Talent, Revenue Shifting to Boutique Investment Banks
The $500,000 cap on executive pay at TARP banks has sparked concerns that the government is likely to over-regulate the entire industry…laying out the welcome mat for top talent at smaller firms. The WSJ, CNBC, Crain’s New York and the FT have all published recent reports that right now big earners will seek other opportunities, as bonuses at TARP banks are a “tough-to-justify proposition.” The talk now is that boutiques are the place to be - from existing banks, to new ones that will be created in the near future, to foreign firms that would not be part of the government restrictions. Executive search firm, A.E. Feldman says the pay cap will undoubtedly help boutique investment banks attract and recruit top talent. CNBC goes as far as to suggest the shift of revenues and talent to smaller firms that would ensue could create a “new two-tier system on the Street: the old staid regulated firms and the more dynamic smaller firms.”
President Barack Obama’s cap on executive pay at TARP banks is a striking reminder of how the balance of power is shifting on Wall Street – “away from the big banks reliant on federal aid and to foreign-based or boutique firms that haven’t required any bailout money,” according to the WSJ. The report describes perceptions of the new guidelines on executive pay as “an evisceration of a professional culture rooted at the likes of J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and Citigroup Inc.”
That said, the WSJ argues that investment bankers are wary of signing up for several more years of reduced bonuses, shame and scrutiny from Capitol Hill and the other perceived consequences of taking government money. The report also notes these execs are sending out résumés and making calls to smaller investment banks, also known as boutiques, as well as European banks that haven’t taken government money, such as Credit Suisse Group AG and Deutsche Bank AG.
Josef Ackermann, Chief Executive of Deutsche Bank (which has not received government funds), predicts that President Obama’s proposed $500,000 cap on executive pay at U.S. banks that accept TARP could help it recruit their most talented people, according to the FT. The report quotes Ackermann as saying, “If you are only going to be able to pay a $500,000 bonus, I think talent will be happy to work for us. At the end of the day, this is a people business, about who has the best talent.” In fact, Deutsche Bank just hired 12 of the financial-institutions-group bankers it had sought, including Merrill Lynch Treasurer Eric Heaton and his brothers David Heaton and Seth Heaton, reports the WSJ.
Meanwhile, the trend has produced a number of prodigal children as investment bankers who left boutiques to seek their fortunes at larger firms are finding their way home. A.E. Feldman reports that 2009 is shaping up to be a great recruiting year for boutiques. In fact, the WSJ quotes Scott Bok, Greenhill’s Co-Chief Executive, as saying, “It’s clear that in the first few weeks of 2009 we’re in an even better recruiting environment than we were last year. It’s an absolute flood of inquiries.”
Deutsche Bank and Greenhill are not alone. More and more boutique investment banks are looking to expand their ranks. Sonenshine Partners has hired a banker to boost its restructuring practice, as it looks to capitalize on business from companies running into trouble due to the financial crisis, according to Reuters.
Boutique investment banking firm Marlin & Associates has also grown its staff, according to Money.com. The report states that the Washington, DC-based boutique has added two senior executives to its M&A investment banking advisory team.
A number of boutique banks are using the bonus disappointment to “pitch their virtues to clients and potential hires alike, particularly in contrast to the perceived failures of trading systems and risk management at larger rivals,” according to the WSJ.
A recent Crain’s New York report echoes this sentiment, stating, “As big banks become more risk-averse, rainmakers could lead a brain drain of investment bankers to other financial firms such as investment boutiques, boosting an important sector of the securities industry.” According to Crain’s this is evidenced by the fact that Moelis & Co., a boutique firm that former UBS investment banking president Kenneth Moelis founded 18 months ago, recently jumped into prominence on a Bloomberg list of the top 20 counseling companies for its work on InBev’s takeover of Anheuser-Busch. Crain’s also quotes Dan Ramsden, Managing Director at Near Earth, a boutique focused on the satellite, media and telecom industries, as saying that specialization has positioned boutiques to thrive in an era in which access to capital markets is limited.
Are you an investment banker? If you want to grow your career or discuss your firm’s talent needs, contact A.E. Feldman’s President, Mitch Feldman today.
