment around demographics.

Generative AI is like suddenly being handed a scientific calculator when in the past you did everything longhand, ChatGPT with plugins is like being given Matlab and Wolfram without having to understand much of the basics. Its a paradigm shift in terms of productivity, but its simply a tool nothing more.

 

[HowardM1]

I’m a contractor in the tech industry. ChatGPT is impressive and can write better and faster than anyone. Fact. But the notion that it’ll replace software developers is nonsense. I mean, yes, it’ll probably automate rather a few job roles but the smoke is bigger than the fire. People tend to think of AI as important advancements as the first internet, the CPU or the GPU were… it really isn’t. It might reduce some manual tasks software developers do, but in my humble opinion will never replace them. AI is nothing more than Input -> Output and the data it uses to learn, it’s not magic. Have you ever tried chatting with chatgpt? It bullshits and inaccurate all the time. I’m not saying there are no applications of it with an element of human supervision but the idea that it will automate EVERYTHING and superhuman intelligence can ever become a reality is a joke. Also, do you know how much water it consumes per conversation, though, and how much water it requires for training? Same with crypto currencies, the cost is almost more than the benefit; BTC uses as much electricity as Argentina. Let’s cook the planet so we can have fancy tech tools, if it isn’t already.

AI is much more than LLM's like GPT... but moving on....I think people are too fixated on this concept of AI replacing them versus how it could help them.

Make no mistake if AGI (artificial general intelligence) ever comes into existence we are all either looking at heaven or hell, I truly believe there isn't anything in between, but for now it just helps us work faster and better, helps with insight, understanding and solving complex problems.

If ChatGPT needs water maybe open AI should base itself in Ireland, low corporation tax and lots of water

 

[HowardM1]

Steered quite away from the original subject, hehe. I’ll add an obvious point to the above at the risk of sounding incompetent and that is the difference in the size of the land of these countries surely matters? Isn’t China like 10x over the other, so even if the population is the same, this dimension is very different.

I'm not aware of any correlation between GDP and land mass, there is an argument around mineral deposits and China does have a lot of these, but so does Australia and Africa.

As far as landmass goes Russia is actually the largest country in the world by a fair clip 17km^2, then you have Canada @ 9.9km^2 and then China at 9.7Km^2, Russia clearly has its problems these days but Canada is not seen as creator of the new world order anytime soon.

 

[HowardM1]

Thanks for sharing your opinion. The breakdown of the "Equity" segment (2022) is IPO (46%), Follow-on (46%) and Convertible (8%).
One of the problems of Chinese investment banks is that unlike American banks they hire mostly people from China. They need to hire more Europeans and Asians (Indians, Koreans, etc) if they want to become global players.
On a different note, I see that China is gradually becoming more capitalist (encouraging entrepreneurship and FDI in other countries) while the US is becoming less capitalist (introducing tariffs, populist policies, etc) and the gap in ideology (on capitalism) is narrowing.

China is pursuing its Belt and Road plan, and its Made in China plan...don't confuse that with becoming more capitalist, their outlook has not changed.

I mean what does capitalist and communist mean in the context of China. Its a country to my mind that has fully embraced the communist version of capitalism which means keep the majority of the people poor while a small cohort of people (senior people in the party mostly) take all their money, if you get the odd upstart that is successful at building a business put them in jail (or worse) and confiscate it or make them subservient to you . So the party still controls everything, to be honest that's been more evident than ever recently.

The US is not becoming less capitalist at all, quite the opposite, what is happening is countries are stepping back from globalisation in part due to China, and moving towards a more protectionist stance mainly driven by national security concerns. Australia was first here then Japan then the US and finally the UK but Europe is still on the fence!.

 

[magellan1]

China is pursuing its Belt and Road plan, and its Made in China plan...don't confuse that with becoming more capitalist, their outlook has not changed.

I mean what does capitalist and communist mean in the context of China. Its a country to my mind that has fully embraced the communist version of capitalism which means keep the majority of the people poor while a small cohort of people (senior people in the party mostly) take all their money, if you get the odd upstart that is successful at building a business put them in jail (or worse) and confiscate it or make them subservient to you . So the party still controls everything, to be honest that's been more evident than ever recently.

The US is not becoming less capitalist at all, quite the opposite, what is happening is countries are stepping back from globalisation in part due to China, and moving towards a more protectionist stance mainly driven by national security concerns. Australia was first here then Japan then the US and finally the UK but Europe is still on the fence!.

I don't fully agree with you. Yes, China has a different system and interpretation of capitalism but they have thousands/millions of entrepreneurs that have small or medium-sized companies. It is a stereotype that people in China are very poor, perhaps that used to be the case 25 years ago. I have visited many cities in China and they are more developed than some big cities in Europe (EU). People in big cities like Beijing and Shanghai earn wages that are the same as in the West. Here is an example, the median monthly salary in Frankfurt is 3530 EUR while the median salary in Shanghai is 3080 EUR. According to Numbeo, the cost of living in Shanghai is roughly 25% lower than in Frankfurt. I also suspect that Germans pay higher taxes than Chinese people so it turns out that many Chinese people receive higher salaries than Western Europeans.
Don't believe everything that you read on social media and the news. There are many people/institutions that are trying to fool you. Always check the data/facts yourself.​

View attachment 157View attachment 158

 

[HowardM1]

I don't fully agree with you. Yes, China has a different system and interpretation of capitalism but they have thousands/millions of entrepreneurs that have small or medium-sized companies. It is a stereotype that people in China are very poor, perhaps that used to be the case 25 years ago. I have visited many cities in China and they are more developed than some big cities in Europe (EU). People in big cities like Beijing and Shanghai earn wages that are the same as in the West. Here is an example, the median monthly salary in Frankfurt is 3530 EUR while the median salary in Shanghai is 3080 EUR. According to Numbeo, the cost of living in Shanghai is roughly 25% lower than in Frankfurt. I also suspect that Germans pay higher taxes than Chinese people so it turns out that many Chinese people receive higher salaries than Western Europeans.
Don't believe everything that you read on social media and the news. There are many people/institutions that are trying to fool you. Always check the data/facts yourself.​

View attachment 157View attachment 158

Thanks for the reply, here are some facts from the world bank.

