Investment Banking Market Overview (2022)
2021 was a banner year for the investment banking industry, as companies took advantage of low-interest rates and high share prices to do M&A and raise financing. The huge volume of deals led to overall industry revenue increasing, salaries rising dramatically, and the level of suffering getting worse across the street.
In this post, we are going to do a quick review of three key factors: salaries, league tables, and prestige/industry perception.
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Investment Banking Salaries and Compensation
In general, investment banking salaries increased across the board through 2022:
Analyst base salaries were raised, with first-years making $100k, second-years making $110k, and third-years making $115k in base. The corresponding all-in salary per Overheard on Wall Street is $175k, $210k and $230k.
In typical fashion, Centerview raised their base to the top of street, with their first years making $130k in base.
Associate all-in pay ranged from $300k as Associate 1 to almost $500k as a senior associate.
VPs reported an all-in average of $580k and Goldman VPs were reported by Litquidity to be earning between $750k and $1mm.
These figures are significantly higher than before, which is a direct result of firms' increased revenues as well as their elevated retention efforts.
As a fairly cyclical industry, the size of analyst/associate classes can vary significantly from year to year based on anticipated deal amounts and market sentiment. The extremely fast attrition of the industry means that firms can adjust their employee base very reactively, and these salaries are a direct response to growing attrition in the industry.
Historically, investment banks had a tough time competing with Big Tech for junior roles and many analysts left to the buyside for higher salaries. When considering the GS13 discussion about poor working conditions, increasing salaries was a very logical response from investment banks. It's generally easier to just increase raw salary instead of making structural changes, such as increasing deal team sizes.
It's worth noting that top IB pay also led to an increase in PE salary. Private equity firms at the upper middle market and large-cap levels increased their salaries as a response to the elevated investment banking salary. However, top IB pay has generally dwarfed middle-market private equity pay as a result of these increases.
When looking at the M&A league tables, we can see that the top 10 firms are the same as last year, though in a different order.
J.P. Morgan became the #2 M&A investment bank, overtaking Morgan Stanley by a healthy margin. These deal values and volumes also illustrate how much busier 2021 was for investment banking. Most of these firms doubled in revenue and had at least 50% more deals than in 2020. It should be noted that Lazard and Evercore are the only independent advisors on this list, though Centerview would be here if it was a U.S.-only list.
When you zoom out and look at global investment banking, you can see J.P. Morgan’s further dominance as a bulge bracket. The difference between this chart and the last one is that this pertains to revenue and includes other business units like IPOs, debt capital markets, and lending. Firms with larger balance sheets tend to do better on this metric because they are able to underwrite more deals.
Financial Institutions was the most active industry segment, with nearly $30B in deals, followed by technology and industrials. J.P. Morgan almost did a clean sweep of the industries when it comes to the top banks.
Prestige / Sentiment
Vault / Firsthand maintains a very effective ranking when you are considering which firms to work for. It's not going to be perfect across every division and geography, but it generally maps to how top candidates pick offers. You can view the full survey here.
The biggest changes here are Perella Weinberg Partners moving up two spots and Credit Suisse dropping 4 spots. Credit Suisse faced significant issues in 2021 due to the Bill Hwang / Archegos scandal as well as general mismanagement. Credit Suisse's bulge bracket status may be threatened and these issues illustrate how difficult it can be to stay on top in this industry.