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How many investment banks is too many investment banks?
This week, Deutsche Bank embarked on a major retreat from the business. Germany’s biggest bank is cutting a fifth of its workforce—some 18,000 positions—and curtailing its investment banking and trading units. Its most “radical” restructuring yet will see it focus on more staid corporate banking for primarily European customers.
The Frankfurt, Germany-based company is getting all the attention now, but it isn’t an outlier. Every big bank has undergone a profound rethink since 2008. That year, multiple top firms in Manhattan were swallowed up by other banks, and Lehman Brothers collapsed. The Royal Bank of Scotland fell from the skies shortly after. Government watchdogs in the US and Europe who yanked the financial system back from the brink then set about constructing a safer, more stable financial industry.
They largely succeeded. That means risky things like buying and selling securities aren’t the moneymakers they used to be. Goldman Sachs, known for its trading prowess, has gone into retail banking. Its nemesis Morgan Stanley shifted into wealth management—a move that has paid off (paywall). Switzerland’s UBS and Credit Suisse downsized their investment banks, as did RBS in the UK, and Japan’s Nomura has stumbled outside its home market.
The big five US banks, which also include JPMorgan, Bank of America, and Citigroup, are at the top of what’s left, but it’s not quite the jolly oligopoly it would seem. Francesc Rodriguez Tous, a finance professor at Cass Business School in London, thinks they still face intense competition, but often from more nimble non-banks. Automated high-frequency trading firms are pushing deeper into their turf, as are specialized, boutique investment banks. Startups are pecking away at their feet, and big tech like Facebook are circling.
So, is investment banking endangered? Not quite. There’s still plenty of money to be made in finance, and members of this smaller group of mostly American mega-banks are still too big to fail. But Deutsche Bank’s overhaul is an acknowledgement that the world doesn’t have room for as many big banks as it used to, which is something other firms have acknowledged for years. If the trends of the past decade continue, their class could get smaller still. —John Detrixhe and Jason Karaian
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Our best wishes for a relaxing but thought-filled weekend. Please send any news, comments, brand nicknames, and bitcoin-mining proposals to email@example.com. Join the next chapter of Quartz by downloading our app and becoming a member. Today’s Weekend Brief was edited by Steve Mollman and Holly Ojalvo.