We think Deutsche Bank’s IB analysis team may be demonstrating some wishful thinking when it comes to their industry’s exposure to tech disruption in the next 10 years:
Tech disrupts, absolute tech disrupts absolutely. FX has been the laboratory for tech disruption. The early 2000s saw the advent of electronic trading to the largest market in the world for clients. Since then spreads have collapsed by 85%. Volumes have risen to make up for some of the spread compression, but the tale is cautionary. Rates, and to some extent credit, will likely get jolted by technology and will see a structural fall in revenues. On the other hand, advisory services such as M&A would be unaffected. The last tech disruption was the use of the spreadsheet in the 1970s/80s, it is difficult to see what new technology will affect an advisor’s job as much as that.
That’s from a report outlining the future for the IB industry in the next 10 years.
Contrasting significantly with our own “death of banks” thesis, their bottom scenario envisions IB revenues eclipsing 2007 levels in nominal terms by 2024:
Global investment banking revenue peaked around USD400bn in 2007 and today stands at only USD260bn – a 40% decline. The sector has fallen out of favour whether one looks at market valuations or public opinion. With such a backdrop it may be all too easy to extrapolate a negative outlook for the next ten years. But we find that while the bulk of the decline in revenues is structural, the current lower base will provide a more solid platform for 4-5% revenue growth annually over the next ten years. By 2024, revenues will reach USD404bn, so just eclipsing the 2007 levels in nominal terms, but considerably lower in real terms.
No existential crisis to see here. Everyone move along now please.