The investment banking industry saw major shifts and changes in 2020 as the COVID-19 pandemic disrupted markets and economies globally. Investment banks had to adapt to remote working while dealing with volatile markets, distressed clients, and changing regulations. Some key investment banking trends that emerged in 2020 include an acceleration towards digitalization, a focus on cost-cutting and operational efficiency, increased M&A and restructuring activity, and tighter regulations. The pandemic put immense pressure on investment banks but also created opportunities for innovation and transformation. Going into 2021, trends like digital adoption, consolidation, and geographic expansion will likely continue shaping the investment banking landscape.
Accelerated digital transformation in investment banking
The COVID-19 pandemic forced investment banks to rapidly adopt digital tools and processes to adapt to remote work and virtual client engagement. Many banks that had been slow to digitize saw an urgent need to upgrade technology infrastructure and equip employees and clients with collaboration platforms like videoconferencing, cloud computing, and digital document sharing. Banks also increased use of AI, machine learning, and big data analytics to automate processes, improve productivity, and generate insights from vast amounts of complex data. Communication shifted from in-person meetings to video calls and digital channels. Investment banks will likely continue increasing technology investments and digitizing operations even after the pandemic subsides.
Focus on cost-cutting and operational efficiency
With revenue under pressure in 2020, investment banks focused intensely on reducing costs through headcount reductions, office space consolidation, lower travel/entertainment spending, and streamlining of operations. Banks accelerated existing restructuring and cost-saving initiatives to protect profit margins in the difficult environment. Organizational changes were made to remove management layers, combine business lines, and simplify complex matrix structures. Banks also reviewed internal processes to drive efficiency through automation, standardization, and shared services. These cost control measures are likely to remain a priority for investment banks even as revenue recovers.
Increased M&A and restructuring activities
The pandemic triggered a wave of M&A activity and corporate restructurings that benefited investment banks’ advisory businesses. Companies sought M&A deals to gain scale and efficiencies through consolidation. Many deals were opportunistic acquisitions taking advantage of depressed asset valuations. Restructuring demand rose as distressed companies required recapitalization and bankruptcy advisory services. Investment banks lean on sector expertise to identify M&A targets and restructuring solutions aligned to post-pandemic business conditions. With economies still recovering in 2021, M&A and restructuring activity will remain elevated as companies adapt their business models.
Tighter regulations and scrutiny
Investment banks faced increased regulatory pressures and scrutiny in 2020. As governments pumped liquidity into struggling economies, regulators focused on risk management and capital resilience of banks to ensure stability of the financial system. There were also growing concerns around employee wellbeing with remote work arrangements as well as diversity and inclusion issues amidst racial justice movements. Banks had to carefully manage compliance, reputational risks and governance while implementing cost-reductions. Stricter regulations are expected in 2021 on capital requirements, reporting, remote work policies, and ESG standards.
The COVID-19 pandemic accelerated several transformations in the investment banking industry during 2020 such as digitization, cost-cutting, structural changes, and elevated activity in sectors like M&A and restructuring. While recovery remains uneven, most trends signal greater efficiency, innovation, and consolidation ahead. Investment banks able to emerge stronger from the crisis are well-positioned for the post-pandemic era.