Sometimes you only appreciate an exceptional moment in retrospect. In 2021, investment bankers of the world may be simply too exhausted to acknowledge that this is a once-in-career boom. But it is, and it's not over yet.
When U.S. investment banks lined up to report their results last week, bank after bank among them reflected on the extraordinary increase in fees earned from M&A advice and equity capital markets (ECM), and the fact that - for the moment - the boom shows no sign of abating.
At JPMorgan, for example, CFO Jeremy Barnum said that M&A fees at the bank tripled in a market that doubled during a record quarter. At Morgan Stanley, CEO James Gorman said M&A bankers had their own record quarter and that the pipeline remains strong. Morgan Stanley CFO Sharon Yeshaya said cash raised earlier in the pandemic still needs to be put to use by financial sponsors (private equity funds), that the "pie is changing" and that "corporations are looking for growth."
For bankers hoping for a rest over the holiday season, the message is clear: it won't happen yet. Nor will early 2022 bring much respite. The fourth quarter can be quiet, said Devin Ryan, a senior research analyst at JPMorgan Securities, but this year it won't be quiet at all. Plenty of SPAC deals are still working through the system, and they will drive M&A revenues. "Deals are going to close in the fourth quarter, first quarter, second quarter of next year. So that revenue line is going to get better," said Ryan. M&A announcements this year are running at $6.5 trillion in annualized volume; in the previous record year (2007), they were running at $4.5 trillion.
With the boom likely to continue into 2022, banks will be reluctant to part with bankers and will therefore be under pressure to pay strong bonuses for 2021. However - and despite some excitement about the impact on pay - there's little sign that compensation is by any means keeping pace with revenues. At JPMorgan's corporate and investment bank, compensation spending is up 11% year-to-date; M&A fees earned are up 85%. At Goldman Sachs, compensation spending per head is up 27% year-on-year, while M&A revenues are up 105%. Most U.S. banks crowed about their "operating leverage" last week, as costs stayed comparatively stable alongside the flex in revenues. In an industry where single digit returns on equity had become a norm, double-digit returns are now everywhere. - The big beneficiaries of the boom are the shareholders.
If you're a worn out investment banker who's spent 2021 juggling multiple deals, this doesn't make it a bad time. - In terms of pay and bonuses, now is about as good as it's likely to get. However, it may mean that if you wanted a rest before summer 2022, the best way of achieving one would have been to swap jobs in the third quarter. Doing so made eminent sense: not only would you have been able to negotiate an excellent pay package at your new place, but you'd get a couple of months' gardening leave in the run-up to next year. Given that the boom is expected to continue, you probably also had your entire bonus bought out as banks competed to hire you. This might explain the rush of senior banker recruitment announcements at places like Citi recently.
Separately, there's said to be some peevishness at Goldman Sachs, where senior executives have reportedly been compelled to move out of plush offices on the 41st floor of the 44 floor New York headquarters and to hang out in a "grid of cubicles" accessed via a spiral staircase from the new "Sky Lobby" on the 11th floor. The move is an initiative of CEO David Solomon, but Solomon is said to be "traveling all the time" and is therefore absent from the cubicles anyway.
Citi has been hiring investment bankers. It's added 200 bankers across its corporate and investment banking arms globally, including in its technology, health care and financial technology practices. (Bloomberg)
David Solomon, CEO of Goldman Sachs, said that even when activity slows, investment bankers will still have more to do than before because the fee pool will be larger by virtue of, "growth in market cap of the world and the growth in economic activity in the world." (AlphaStreet)
The Bank of England says the crypto market could cause a financial crisis. It's double the size of the sub-prime debt in the U.S. on the eve of the financial crisis in 2008 and needs to be urgently regulated, said the Bank. (Bloomberg)
Top Citi trader Matt Zhang has left to start a $1bn crypto fund. (Bloomberg)
Goldman's share price is up almost 50% this year but it trades at just 10 times forward earnings compared to 14 to 15 times at Morgan Stanley, JPMorgan and BofA. Despite Goldman's growing consumer banking business, it's still seen as a risky investment bank. (Financial Times)
There are more women than men on Goldman Sachs' core internet banking team. "We often find ourselves on deal teams where the full GS team is women, and that’s something we’re proud of. It’s also something that stands out to our clients." (Bloomberg)
Pension funds are piling into alternatives in search of returns. “Alternative” investments now comprise 24% of public pension fund portfolios, up from 8% in 2001. (WSJ)
It's a confusing time to be a venture capitalist with in-person meetings. Sometimes you're required to take a COVID test first. Sometimes you mask-up in the elevator and unmask in the meeting room. “It feels like a bad middle school dance where no one is sure how close to get to the other person.” (Bloomberg)
Nik Storonsky of Revolut has opened a family office to manage his $7bn wealth. (Sifted)
French parliamentarians were previously known for their six-hour champagne-fuelled lunches with 22-year-old “research assistants.” (Financial Times)
London taxi firm Addison Lee is offering £5k ($6.9k) for four weeks of work to recruit drivers amid a nationwide shortage of staff. (Bloomberg)
BlackRock’s Larry Fink, Blackstone’s Stephen Schwarzman and JPMorgan’s Jamie Dimon are getting on a coach to see the Queen as Britain attempts to woo billionaires in the recent style of France. (Bloomberg)
"I’ve been that girl on a Friday night going into London, dressed up to the nines, trying to meet a banker, and I’ve dated footballers. But I will never stop working or rely on a man to fund me and give me what I want." (The Sun)
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