If you want to work a 40 hour week, investment banking is not the place to do it. One junior investment banker got in touch with us via Twitter to say he's usually done 40 hours by Tuesday - or maybe Wednesday. "I normally hit 40 hours by late on Tuesday," he claimed - before admitting that he was exaggerating (slightly): "I work a 15-17 hour day on average, so maybe Tuesday was an exaggeration. But I usually work an 80-90 hour week if you include weekends and I haven't had a summer holiday for the past two years because we were executing transactions."
Welcome to the life of the junior investment banker - a creature for whom work is almost everything. Unsurprisingly, many junior bankers burn out or simply quit banking altogether. Those who don't aspire to the next level, but opportunities to move onwards and upwards are disappearing - especially if you work in M&A at a big bank. And the lack of opportunities is causing tension internally.
In the past, junior investment bankers worked long hours to rise up through the hierarchy and become managing directors or senior vice presidents with access to clients. But as investment banking fees have faltered, banks have been chopping senior staff. Last year, for example, Credit Suisse cut senior investment banking staff in Europe by up to one third (with seemingly disastrous effects on its revenues). Morgan Stanley, Barclays, and Nomura have also been disproportionately laying off expensive senior people, while Goldman Sachs has made it more more difficult for mid-ranking bankers to get promoted.
In the new challenging environment, big banks have adopted a different model, said Lee Thacker at search firm Silvermine Partners. In the past they had different senior people selling different investment banking products to clients,. Now they have one or two senior 'multi-product origination bankers' selling the whole lot.
"Banks are using a single point of contact who can sell equity capital markets, debt capital markets products, loans and M&A products to clients. The best bankers will try to elevate themselves into this kind of role," he said.
This also means that there are fewer senior roles to go around. "The pyramid has become a lot steeper," Thacker added.
Multi-product origination is nothing new: big banks have been pushing a multi-product model for the past five years. What is new is that M&A bankers' status within multi-product teams has fallen. If you work in M&A, your likelihood of making it to the multi-product origination pinnacle at the top of the banking hierarchy is particularly low, according to those who've been there - and tried.
"If you work in M&A, your influence will depend upon the fees you're bringing in relative to the debt and equity capital markets bankers," said an until recently former head of M&A at one international bank, who spoke on condition of anonymity. "When the fees a bank earns from debt capital markets (DCM) and loans are much higher than from M&A advisory work, then DCM bankers ride roughshod over the M&A bankers," he said.
Some M&A bankers might disagree. Andrea Orcel, the new head of UBS's investment bank, came from an M&A background and hasn't done too badly, for example. However, there are definite indicators that M&A bankers are becoming the poor relations. As Goldman Sachs analysts have pointed out, M&A fees are stalling, whilst underwriting fees prove far more resilient. In the first quarter of 2013, fees from DCM deals were more than three times higher than fees from M&A deals at JPMorgan and nearly seven times higher than fees from M&A at Deutsche Bank. Even at Morgan Stanley, traditionally a more M&A-focused house, DCM fees were 1.6 times higher than M&A fees in the first three months of this year. M&A bankers are losing out.
DCM bankers' success means that they're selected more often for the desirable multi-product origination jobs, said Thacker. "M&A people are only seen as offering access to one part of the business - M&A, whereas equity capital markets [ECM] and DCM bankers are seen as offering access to both those verticals," he said. "Also DCM bankers have been busier than M&A bankers in recent years and are seen as having stronger client relationships."
DCM bankers' desirability was underscored by a recent study from academics at the University of Notre Dame. After studying 20,000 M&A transactions and public and private security issues by U.S. firms between 1996 and 2009, the academics came to the conclusion that relationships between banks and clients were weakest in M&A, and strongest in ECM and DCM.
So what should junior M&A bankers who are on track for burnout and unlikely to rise to the top of the pile do?
The junior banker we spoke to said he might one day get out of banking and into a corporate development role. Alternatively, there are always M&A-focused banks and boutiques. Goldman analysts said M&A boutiques are achieving an increasing share of M&A fees, with Lazard for example, increasing its market share from 7% in 2003 to 16% in the first quarter of 2013. Banks like Evercore have been hiring very selectively at a senior level.
The former head of M&A we spoke to said his advice for junior and mid-ranking M&A bankers in the current environment is to get some training in a big bank before moving to a boutique. "Working for an integrated investment bank will give you access to a franchise and to clients who might not otherwise see you," he said. "But if you stay for too long, you'll get the cr*p kicked out of you internally by the DCM bankers who are bringing in the fees."