As you can see from the chart below below poverty in China, measured by % people living on less than $6.68 a day while it has reduced markedly over the last 100yrs is still significant compared to the US at 25% vs 1%, Germany is at 0%. Its interesting countries that might be considered "poor" by some like Romania rate higher than China. Brazil is at about the same level on 28%.

I don't think I ever stated China is a poor country, my point was its a country with huge wealth inequality, 25% of its people live in poverty while it has a similar amount of billionaires to other countries like the US. This clearly goes against the spirit of communism but equally the party controls everything you can be a billionaire one day and penniless in jail the next or worse.

The full dataset is here for anyone that wants to play around with it.

https://data.worldbank.org/indicato...t_value_desc=true&locations=CN-DE-RU-RO-BR-US

 

[JustAnotherHuman1]

AI is much more than LLM's like GPT... but moving on....I think people are too fixated on this concept of AI replacing them versus how it could help them.

Make no mistake if AGI (artificial general intelligence) ever comes into existence we are all either looking at heaven or hell, I truly believe there isn't anything in between, but for now it just helps us work faster and better, helps with insight, understanding and solving complex problems.

If ChatGPT needs water maybe open AI should base itself in Ireland, low corporation tax and lots of water

I appreciate it is, AI = machine learning, AI is just a brand name to hype up demand (it does have lots of useful applications indeed, especially big data). As I said, AI is nothing more at a base level than input -> output, obviously there is a lot more than that to it at higher levels (statistical models, data processing at scale etc). I don't think it will ever become "superhuman" who will take over the world and bomb us with our own military hardware like Terminator stuff, if that's what you mean by hell? It's just marketing. LLM or NLP.. Fun fact: I contracted at a tech start-up not so long ago whose product was NLP (natural language processing is the more general term)-generated product descriptions for eCommerce stores and that was years before the very first version of ChatGPT was released. Another one was automating tax form compliance, taking handwritten forms and using "AI" (OCR, optical character recognition tech) to digitalize it and spit out an acceptance score basically. That was a mix of CV (computer vision) and ML (machine learning) stuff though, although these things usually go hand in hand and rarely are separate.

Each and every case I'm not suggesting that ChatGPT is bad or the benefits could not outweigh the costs of it.. simply wanted to point out it doesn't come for free, and uses a tiny bit more resources than your refrigerator. But don't take my word of it, it does indeed use unbelievable amounts of WATER (is not steam-powered though...):

https://www.independent.co.uk/tech/chatgpt-data-centre-water-consumption-b2318972.html

https://gizmodo.com/chatgpt-ai-water-185000-gallons-training-nuclear-1850324249

 

[HowardM1]

I appreciate it is, AI = machine learning, AI is just a brand name to hype up demand (it does have lots of useful applications indeed, especially big data). As I said, AI is nothing more at a base level than input -> output, obviously there is a lot more than that to it at higher levels (statistical models, data processing at scale etc). I don't think it will ever become "superhuman" who will take over the world and bomb us with our own military hardware like Terminator stuff, if that's what you mean by hell? It's just marketing. LLM or NLP.. Fun fact: I contracted at a tech start-up not so long ago whose product was NLP (natural language processing is the more general term)-generated product descriptions for eCommerce stores and that was years before the very first version of ChatGPT was released. Another one was automating tax form compliance, taking handwritten forms and using "AI" (OCR, optical character recognition tech) to digitalize it and spit out an acceptance score basically. That was a mix of CV (computer vision) and ML (machine learning) stuff though, although these things usually go hand in hand and rarely are separate.

Each and every case I'm not suggesting that ChatGPT is bad or the benefits could not outweigh the costs of it.. simply wanted to point out it doesn't come for free, and uses a tiny bit more resources than your refrigerator. But don't take my word of it, it does indeed use unbelievable amounts of WATER (is not steam-powered though...):

https://www.independent.co.uk/tech/chatgpt-data-centre-water-consumption-b2318972.html

https://gizmodo.com/chatgpt-ai-water-185000-gallons-training-nuclear-1850324249

Ha no my hell is not a terminator scenario rather if a machine achieved AGI it may decide on some not so nice outcomes for humans. Max Tegmark explores this and other questions in his excellent book Life 3.0 https://www.goodreads.com/en/book/show/34272565.

 

[JustAnotherHuman1]

I'm not aware of any correlation between GDP and land mass, there is an argument around mineral deposits and China does have a lot of these, but so does Australia and Africa.

As far as landmass goes Russia is actually the largest country in the world by a fair clip 17km^2, then you have Canada @ 9.9km^2 and then China at 9.7Km^2, Russia clearly has its problems these days but Canada is not seen as creator of the new world order anytime soon.

Some good points but what I really meant was specific to those 2 countries only, in today’s world. Ceteris paribus, whoever has more land can produce more, that’s all I wanted to point out (higher limits). Switzerland is also a very advanced economy, but due to its tiny size, will never be a world power.