First, three regular questions we ask each year – forecast volumes, fees and spreads. This year we’ve added an additional category – asking people to predict what they think will happen to maturities, given expectations that interest rates will finally start to rise in the US and UK. United.
The picture painted here is a bit grim – most believe volumes will be flat or lower and fees will be flat or lower in 2021. Meanwhile, maturities should shorten, but not dramatically. As the last weeks of the year have shown, there are windows where investors will go longer than expected.
The topic of hiring is always contentious, but particularly so in 2021, amid the voracious supply of talent as business and finance words emerge from lockdown and implement expansion plans and new strategies. Meanwhile, the impact of Brexit was still being felt, which may be part of why many of our bankers thought the UK would see small-scale job cuts. But overall, respondents believe 2022 will be another hot year for talent, with hiring expected in all of our countries and regions. Goodbye London, hello Dubai?
GlobalCapital Heard a lot during the year about the exceptionally strong supply for juniors, with many banks being forced to replace dealing teams multiple times as a result of analyst sucking. We heard, for example, that a bank had to replace a team three times during the life of a particular LBO. According to our survey, however, the offer seems strong for seniors and juniors. Before bonus season, the number of senior quits usually runs out. Not so this year.
With the high demand for talent, one would expect compensation to increase, improve retention and attract new talent. This is somewhat borne out in our survey, with most respondents expecting directors and chief executives to make more money in 2022 than in 2021, although a high number believed earnings would be flat. Meanwhile, overall team sizes appear to be staying about the same or increasing slightly.
Of course, it’s not just about who you work for, but where you work. Before the 2016 Brexit vote in the UK, the choices were limited. In EMEA, it was London, Frankfurt and Paris vying for status as equally popular countries with Munich, Milan and Madrid. Today, thanks to Brexit and many people choosing to return home during the long periods of confinement, the population of EMEA’s capital markets is starting to look like a diaspora. According to our survey, Paris stands to benefit the most from the UK’s exit from Europe, followed by Frankfurt and New York. Meanwhile, it appears that relocations out of London are mostly taking place, although a good number of our respondents feel that future upheavals due to Brexit cannot be ruled out as it depends on the stance taken by regulators.
Although Brexit seems (mostly) achieved from a relocation perspective, its impact should be felt by UK institutions this year, according to those interviewed. Although many believe US banks will lose market share in 2022, more believe they will gain. The outlook is less positive for Italian banks and, to some extent, for Swiss companies. At the same time, the outlook is more positive for French/Benelux, German and Canadian banks.
Debt capital markets are of course a broad church, with many different subsets – public sector, financial institutions, corporates, emerging markets, securitization. But which ones will thrive in 2022? In our first question – What is your forecast for volumes in major EMEA bond markets – most respondents estimated next year’s volumes to be flat or lower. But when we asked people to predict how each subset would perform, they were more optimistic. ESG bonds are expected to be busy, as are FIG and IG corporate bonds and SSAs. High yield will face tougher times, however, according to bankers at DCM, who may fear for the sector due to inflation and rising interest rates. For revenue, rather than volumes, FIG and the companies generate the most optimism.
With broad optimism about volumes broken down by sector, overall there is a strong consensus that capital markets firms will make more money. Fixed or up to 5% more were the most popular answers, although a few hard-hitting bankers think their businesses will earn up to 20% more. If they do, one wonders if their compensation will increase by a similar amount… It rarely works like that.
One way to try to make more profits from capital markets is to embrace technology, replacing repetitive manual tasks with blockchains or the like. 2021 has seen a proliferation of these platforms, often featuring old market faces. We asked DCM bankers which disciplines or functions were set for the most exciting technological developments, half-expecting them to dismiss advances in technology and emphasize that DCM is a “people company”. Instead, our respondents picked syndicate and trading as those likely to have the most exciting tech future. Even origination should feel the silent embrace of technology. DCMers may be more ready for it after nearly two years of remote touring and pitch meetings from the garden shed via Zoom.
Governments and central banks have repeatedly come to the rescue of the markets since the 2007-2008 financial crisis, making their roles and policies more critical than at any other time in the history of Euromarkets. What central banks will do next year with interest rates and their quantitative easing programs has been the big question of the last six months, at least until Omicron crashed on the scene. Inflation is back, although there remains the question of what kind it is – transitory or structural. At 6.2% in November, it’s hard not to think that US inflation is anything but structural, and that was the Federal Reserve’s conclusion at its December 15 meeting. Under normal circumstances, high interest rates would quickly apply. But of course, the arrival of Omicron means the world is anything but normal and makes the outlook for next year even more clouded and uncertain. But here’s what DCM bankers thought the Fed and European Central Bank would do next year, before the new variant arrived.
One of the intriguing questions of the year was how market participants would react to the easing of lockdowns and attempt to return to pre-pandemic ways of doing business. Once the summer holidays were over, it seemed like people were quickly getting back to normal – faster than anyone might have expected. Business travel has returned in earnest (after 18 months of being on hold, the idea of having to be at the airport before dawn seemed almost exotic and glamorous). Offices were fuller than at any time since March 2020 and in-person events like IMN’s Global ABS Conference have restarted. Most respondents thought it would continue next year, but they had not heard of Omicron when they answered the survey. Responses to the frightening prophetic d) We will be in and out of lockdowns due to new variants and high infection levels to question 21 would have been very different had it been given a month later.
And finally, some good news… the supply of green, social and sustainability bonds is expected to continue its near supersonic trajectory through 2022. There remain many borrowers across all sectors who have not yet joins the GSS club, but they will increasingly feel pressured to do so, whether under peer pressure, pressure from investors, to obtain cheaper funding, or because it symbolizes a genuine commitment to the environment or society. At the same time, the choice of formats is expanding. The volume of sustainability bonds has risen sharply this year as more borrowers become more comfortable linking the cost of their funding to the achievement of future ESG goals. One of the attractive qualities of SLBs is that borrowers who might find it difficult to issue green or social bonds to use the product (because they do not have enough suitable assets or operate in sectors very polluting, for example) can issue SLBs instead and therefore align their financing with their contribution to the great and necessary transition to a low-carbon economy.
Other survey results