With financial regulation and large losses as a result of the Financial Crisis, the major bulge bracket investment banking firms on Wall Street have given up revenue growth and market share to smaller banking boutiques. While the household names at the top of the market share charts haven’t changed, the lower end of market share stats have the favored smaller firms who have capitalized on particular niches and also enjoyed better hiring trends from people wanting to leave bigger firms.
Regional investment banking firms typically have a smaller geographic focus or have been started by dissatisfied employees that spent a lot of time at larger bulge bracket companies. Regional firms have names like Jefferies, Raymond James, Lazard, and Greenhill to name a few. Jefferies, for example, focuses on the middle market and helping mid-size firms with their capital raising needs. A lot of times these mid-range type deals are not interesting or big enough to draw the interest of the biggest banks, and Jefferies has served this market well for several decades. Greenhill is an independent mergers and acquisitions company started by Bob Greenhill, a leading M&A executive, that spent a lot of time at a major bulge bracket firm and wanted to start a new, smaller independent company with only one line of business to avoid conflicts of interest.
While the revenue pie of the entire industry has shrunk between 2010 to 2012 from $111 billion to $94 billion in revenue, it has been the bulge bracket investment banks that have borne the brunt of this decline. In aggregate, companies including JP Morgan (JPM), Citigroup (C), and Goldman Sachs (GS) as a group 1 have seen their top line sales decline by over 20% during this time. Conversely, the segment of smaller firms 2 including Raymond James (RJF), Lazard (LAZ), and Piper Jaffray (PJC) have capitalized on this trend and grown their revenue bases by 33%.
While the regional firms in aggregate still only total 10% of the industry’s market share in revenues, this total market share has grown significantly from just 6% in 2010. The leaders at the top of the banking industry include JP Morgan, Citigroup, and Deutsche Bank, standings that haven’t changed over this three year period. However, the market share of these smaller, scrappier firms continues to pick up incremental lost market share from the big firms year-to-year.
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