Thematic investment banking can work, but not overnight

Investment banks are always trying to reinvent themselves to market the same product with a more attractive package. Every so often, a macro-trend emerges and banks alight on the brilliant idea of creating “thematic” groups around whatever issue suddenly emerges as important in the opinion of senior leadership.

The issue du jour could be the energy transition, digitalisation, mobility, AI, reshoring, offshoring, healthspan, cyber, or now increasingly defence, resilience and industrial security. Last week GlobalCapital reported on JP Morgan’s expansion of its Security and Resilience Initiative into continental Europe.

The question is whether these kinds of initiatives reorient the bank to offer genuine expertise or just dress up the usual financial products with fancy marketing. In my view, they can be either. The distinction depends on whether the bank brings something differentiated to clients. Often they don’t.

At one level, you can understand the logic behind these initiatives. Corporate problems no longer fit neatly into traditional banking silos. Let’s posit a defence technology company. It might require M&A advice, export financing, supply chain financing, private capital, equity underwriting and government-related strategic advice.

Traditional investment banking structures — where industry teams and product specialists operate semi-independently, with a kind of irregular collaboration — can struggle to coordinate around clients whose challenges cut across multiple domains.

Even within an area it’s not always clear. Which investment banking industry group covers this client? The tech team or the aerospace team?

Thematic groups seek to solve this problem by organising the bank around the client’s strategic priorities rather than around the bank’s bureaucracy.

It reminds me of interdisciplinary study programmes at a university. In that sense, the model has clear merit. If a bank can properly integrate advisory, financing and capital markets capabilities around a sector undergoing structural change, clients may well benefit.

But this is where banks struggle to go beyond the sizzle of marketing to serve up the steak of substance.

Strategic insight alone is rarely enough. One of the enduring misconceptions within banking is that clients hire advisers because bankers possess superior sector insight. In reality, most sophisticated corporates understand their own industries far better than even the best advisors.

A defence company will understand procurement cycles; an energy firm will have a firm command of regulation; a pharmaceutical company knows clinical risk better than any outsider. The banker’s value is usually not in discovering truth nuggets unknown to management. 

There are exceptions where a banker can talk in detail about what competitors are doing in a way that a company finds valuable, but that’s rare and bankers have to be careful not to betray confidences when they insert themselves into the information flow in this way.

The real differentiators are access and capital. In advisory, thematic groups work best when a bank has become indispensable within an ecosystem. That means access to governments, regulators, institutional investors, strategic buyers or financing pools that competitors cannot easily replicate. Winning mandates often depends less on having the cleverest industrial thesis and more on whether the bank is trusted by the relevant stakeholders. 

That is why the GlobalCapital article’s discussion of relationships around defence groups and financial institutions is so revealing. Banks rarely win politically sensitive mandates purely because they have assembled a thematic task force. They win because they have spent years building credibility and trust with governments, sovereign shareholders and corporate leadership teams. A thematic structure can help coordinate those relationships internally, but it cannot create them overnight.

The same principle applies on the financing side. Sector specialisation only matters if it changes a bank’s willingness or ability to provide capital.

Historically, some banks developed distinct advantages in specific industries because they understood the risks better than competitors. They became the go-to institutions for underwriting loans or securities that others viewed as too risky or hairy. Sometimes this stemmed from decades of accumulated experience. Sometimes (especially in the halcyon pre-Spitzer era) it came from dominant research franchises whose analysts shaped investor opinion.

That latter advantage has weakened over time. Equity research no longer carries the same market influence it once did, partly because of regulation and partly because information is more widely available.

But financing differentiation still matters. If a bank develops conviction around a sector — whether defence, energy infrastructure or advanced manufacturing — it can become the natural lender or capital markets advisor for companies operating in that space. 

This is particularly relevant in Europe’s emerging defence ecosystem, where many of the growth businesses are small, venture-backed technology firms rather than traditional industrial giants. As these companies mature, they will require increasingly sophisticated capital structures and eventually access to public markets.

Banks that establish credibility early may benefit disproportionately later. But they will need to stick with it for years, not just deploy their troops opportunistically for a quick raid.

That is the strongest business case for thematic initiatives like JP Morgan’s SRI group. They allow banks to position themselves early around structural economic shifts before fee pools fully develop. In effect, the bank is making a long-duration relationship investment.

Ultimately, clients judge banks on whether they can deliver access, capital and execution when it matters. The reality is that most of these banks will have to lead with their balance sheets and show commitment to underwriting risk rather than collecting fees at the outset.

It’s not enough to establish a multilingual strike force of clever people; issuers will often be expecting more mundane things like multi-currency revolvers.

That is why some thematic groups endure while others disappear. The successful ones represent organisational expressions of an advantage the bank already possesses — or is prepared to invest in building.