Morning Coffee: The dealmaker who turned out to be bigger than his firm. Deutsche Bank and BNP Paribas traders did very well

They say that there is no “I” in “team”.  But there are two of them in “private equity”, two in “billings” and there’s even one on in “Weil, Gotshal & Manges”.  Or at least, there was; despite having up until recently been a top Wall Street law firm with $2.1bn in revenue, Weil, Gotsal's management have reportedly hired restructuring firm Alix Partners to advise on winding the firm up. 

It seems that the catalyst for the firm’s rapid disassembly was the loss of Michael Aiello, the head of its corporate department and a significant dealmaker in his own right, who had advised on more than $110bn in M&A transactions. Aiello decided to go to Cravath, Swaine & Moore in September, and this seems to have destabilised the whole partnership.

According to commentators on the legal services industry, Weil had begun to fall behind its competitors in headcount and profits, as a result of paying out profits rather than reinvesting them in growth.  This made the firm vulnerable to having its attorneys poached by competitors, as anyone who was making good money there could be credibly promised even bigger opportunities at a practice with more clients.

There was apparently a certain amount of strategic disagreement between the partners over whether Weil should go for growth or remain small, which contributed to private equity partner Ramona Nee’s decision to turn down the chief partner role she’d been offered, according to the Wall Street Journal.  It can’t have been easy to manage such a conflict, particularly in the knowledge that nearly everyone involved might have had an offer to go somewhere else in their back pockets.

Aiello’s exit followed that of Chris Machera, co-head of private equity, who left for Paul Weiss in August. David Avery-Gee followed Aiello out of the door in September.  As many as 60 partners and associates left Weil over the summer and early autumn. The management committee tried to find a merger partner, but the talks fell through.

This sort of thing happens much less often in banking, and it demonstrates one of the key differences between banks and other parts of the financial profession.  Banks have capital, liabilities and infrastructure costs. This means that they can, and sometimes do, go bust, but it also means that there is an actual business there, distinct from its employees.  With a law firm (or a consultancy, or an advisory boutique), the people are literally all there is.  The company only holds together as long as the personal relationships do.  And there isn’t much to be acquired in a crisis; the competitors that Weil approached might have reasoned that there was no reason to give up any equity in a combination when they could just wait a few weeks and recruit the individuals that they wanted.

It also means that leadership and culture are even more important in these kinds of firms. Michael Aiello might not have realised that he was the load-bearing brick, but clearly a lot of his colleagues regarded him that way.  It’s frequently said that no individual player is bigger than the team, but that’s not always true.

Elsewhere, it’s been interesting to see that, although the bankers of Europe don’t have the megadeals and tech IPOs which drove profits for their American competitors, the traders of Europe can hold their heads high.  In fact, the equity traders at BNP Paribas saw revenues up 50% on last year, compared to an average of 43% for Wall Street (Barclays were almost as strong, up 47%).  Deutsche Bank’s fixed income desk did better than the bulge bracket in tough conditions, and Christian Sewing seemed to be quite bullish for the near future, saying that the current RoE target should be achieved and that this isn’t “the end game, not at all”.

It would probably be excessively optimistic to hope that this might be reflected in bonuses; European traders are likely to have to make a contribution to the capital markets and advisory compensation pools, while American traders will hope to take a share in the deal wealth.  But it’s nice to have some bragging rights, for once in a while.

Meanwhile …

William Evarts has a law degree, and a lot of experience with refinancing transactions for companies seeking to avoid bankruptcy.  But he isn’t a lawyer by trade, so it’s quite interesting to see him move from PJT Partners to be head of the “liability management” practice at Sidley Austin. One lawyer commented that this sort of move might become more likely as the top law firms are able to pay more, and need people who can drive business volumes. (FT)

You wouldn’t think that someone working for a top multi-strategy hedge fund would let a chatbot pick their stocks, but at a recent summit, leaders at Citadel, Bridgewater and Man Group agreed that there is a danger of “cognitive capture”, when teams grow to trust their AI sidekicks a bit too much. (Business Insider)

Hamza Lemssouguer is not used to  playing defence rather than offence, and the European junk bond market is not used to his fund slowing down its trading rather than bidding aggressively across the space.  It seems that the whole sector is worried that if the standout star of the last five years is having a tough time, can anyone make money at all? (Bloomberg)

Everyone with a net worth of more than £1bn in the UK is going to be assigned a personal “customer compliance manager” by the tax authorities, which sounds like a role combining concierge service with implicit threat. (FT)

Some private equity firms are trying to include clauses in buyouts which say that if the company is disrupted by AI, then that’s an act of God or force majeure and the default shouldn’t count. (Bloomberg)

Even a frontier model with a state of the art agentic harness seems to make mistakes like “leaving Erling Haaland on the bench” when you try to use it to win at fantasy football. (WIRED)