“L

e define “busy” read a memo distributed to junior investment bankers at Donaldson, Lufkin & Jenrette in the mid-1990s. end. These are working hours – no travel, chat or meal time. If these are not your office hours, you have the ability to take on more work.

Today’s bankers are more than willing to put in the hours, the problem is they don’t have the work to fill them. The fee bonanza caused by cheap money and mindless corporate bosses are long gone. Transaction revenue from the biggest banks has nearly halved this year, and the pipelines are far from full. As incomes normalize, so do attitudes toward hiring and firing. Last week, Goldman Sachs, an American bank, began its annual cut of 1-5% of its staff, for the first time since 2019. An industry-wide hiring spree during the covid pandemic -19 means layoffs will likely extend well beyond spring cleaning. Wall Street’s human resources departments will finally be able to do the job they signed up to do: stick to the wealthy earners.

First for the chop are the underachievers. Think expensive senior negotiators with rusty Rolodexes and the occasional hungry junior Excel jockey. After that, choosing who to show the door to becomes an exercise in predicting the direction of the market. “A real danger is to overload and miss a rebound in activity as some banks did after the dotcom crash,” notes Jon Peace, banking analyst at Credit Suisse.

Equity capital market bankers will find themselves at the top of the list. They are having a bad year: the number of IPOs in the United States is down almost 90%. Few companies are taking the risk of listing their shares as markets turmoil and CEO confidence hits a 40-year low. Special purpose acquisition companies (SAVS), vehicles in white that raise funds by listing on the stock market, are no more than a distant memory. Bankers who have killed in the frothiest industries and structures are most at risk. Those who have retained even a tangential link to the real economy will look to Frankfurt this week, hoping to convince top brass that the successful listing of automaker Porsche is a first wind rather than a last breath for the issuance of shares. It only takes one contract to save a career.

Bankers struggling to serve private equity funds may be overestimating their chances of survival – redemption volumes have proven resilient and funds have mountains of capital waiting to be deployed. But when the masters of the universe come knocking, it’s usually looking for leverage, not advice. The uncomfortable truth is that the big banks are now mostly paid for flogging junk debt, not the piles of PowerPoint philosophy they produce for free. The bankers involved in the takeover of Citrix, an American technology company, discover this while offloading the debt on the market with a breathtaking loss. The appetite to finance similar transactions is diminishing. Any banker unable to persuade his boss that private equity funds will continue to seek his advice without attracting billions in funding is in trouble.

If the outlook remains gloomy, remember the epigram of the M&A banker: for every problem, a deal. Spin-offs, rather than layoffs, could be the answer. Outrageously, Paradeplatz-prince Credit Suisse, the investment bank is the worst performing party. Faced with impatient investors – the company’s share price has fallen nearly 60% this year – the bosses are plotting something drastic ahead of their October results. The split of the entire investment bank is unlikely, but the sale of assets of the profitable parts of the bank is considered. Credit Suisse, which has long outstripped its weight in venture lending, will learn the true price of its advice if it fully commits to offering a “small-cap, advice-focused” investment bank.

In case the suggestions from HR departments and investment banks don’t change anything, maybe the marketing folks have a plan? Going back in time might not be a bad idea. Credit Suisse could relaunch the First Boston brand, the name of the revered American investment bank it acquired in 1990. Names may not lower interest rates, but there is a part of every banker boring Barclays and UBS who would love to resurrect Lehman or Warburg nicknames. If they have to be shown the door, at least let them leave with a little old-fashioned bluster.

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From The Economist, published under licence. Original content can be found at https://www.economist.com/finance-and-economics/2022/09/28/investment-banks-are-sharpening-the-axe