The New Face of Investment Banking
Everyone and their mother’s favorite industry observer are calling Morgan Stanley and Goldman Sachs’ status switch to holding companies the end of the large independent investment bank as we know it.
They’re also calling the historic move—which reverts the state of banking in the United States to pre-Glass Steagall days, before provisions were enacted that separated investment banking from commercial banking—the end of Wall Street. Which is no exaggeration.
What two weeks ago had been considered the investment banking bulge bracket is now, in effect, dead: Goldman,Morganand Merrill Lynch (now part of Bank of America) have all moved into the blue-collar deposit game, and Lehman Brothers has been swallowed by British giant Barclays.
Once Goldman and Morgan acquire deposits and build out their consumer businesses (expect this to begin in the next few months), they’ll be directly competing with BofA, Citi and JPMorgan Chase, thus creating a group of five monstrous commercial banks, with significant investment banking arms, in a formation resembling the one ruling the world of public accounting (the Big Four, and everyone else).
However, outside the Fab Five, there still will be several independent U.S.-based investment banks whose prestige for not playing the commercial game—as well as for being smaller, more intimate franchises—will significantly rise with the death of the bulge bracket, making them more highly-desired destinations for those looking for pure, white-collared investment banking careers.
Lazard, dually headquartered in the U.S and U.K., will arguably leap to the top of the remaining independent heap. An already incredibly prestigious institution with a dark-blue blood line that dates back to 1848 (to New Orleans), Lazard is also the largest of the remaining free-standing financial advisory/asset management firms, with about 2,500 employees. (As proof of the weight of its advice, Lazard, which has a strong restructuring practice, was tapped to counsel Lehman on its bankruptcy filing, the largest in history).
Beyond Lazard, the landscape is fragmented, with at least seven other investment banks vying for the lion’s share of prestige. Names like Jefferies & Company (also a relatively large firm, with about 2,400 employees) and Houlihan Lokey (a little over 800 employees) have been around for a combined 85 years, and are now considered the leading middle-market merger and acquisition advisors. These two firms, notoriously destinations for investment banking-minded graduates edged out of final-round bulge-racket interviews, will now attract even higher-quality talent—both young and experienced—with the demise of the big independents.
A handful of the rest of the top remaining pure-play players—Greenhill & Co., Evercore Partners, Moelis & Company, Perella Weinburg Partners and Centerview Partners; each with between 125 and 300 employees—are relatively newer to the scene, having been spawned in recent years by bankers with big-institution pedigrees.
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In 1996, former Morgan Stanley President Bob Greenhill started his eponymous firm, while two former Blackstone insiders partnered to create a bank called Evercore. Ten years later, an ex-Goldman insider and former Morgan banker got together to hatch Perella Weinberg, and Centerview was born when veterans of Morgan, Wasserstein Perella and UBS joined forces.
Moelis & Company, the infant in the advisory game at 14 months old, takes its name from another former UBS dealmaker, Ken Moelis, whose resume contains some of the highest-profile firms of investment banking’s yesteryear: Drexel Burnham Lambert and DLJ (Donaldson Lufkin & Jenrette).
More recently, Moelis transformed a second-rate UBS into a global M&A player, and he’s already made quite a mark with his new firm. Since its birth in July 2007, Moelis & Co. has worked on deals for the likes of Yahoo!, Hilton Hotels and Anheuser-Busch, and while other banks merge and purge their ranks, Ken and company keeps fattening up: before the end of the year, the firm expects to increase headcount by 25 percent.
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In addition to these eight firms, a handful of others in the middle-market investment banking game will be taking advantage of the big-bank fallout, picking up fallen employees with bulge bracket experience; insiders with significant client relationships will be especially sought after. Keefe Bruyette & Woods, Thomas Weisel Partners, Oppenheimer & Co., Baird, Cowen and Company, JMP Securities and William Blair, among others, all stand to gain a dealmaker or two.
Derek Loosvelt is Vault.com’s global finance editor. Read his blog here. He has a BS in economics from the Wharton School at the University of Pennsylvania and an MFA in creative writing from The New School. He is a writer and editor and has worked for Brill’s Content and Inside.com. Previously, he worked in investment banking at CIBC and Duff & Phelps.
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