The end of the bonus pay-out season has long been followed in pretty short order by a whirlwind of opportunistic hiring, equally opportunistic departures – and of course those raging theatrical walk-outs that we all love to gossip about.
Life’s not so tumultuous these days. For a start, we’re living in a world of cut-price bonuses with ridiculously drawn-out terms. We’ve also lived through some fairly chilling headcount reductions right across the industry as banks try to figure out a way through the maze of new regulation and altered business conditions. There’s been far less fluidity as a result.
But there’s been a distinct change in the pace of the investment banking hiring merry-go-round over the past few months and a material change in the nature of the hiring that’s going on.
Leading banks are hiring – or re-hiring – seasoned professionals from other leading firms into divisional head, co-head and other senior roles. They’re adding reams of product or segment chairmen and vice-chairmen to manage key client relationships, and they’re building out regional expertise as well as sector expertise in industry verticals where they perceive they have advantages and where they foresee an uptick in activity.
While it’s an industry development, the one firm I’d highlight in this context is Bank of America Merrill Lynch, where corporate and investment banking chief Christian Meissner has clearly got the bit between his teeth. The firm has been hiring senior bankers like crazy and looks to be making a serious grab for wallet-share as the fortunes start to turn in selected areas.
Most banks have now printed new strategic road-maps as they tone down their red-alert global-everything-at-all-costs fixations into something more realistic, achievable – and profitable.
Leading banks are hiring – or re-hiring – seasoned professionals from other leading firms
The edges are still blurred as they go through the process of fine-tuning but it’s clear they’re at last slowly exiting non-core areas or segments that don’t offer acceptable returns to focus squarely on how and where they can create value for their clients, their shareholders and – why not? – for themselves at the same time as struggling to cover their cost of equity.
To this end, they’re making great efforts to fast-track value creation through client engagement. Cost control is still in full swing as banks attempt to get cost-income ratios into shape in a still-uncertain (but hopefully upwardly sloping) revenue environment. But the level of senior hiring that’s taking place looks unprecedented in the context of the post-global financial crisis era.
At the industry level, the busy hiring is a de facto reversal of the “juniorisation” trend that’s been an inevitable result of well paid MDs being targeted for redundancy to enable banks to hit stringent cost targets. The hiring is partly also the result of banks back-filling where they’d over-cut, especially in areas such as equity capital markets and M&A, realising that these are specialist areas that can’t necessarily be run comfortably by coverage or generalist bankers.
ON A PROPORTIONAL basis – no surprise – the focus of hiring has been on investment banking rather than trading. That’s an obvious outcome given the state of play: FICC revenues at the leading banks halved between 2009 (US$141.4bn) and 2014 (US$69.4bn) according to the Coalition Index and they ain’t going back there, whereas IBD revenues rose 6% over the same period to US$40.5bn and look set to make a good showing this year.
Within IBD, global ECM volumes are up 15% YTD year-over-year, and M&A is raging: deal volumes were a whisker away from the US$1trn mark on April 10, 25% higher than at the same time last year and close to the previous best start of 2007. With the US$80.5bn Shell/BG deal getting everyone excited, I would think 2015 deal flow will easily surpass the all-time record of US$1.2trn set in the testosterone-fuelled tech boom of 2000.
As the product tectonic plates in investment banking continue to bump up against each other, the direction of travel is clear: trading revenues are not going back to their pre-crisis highs but banks can and need to do a lot to change their revenue proportionality by upping their primary markets activities (assuming that the equity cash and derivatives businesses remain more or less static).
GIVEN THAT FICC is sitting at that crucial juncture, I wasn’t, by the way, surprised to see global head of markets Eric Felder leave Barclays. In a weirdly worded memo, it’s hard to figure out if he was tin-tacked by a sharp-elbowed Tom King or if he just saw the writing on the wall.
Not long after he got his latest role a year or so ago, I’d written that he wasn’t necessarily rooted to the floor at Barclays. That was a pretty speculative comment at the time based on market chit-chat but it turned out to be spot-on.
With veteran trader, former CIB co-head and latterly head of non-core Eric Bommensath having gone through Barclays’ revolving door in January just as head of US swaps trading Kunal Maini was joining Credit Suisse as head of US linear rates trading; with global head of credit trading Fred Orlan having left last year for Jefferies; and others doubtless having walked too, Barclays’ FICC operation looks pretty unsettled.
But since CEO Antony Jenkins is making dark threats about the options, that’s perhaps no surprise. Barclays has had far too many changes at the apex of its banking and trading divisions. And I’m not convinced that appointing Joe Corcoran as an interim-only markets head will do anything to remove the overhang of uncertainty.