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Death of the leveraged financier

Guy Hands has hammered a few more nails into the coffin of the fast declining leveraged finance profession.

Mr Hands (he of EMI and bankers are whimpering dogs fame) says nastier times may be in store for bankers who make it their business to arrange financing for big buyout groups.

With bankers barely able (or quite simply totally unable) to fund their own writedowns, and another $200bn of LBO debt still in the pipeline, the Wall St Journal says Hands told a gathering of private equity types in Munich that funds are taking it upon themselves to hire their very own debt bankers to approach liquidity sources in the Middle East and Asia (AKA sovereign wealth funds) directly.

It doesn’t bode well for the average leveraged finance type, who’s already gagging for a deal or two in 2008. Redundancies have been restricted in the area so far (with the exception of CIBC), and headhunters say bonuses were surprisingly good, but the future doesn’t look bright.

“With a couple of exceptions, banks tried to make a positive statement to their people with regards to bonuses, but that was back in January,” says Bruce Lock at Kinsey Allen. “Since then the market has got a lot worse – there may be cuts anyway.”

Funds not hiring either

There has been some hiring in leveraged finance in 2008. Earlier this month ING, for example, announced it had hired David Ryba from Commerzbank to work on Eastern European deals.

Barclays Bank, Royal Bank of Scotland and Commerz itself are also said to be recruiting. “Most investment bankers won’t touch these places with a barge pole,” rues another headhunter.

For leveraged financiers who find themselves wasting away in the deal desert, there’s always the all-new debt financing teams of funds themselves to try for openings.

However, these teams may not be quite as new as Hands would have it. William Allen, a managing director and debt financing specialist at Houlihan Lokey, says everywhere from CVC to Bridgepoint and 3i already employ debt financing teams, many of them staffed by ex-bankers who saw the light and moved across before it was too late.

Nor does it appear that these and other funds will necessarily be hiring. “We already have our own debt department,” says the chief investment officer of one major European fund. “There’s no chance of us picking up leveraged finance people from investment banks – we’ll just make those we’ve already got work harder.”

Comments (3)

  1. Funds can hire or not hire debt bankers all they want (or perhaps make them work harder, whatever that means), but sovereign wealth funds aren’t going to solve this situation directly. Perhaps SWF can buy relevant positions in mezz loans of small LBOs, but the larger transactions won’t come to market again until the CLO market has stabilised (if that happens at all). Perhaps SWF can be candidates for CLO equity investments (but there are plenty out there anyways). The real problems is finding AAA funders for CLOs, and I don’t see SWF playing this sort of role. Nor would pure private equity funds have any role in convincing SWF take on such role. So…there is some obvious misinformation in this article.

    Ciccio Pasticcio Reply
  2. Guy Hands has just bought EMI.
    I wouldn’t ask him directions in case he cocked it up – let alone his view on the market.

    Charlie – Principle Investment Reply
  3. Overall its a wake up call for the “average leveraged finance type”. In 05/06 people were quick to jump in and ride the wave but do the majority really add value? as the market tightens, banks and funds have stepped up selection procedures to ensure only genuine quality/experienced hires are made as the deal volumes just aren’t there to support extra bodies. So investment bankers wouldn’t touch the Commercial Banks with a barge pole eh? I’d suggest these average bankers may stay out of work bankers if they remain that selective.

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