There are two rules for forecasting trends in the investment banking industry. First, look at what the banks are doing, rather than listening to what they are saying. And second, in any market, the intermediaries tend to know what’s going on earlier than their clients do. If you take these rules seriously, it’s beginning to look like we’re going to spend the second half of this year playing defense rather than offense.
Although senior bankers have, by and large, continued to talk up their prospects, there’s a distinct cooling in the labour market. According to Kevin Mahoney of Bay Street Partners (a headhunting firm), some banks are choosing to “push off ‘nonessential’ or ‘strategic’ hiring plans to the fourth quarter, if not 2023”.
Obviously, there’s a lot going on at the moment, so it’s not wholly inevitable that postponed recruitment will turn into cancelled recruitment, and then to layoffs. But this is the way that market cycles begin, and the real fear has to be that the last quarter’s equity market weakness is not all about war and uncertainty, but has more to do with expectations of recession and rising interest rates.
As we have noted a few times this year, the industry’s revenues have become very dependent on private equity funds. Indeed, when top bankers give optimistic speeches and interviews, their key data point tends to be the continued strong inflows into private equity, and the presumption that putting this money to work is going to continue to generate fees. In an environment of rising rates and falling expectations, though, financial sponsors might choose to “wait and see” for a while, with particularly bad consequences for ECM franchises.
Which means that if you’re in equity capital markets, now is the time to start thinking about career survival strategies. It’s probably too late to jump ship to a well-capitalised national champion with a long-term investment plan, but if you happen to be in possession of an offer, the trade-off between cash, prestige and job security should definitely be on your mind.
Otherwise, the key thing to remember is that, in order of vulnerability, the people who get fired in a revenue drought are rainmakers who aren’t making rain, victims of office politics and juniors without strong relationships. The safest position to be in is if you are still bringing in revenue. If you can’t manage that, you need a powerful sponsor at senior level who’s prepared to treat you as an investment.
Once upon a time, there was some safety in being so small and unimportant that nobody could be bothered firing you because it wouldn’t save much. As a result of two years of significant pay rises, there are pretty few bankers in that position though, including even junior associates. Paradoxically, expensive MDs hired early in the year are much safer. They tend to be late-cycle firings; nobody likes to admit a mistake, so the consequences of excessive hiring tend not to be addressed until after the person responsible for the strategy has gone.
It might all get better, or we might go into 2023 thinking that there were worse things than being staffed on three deals at once and working 80-hour weeks. Good luck, and remember the words of Andy Gove – “only the paranoid survive”.
Elsewhere, BNP Paribas has seemed at some points to be one of the more generous banks in terms of permitting remote working. However, they apparently have limits. When one of their senior bankers with responsibility for real estate lending in the northern city of Lille decided that she wanted to live on the Mediterranean coast with her family, they demurred. Apparently even when Sandrine Sustar volunteered to make the nearly 800km (500 mile) trip to the office once a week, the bank decided that nobody else was allowed to work completely remotely and they weren’t going to make any exceptions.
Now it’s ended up as a lawsuit, with Ms Sustar claiming that this was unreasonable and that she is entitled to €100,000 for constructive dismissal. Anything can happen in a French employment court, but at present she’s on a course to become an interior designer.
The remuneration busybodies at Glass Lewis have their sights on Asoka Woehrman of DWS, complaining that a significant increase in his base pay (and that of some other directors) isn’t sufficiently linked to performance and is likely to rebase future bonuses upwards. Institutional Shareholder Services are less worried, although they do wish there was more detailed explanation. (Financial News)
Crypto wunderkind Sam Bankman-Fried has claimed that he would be willing to spend $1bn on campaign contributions in the next Presidential election, which would make him the biggest donor ever. In many ways, the most audacious thing about this claim is that a crypto billionaire is making plans for two years’ time. (NBC)
Easy come, easy go – MSP Recovery is a company that claims refunds for wrongly made Medicare payments. It went public in a SPAC transaction with a valuation of $21bn and fell 60% in the first hour of trading. This doesn’t feel like a bull market, to be honest. (Bloomberg)
Hire now, fire later – employees of BNPL fintech Klarna have been told to work from home all week, to respect the privacy of 700 colleagues who are being invited into the office for a “meeting regarding your role at Klarna”, which is what it sounds like a euphemism for. (Business Insider)
For those interested in banking WAG news, it seems that John Paulson’s divorce is getting “ugly” … (Daily Mail)
… while Diana Jenkins is describing herself as “the new villain” on Real Housewives of Beverly Hills (Hollywood Life)
Women went to a lot more virtual conferences during the pandemic, compared to the number of real-life conferences they had previously attended. This seems to be mainly because of cost and travel, although it might have helped in some cases if the actual conferences were less hellish. (WSJ)
Ore Adeyemi, an MD in HSBC’s internal venture capital arm, has left for the West Coast to start up his own VC fund. He’s taking Tom Bussey and Thomas Caine from the bank with him. (Bloomberg)
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