If banks are going to cut jobs in their investment banking divisions, they will do so after September 5, or Labor Day in America.
That’s according to veteran banker Ken Moelis, speaking to investors after last week’s earnings announcement for Moelis & Co., the investment banking firm he runs and which carries his name.
“I worked in big banks. The word just gets around Labor Day to look at your workforce having a bad year,” Moelis said. “It’s just the way the cycle works… They’re focusing on the bonus pool somewhere in September.”
If banks want to preserve the bonus pool for top performers, they may need to make fairly drastic headcount cuts in investment banking divisions (M&A and capital markets). US banking analysts at Deutsche Bank noted that investment banking fees fell 48% across US investment banks in the second quarter, with equity capital markets (ECM) down 79%. %, Debt Capital Markets (DCM) down 50% and M&A Advisory down 12%.
Despite the disastrous earnings, Moelis himself has indicated that he has no intention of chopping off heads. Instead, he said Moelis & Co. would be “aggressive” in recruiting as other banks pull out. The company has already added two chief executives in the last quarter, including Evercore’s John Kimm. M&A and restructuring revenue will rebound, Ken predicted. Although the market is currently digesting “all bad news you can possibly think of,” Moelis optimistically predicted that mergers and acquisitions would pave the way for this rebound and financial sponsor (private equity firm) activity would pick up in the first place. Until then, he said that even though the ECM and DCM vanilla deals are difficult to get off the ground, there is still a need for financing and that Moelis & Co benefits from structured financing.
Ken’s exuberance comes as Lazard also seems quite positive. Peter Orszag, managing director of Lazard’s consultancy business, told Financial News that he plans to recruit 10 to 15 managing directors this year, across healthcare, technology, media, the German market and private credit. Citi is also hiring bankers focusing on technology, healthcare and financial services.
Recent weeks have seen various senior recruits arrive in new roles. Adrian Beidas is believed to have moved from UBS to Barclays in London. Javed Jinnah reported to Credit Suisse in New York as MD in Insurance Investment Banking. George Kacharava came to BofA in London as vice president of technology banking, for example.
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