"Bankers who lost their jobs are down to 6 months' spare cash"
A former colleague - a managing director at European investment bank who was let go earlier this year, is not finding life easy. Five months after he was cut, he's down to six months' spare cash. He's getting to the stage where he will accept anything.
He is not alone. There is a presumption that well paid people in finance are highly solvent and will remain so for a while, even if they are not currently employed.
That presumption is wrong.
When you are a managing director in a bank with a non-working spouse, with three privately educated children and a mortgage still to pay, life is expensive. When you lose your job in banking, and you have this kind of lifestyle, money disappears fast. Most people can keep going for six months to a year, but no more. At that point they need to find a new job or to start selling their investments.
The problem is that there is nothing that pays as well as a job at a leading investment bank. And so when top banks are barely hiring, you only have a few options. You can take a job at a less well known bank to stay in business, but you won't get the depth of product and may find it difficult to return. You can go into corporate development and accept a pay cut. Sometimes you can go into private equity, but this is tough if you're mid-level or beyond. Or you can sit out of the market.
This year I've seen a lot of people moving into corporate development. But if you're a senior banker, particular from an equity capital markets background, this can be a challenging move. Corporate development is about defining and executing salary, maybe through a series of bolt-on acquisitions. The overlaps with banking, even with M&A are very small. Bankers are used to valuation and negotiations, but this is a tiny part of the corporate development role. To be good at corporate development, you need to be able to create a 100-day plan and to understand how two companies' systems will operate together. If you're from banking, you'll know almost nothing about this.
The best option, clearly, is not to lose your job in the first place. When there are few M&A deals and almost no IPOs this is difficult. You need to find something to do. If you're in ECM, for example, you can work on equity-linked deals. If you're in M&A you can conduct strategy reviews and meet clients about suggested targets for when times are good.
The problem is that in many ways, this has been the worst kind of crisis. There have been very few large cap IPOs to bring in revenues. There have been very few M&A deals and therefore no need of M&A financing. And there has been very little in the way of recapitalization because few corporates are distressed. It was much easier after the financial crisis, when there were loads of rights issues. In the current market anyone with a levered balanced sheet fixed it in 2020 or 2021 when debt was incredibly cheap. Debt is now a lot more expensive. There is a lot less to be done and bankers' rainy day funds are running dry.
Ashley Bennett is the pseudonym of a former head of ECM in London
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