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Is the banking boom sustainable?

Investment banks continued to ride high in 2006 on good fundamentals and the added boost of strong hedge fund and private equity activity, proprietary trading and continuing globalization. Alex Chambers assesses whether they can sustain the good times in 2007.

The Champions League of investment banking

AS THE 2007 investment banking season gets under way the key managers in charge of marshalling the leading firms’ resources and directing strategy teams face serious challenges and uncertainties that will govern their success.

So how should managers position for the year ahead? All will be thinking about the need to invest in areas that have driven growth during 2006 and other recent years. Conditions have been benign until now – but nothing lasts for ever.

“The chances of an equity market correction are far greater than zero, the chances of something happening to the yield curve is also significant. The chances of a hiccup in the emerging markets, where there has been so much additional investment, are also significant. The chances of the credit cycle turning, and some of the credit portfolios becoming more difficult to manage, are significant. My sense is that no one thinks all of these things are going to happen, [but bankers] certainly expect some of them to happen which means it’s going to be a tougher year because everything last year was almost ideal,” says Scott McDonald, managing director, head of corporate and institutional banking at management consultants Mercer Oliver Wyman.

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