Can you mention what assets currently have trading jobs in investment banks, and are likely to continue for the next few years inspite of
(a) Regulations
AND
(b) Computerization.
Thanks Andy
It's impossible to predict the future. No one can tell you what the landscape will look like three years from now with any kind of certainty. My take on it, though, is a lot less dramatic than it appears most people believe in this forum. I think that things will look pretty similar in a few years to how they look now, just with a few less people. Computerization is not a new thing and has been going on for some time. If it were up to any rational manager, they'd fire 90% of their workforce in favor of computers that would do the work of those people. But most of the jobs on a trading floor that can be done be computers currently are, and banks aren't investing as much in anything including technology as they used to, at least for now. The fact is, the technology just isn't there yet and it's not fast encroaching. People aren't losing their jobs to machines, they're losing their jobs on the back of ROEs of trading dropping off due to deleveraging of bank balance sheets and capital/RWA charges. When you were free to use a highly levered balance sheet to support a trading floor, it makes sense to beef it up. Now that it effectively costs more to engage in balance sheet intensive transactions (like structured products trading), and any profit that is made is not levered nearly as much as it used to be, the net contributions of these trading businesses just don't justify employing as many people as they used to. There's also the issue of interest rates being at zero and forecasted to stay there for quite some time which is hurting fixed income / rates desks' ability to make money and central bank volatility suppression hurting foreign exchange businesses, so even unlevered PNLs across the street in the macro world have been pretty weak compared to other years. All that considered, it makes sense that a bank might want to downsize a whole lot and even exit some areas of trading, especially if you have businesses like UBS's private bank which makes gobs of money without tying up loads of capital in the process. Does that mean these jobs won't exist in a few years across the street? I highly doubt that. If anything, having people throw in the towel now makes me hopeful for a few years down the line when governments ease up on interest rate and currency intervention and there will be less competition to beat out when the money is on the table. But on the other hand, that's only a potential opportunity for the people who manage to keep their jobs through the hard times now, and it is certainly not ideal for job seekers with all this experienced trading floor staff chucked out onto the curb looking for work.
So given all that, if you still want to work in S&T in an investment bank, how do you come up with what product area to work in? To me that decision is all about how balance sheet intensive businesses will be treated going forward. Structured products businesses bring in the most money on the fixed income trading floor, but they also use up a huge amount of the bank's capital and are therefore costly to run in the new world order. However true this may be, at the moment banks appear to be disregarding this, as evidenced by the fact that these businesses are still the highest compensated areas. This is definitely something that has the potential to change, via banks calculating PNL net of capital charges. They already do that, but the question is how to correctly come up with the capital charge number. I'll admit this is a bit over my head, but that capital charge number for structured products businesses is one I believe can be a game changer for those working in those areas of the bank going forward. If you think banks are going to hit these businesses hard going forward, then go work in macro trading (interest rates / fixed income / foreign exchange). Otherwise if you think banks are going to protect structured products trading, then set your sights there. I personally think banks are going to be punitive toward that side of the business, but I definitely could be wrong there.
