The past few weeks have offered a familiar reminder that markets rarely sit still for long. War in the Middle East has triggered sharp swings in oil prices and a renewed sense of geopolitical risk in global markets. Equity indices gyrate all over the place in a single day. Credit spreads widen, tighten, then widen again.
For investors it can feel unsettling. For investment banks, however, this kind of environment prompts a familiar conversation: which are the institutions and which are the departments that can truly operate and flourish in all weather?
The idea of the all-weather bank is an appealing one. In theory it describes a firm that can generate revenue across different market conditions rather than relying on a single part of the cycle.
In an upswing the formula is obvious. When confidence is high and valuations are rising, deals tend to follow. Companies pursue mergers or investment, sponsors sell assets, and initial public offerings return to the market. The pipelines for advisory and capital markets fill up. Investment banks thrive in those periods because there is simply more corporate activity to intermediate.
But the real test of an all-weather model comes when conditions deteriorate. In downturns the challenge is not simply the absence of deals but the changes in what clients need. When markets are volatile, capital becomes more valuable. Investors demand higher returns and companies begin to think about liquidity, balance sheet resilience and access to funding. In those periods the ability to underwrite and raise capital quickly — whether through equity, debt or hybrid instruments — becomes critical.
Trading businesses also tend to benefit during these phases. Volatility, after all, is the raw material of trading. When prices move sharply and investors reposition their portfolios, market-making desks often see higher volumes and wider spreads. It is one reason why many universal banks have historically argued that a diversified model allows trading revenues to offset the inevitable slowdown in advisory work during turbulent periods. It also explains why the trading arms of the big banks made huge profits at the outset of the Covid crisis in March 2020.
Periods of acute stress can also be especially lucrative for capital markets teams. When companies need to strengthen their balance sheets, they often have little choice but to act quickly. Rights issues, accelerated equity placements and other forms of recapitalisation become urgent priorities.
Liability management exercises, debt exchanges and covenant amendments also rise up the agenda as issuers look for ways to stabilise their capital structures. In those moments the investment bank’s role expands. It is no longer simply facilitating a transaction but helping a client navigate a financial emergency.
While 2009 was hardly a golden age for mergers and acquisitions, it proved to be a remarkable year for equity capital markets
History offers plenty of examples of this dynamic. After the collapse of the dotcom bubble in the early 2000s, the market for traditional IPOs was effectively shut for several years. Yet equity-linked products continued to flourish. Convertible bonds, in particular, benefited from heightened volatility and the ability to offer companies relatively low coupon costs while still attracting investors seeking upside exposure. By my recollection, equity-linked deal work accounted for around 40% of EMEA ECM revenues in 2002 and 2003. For many equity capital markets teams, the early part of that decade was surprisingly productive despite the absence of a functioning IPO market.
The pattern was repeated during the global financial crisis. While 2009 was hardly a golden age for mergers and acquisitions, it proved to be a remarkable year for equity capital markets. Banks, insurers and real estate companies all needed to rebuild their balance sheets after the shock of the crisis. Huge recapitalisations followed, generating a surge of rights issues and other capital raisings across Europe and the US. I had never been so busy in my career, and the bounce-back in revenue generation was astonishing.
The early months of the pandemic produced a similar effect. In 2020 many companies rushed to raise equity and debt as the economic outlook darkened overnight. Capital markets desks worked at extraordinary speed to place new shares, issue bonds and arrange emergency financing. Then, as monetary policy loosened and liquidity flooded the system, the pendulum swung again. The IPO market reopened with remarkable force, triggering a wave of listings and follow-on deals that carried on into the following year.
If these episodes tell us anything, it is that different parts of an investment banking franchise tend to dominate at different moments in the cycle. The challenge for banks is ensuring they have enough breadth, depth, and balance sheet strength to capture whichever opportunity emerges. Being able to take companies public in buoyant markets is valuable, but it is equally important to have the capability to underwrite financings when conditions deteriorate. Loan markets, rights issues, convertible bonds and other equity-linked instruments all become critical tools.
In that sense, the true meaning of an all-weather bank is not that it is immune to cycles. No institution is. Rather it is a bank with sufficient product coverage and structuring expertise to adapt as the environment shifts. When optimism reigns, it can help clients pursue strategic expansion through M&A and public offerings. When volatility surges, it can help them secure funding, repair their balance sheets and manage their liabilities.
The worst environment for banks is something quite different: a slow, grinding downturn in which markets drift lower but without the kind of acute stress that forces companies to act. In those periods activity simply fades away. Managed decline is the worst of all worlds in many ways. There are few IPOs, little M&A and no urgent need for recapitalisation. Volatility is too low to energise trading desks but confidence is too weak to encourage dealmaking. It is the financial equivalent of a windless day for a sailor.
That is why many banks benefit from bursts of volatility, even if they would never say so publicly. Movement — whether driven by politics, macroeconomics or commodity prices — tends to create opportunities somewhere within the franchise. The institutions that prosper are those positioned across the full waterfront of products, ready to respond whether the market is booming, convulsing or somewhere in between.
In investment banking, surviving the storm is one thing. Learning how to work with it is quite another.