If you work in M&A or capital markets (collectively known as IBD), you may be a loss leader. Don’t, therefore, expect to get paid anything like your colleagues in sales and trading roles.
There have always been suspicions that M&A bankers aren’t great for the bottom line (RBS’s don’t appear to have been profitable, for example), Nomura’s results today confirm this to be so.
Unusually among banks, Nomura breaks out the profitability of its investment banking (defined as capital markets and advisory) division specifically. For three of the four quarters of the year ending March 2012, it made a loss.
As the chart below shows, building an investment banking business is a slow and tortuous business and despite a lot of investment and some recent success in winning big deals, Nomura’s investment has yet to come to much. In the meantime, investment bankers are rather expensive.
Macquarie appears to have reached the same conclusion: its results, out today, reveal that the SD Allen, the group head of risk, is now earning AU$2.2m, a lot less than AJ Down, the head of FICC (AU$3.8m), but a lot more than Tim Bishop, whom the Sydney Morning Herald points out is Macquarie’s Investment Banking head (AU1.1m).
At top levels, it would appear that M&A is less lucrative than risk. M&A analysts slaving over pitchbooks may want to bear this in mind.
Separately, Nomura makes much today of the fact that its EMEA revenues were the strongest for four quarters in the three months to March, and that it made a (small) profit in its wholesale business in the last quarter.
This follows 339 redundancies at Nomura in Europe over the past year and a sudden switch from hiring to firing at Nomura in America since December (see chart). Having been party to figures released by Nomura in Tokyo, the Wall Street Journal reports that Nomura’s European business remains unprofitable, whereas the US posted profits for the most recent quarter.
Will there be more redundancies at Nomura? Last year, it seemed Nomura might slash thousands of staff in Europe. However, those fears appear to have come to nothing. Nomura says it’s already 82% of the way through its personnel-related cost savings, implying there may only be another 75 jobs to go.
The bank appears to be slashing costs elsewhere (eg IT spending) instead.
What's happened to headcount at Nomura:
Macquarie, meanwhile, has been cutting too. Over the past year, it’s cut 1,300 jobs in total, including 700 jobs from its corporate business, 600 from Macquarie Securities and 182 in investment banking.
Many of the cuts were apparently in Australia and were particularly in areas like IT and operations, where there was duplication. Quite a few also appear to have happened in London, where the graph below from IMAS reveals a distinct decimation of headcount at Macquarie Capital since 2010. Notably, this is Macquarie’s M&A and capital markets arm.
Registered persons at Macquarie Capital Europe:
Even though return on equity at Macquarie remains a dire 6.8% (versus a target of 15%), Macquarie seems to think its redundancies are pretty much over.
"The size of our workforce is under review all the time. But I would think we should be pretty well close to where we we think we should be," said CEO Nicholas Moore.
Notably, while Macquarie has been trimming M&A bankers in Europe, it has been adding risk staff globally. As the graph below, from Macquarie's results, shows, risk staff now account for 5% of Macquarie's headcount. This sounds low, until you consider they were once only 2.5%.