Having spent a good many years in the business himself and based a best-selling book on his experiences, William Cohan (ex-Lazard, Merrill Lynch and JPMorgan, and author of the excellent The Last Tycoons: The Secret History of Lazard Frères & Co), should know what he’s talking about when he hails the death of the high-flying Wall Street banker.
Here we are, he writes in Thursday’s FT, smack in the middle of the “Biggest Deal Boom Evaaah”, as The Wall Street Journal noted the other day. And yet, Mr Cohan describes a condition among those “overpaid and overworked” M&A bankers best summed up as relevance deficit disorder.
At the very moment when they have never been busier - flying round the world in private jets to attend infinitely ponderous and desperately important meetings - M&A advisory revenue “has never been more irrelevant to their firms’ bottom lines,” he says.
In a cruel and ironic twist, we are actually witnessing the final death rattle of the once highly prestigious - and still obscenely profitable - business of providing strategic advice to corporate chief executives.
Throughout much of the 1980s and 1990s, M&A bankers reigned supreme on Wall Street. Their names are now legendary and evoke a certain Mt Rushmore-like wistfulness: among them, Felix Rohatyn, Steve Rattner, Bob Greenhill, Bruce Wasserstein, Joe Perella, Ken Wilson and Ira Harris.
No longer, says Mr Cohan:
Since the start of the millennium, Wall Street firms have eschewed promoting brand-name bankers and their flashy takeover tactics in favour of minting money by investing their own capital in proprietary trading, private equity and credit derivatives.
The cold, hard facts of this historic development can be found buried within the recent quarterly financial statements of nearly every big Wall Street firm. Basically, their entire M&A advisory revenue represents a tiny amount of their overall revenue – that even goes for Goldman Sachs, perennially the leading global M&A adviser.
Compounding these quantitative facts is the decline in the qualitative contributions that bankers are making to their clients. The advent of spreadsheet software in the mid-1980s and the corresponding hiring of in-house M&A departments - a company such as Johnson & Johnson may now have 200 M&A people in-house - have exploded that myth of human superiority in dealmaking and, with it, the black-box nature of the M&A business.
Worse, with big-name private equity firms - such as Blackstone, whose partners are themselves largely former M&A bankers - accounting for more than a third of the M&A deal volume this year, bankers at the Wall Street firms and boutiques are relegated to the sidelines. “Deeply dissatisfying,” an unnamed M&A banker told the WSJ about his role lately. A corporate lawyer added dismissively: “Bankers are sitting in coach.”
Beyond squeezing out a crocodile tear, says Mr Cohan,
the demise of the late, great investment banker is remarkable only in that it shows, yet again, how deeply Darwinian Wall Street remains, ever-adapting and taking advantage of the latest opportunities and technologies.
One is tempted to blame the demise on the greediness of Wall Street bankers who control an obscene fee structure based on receiving a fixed percentage of ever-increasing deals. But as information becomes more ubiquitous thanks to the internet and Sarbanes-Oxley, and as the faux-mystery surrounding deals dissipates, even the unlikely prospect of bankers bringing their fees into line with the service they provide will not stop the inevitable.
