One swallow doesn’t make a summer, as the proverb goes. But a summer with a rush of M&A deals, plus some decent sized IPOs, seems to have changed the atmosphere on Wall Street.
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For example, earlier in the year, Goldman Sachs was reported to be considering whether it would need an autumn round of performance based layoffs, after the usual exercise in spring. That seems to be off the table now, and Goldman is back in the hiring market to strengthen its middle market team. JPMorgan has also hired as many as 100 senior bankers in the last year, which is the most it’s added for some time.
However, there are some serious caveats that need to be taken into account before everyone gets in party mood. The hot market appears to be concentrated on very senior bankers, with proven ability and relationships. Usually, senior hiring tends to lead the way, with “follow on” recruitment of Directors and Vice-Presidents to fill out the teams, but this isn’t always the case, and there’s much less evidence of activity even a little further down the tree.
And bankers who have been through a few cycles will be aware that the arrival of a lot of highly-paid newly recruited MDs, this late in the year, is decidedly mixed news as far as the bonus round is concerned. The new faces will be contributing hardly any revenue – even if they land a deal the minute they arrived in September, it will not necessarily close before January. But they will still need to be paid, quite possibly at a rate which reflects the surge in demand. It’s noticeable that although compensation guru Alan Johnson is quoted as saying that “the arrow is pointing upwards”, he (wisely) appears to be waiting to be sure that the summer revenue boost will continue before updating his public bonus forecasts.
The big question might be – is this a real hiring cycle, or are we actually seeing the normal “carousel” effect of Vis Raghavan’s changes at Citigroup? The conventional wisdom of the last two years has been that the investment banking industry can’t really have another boom until “financial sponsors” income recovers. And this hasn’t really happened yet; private equity funds got some deals away over the summer, and private credit continues to grow, but fund launches are down and the backlog of previous investments has hardly been cleared.
It’s good news, of course, if the biggest employers in the industry are still prepared to bet that the famous “dry powder” will be exploding into the market, and that they’re prepared to bid up the salaries of a small group of already very successful people. But we shouldn’t necessarily mistake that for a general improvement in hiring conditions across the industry. So be cheerful, but perhaps keep the champagne on ice for the time being.
Elsewhere, we noted last week that hedge funds which are doing really well often give interviews about how much they love their people. It’s also true, though, that hedge funds which are doing comparatively badly, like Man Group, also start to talk a lot about their “less cut-throat and more flexible culture”. The basic reason is the same – when your assets under management are growing fast you want to recruit, and when they’re stagnant you want to retain the staff you have.
In both cases, anything you can do to try and convince your employees that some things are more important than money might be valuable (although given the industry, it’s probably a doomed enterprise). As well as talking about what a nice bunch of people it employs, Man Group has also been tightening up its non-compete clauses.
The basic problem appears to be that Man Group, unlike other big multistrategy funds, is a quoted company, and its shareholders have a limited willingness to be “long term greedy”. Every year, it pays out substantial dividends and share buybacks, rather than investing the money in human capital. And since the staff are significant shareholders, who don’t want to see the price collapse, it’s difficult to stop the cycle. As the proverb goes, it’s better to be nice and rich than just nice.
Meanwhile …
Super Typhoon Ragasa has reached Hong Kong and at one brokerage, “it’s just me, one trader and our IT guy holding down the fort”. Employees of international banks have been encouraged to work from home if they can, but those whose presence is necessary are at least apparently being put up in good hotels. (Bloomberg)
No clues as to the name of the “international investment banker” concerned, but they must have been very rich, as they spent the equivalent of $2m on what they believed to be the art collection of a maharaja, but which (according to the trial of art dealer Rajesh Rajpal) was actually a bunch of fakes owned by a small-time farmer. (Indian Express)
Five thousand Citibankers are going to be taking part in a pilot project for “Citi Stylus Workspaces”, an AI agent that can apparently produce a client report from publicly available data and translate it into multiple languages. (WSJ)
The tragic story of Julia Phan, who seems to have left JPMorgan’s analyst program last year, and was later found dead at the home of “America’s Most Innovative Bartender”. (NY Post)
Gujarat International Finance-Tech City, or GIFT, was meant to be a gleaming jewel full of international banks, like London’s Docklands. It has achieved this to some extent, but it’s apparently a bit of a dead space with no community or nightlife, also like London’s Docklands. Even an exemption from the state-wide ban on alcohol hasn’t convinced bankers to stay there. (Bloomberg)
“Cutting the melon”? “Two dollar brokers”? “Pinholing”? Test your knowledge of archaic Wall Street jargon and slang with this quiz. (WSJ)
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