There was a time of ‘making hay while the sun shines’ – but now the good times in deal making are fizzling out. The boom of 2021 led to record fees of $130bn for the sector, prompting investment banks to dish out bonuses not seen since the heyday prior to the 2008 financial crisis. Certainly, times have changed.
“People are hunkering down and most are unwilling to make a move,” said the head of one Wall Street bank, speaking under the condition of anonymity. “The bonus increases of last year will be wiped out in 2022 at least. The fear is that there could be cuts later this year.” Fee income for M&A, capital raisings and other transactions fell by 37 per cent to $32.1bn so far this year, according to data provider Dealogic, with a 70 per cent fall in equity capital markets activity leading the decline. Senior bankers who were contacted said deal-making activity had deteriorated.
“The current slowdown has hit people’s psyche,” said the head of European investment banking at a major Wall Street bank. “It is difficult to prise people out. In a volatile market, they need faith that the bank they are moving to is growing or they will stay where they feel safest,” they added.
In public, at least, there are signs of optimism. A wall of private equity money, geopolitical shifts and a rising tide of ESG-related work is keeping some types of deals going. At a panel of senior dealmakers at Davos, Peter Orszag, chief executive of Lazard’s advisory business, pointed to the “emergence of a European superbloc” that would prompt more cross-border activity and have “significant implications for M&A transactions.” Global head of corporate and investment banking at BBVA, Luisa Gomez Bravo, said there were “financial conditions underpinning huge uncertainty” that did not exist this time in 2021. When bonuses landed in the accounts of staff earlier this year, banks went all out. The bonus pool at Goldman Sachs increased by up to 50 per cent compared to a year earlier, and there were similar increases at JPMorgan and Bank of America.
While the swiss bank, Credit Suisse cut its bonuses by 32 per cent, it also put out a new programme to pay its dealmakers more cash upfront in an attempt to ensure it did not lose senior talent. “When bonuses were paid, I was expecting to lose a big chunk of senior people,” said the head of European investment banking. “That didn’t happen, which is reflective of how the market has changed.” During the first quarter as deal-making fees slumped, Goldman Sachs reduced the amount it spends on pay for London-based staff by 66 per cent. The US bank shaved off $1bn in compensation costs during the first quarter for employees at its Goldman Sachs International branch, a figure that reflects how much it expects to spend on staff bonuses in 2022, according to newly released accounts.
The $539m it put aside for compensation in the first quarter of this year is down from $1.6bn at the same time last year when investment banks were getting ready for a record year.
The US chief executive of a large European bank said that the hiring market on Wall Street had rapidly cooled over the past couple of months and he sees this continuing. Meanwhile, the global head of investment banking at a Wall Street firm said that the “hyper hot” recruitment market of last year was over.
He said: “There are pockets of the business where it remains incredibly challenging to hire – technology, healthcare, fintech and ESG expertise are very tight. Elsewhere, the craziness is levelling off.” (The writer is our foreign correspondent based in the UK)
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