It's a challenging 2023 for coverage bankers
Investment banking client coverage has never been an easy job, but anecdotal and empirical data suggests that it is more challenging and under more pressure today than it has been in at least a decade. Wall Street’s fee wallet has shrunk, but there is still a lot of work to be done, and fewer bankers than ever to do it. .
Media reports, securities filings, and disclosures from New York State’s comptroller of the currency suggest that the securities industry has shed tens of thousands of jobs since the slowdown began approximately 18 months ago. Fortunately, corporate liquidations and/or private equity firm dissolutions have been far fewer in number. When the number of jobs lost exceeds the number of companies going away, it can only mean that the bankers remaining in their seats are covering more clients than previously.
Each individual client in a banker’s coverage universe has both fixed and variable costs. The banker needs to understand the client’s business, know the management team, board, and in many cases controlling investors. To pitch potential financing or M&A deals, he or she also needs to monitor the news related to that client and its competitors, and to anticipate opportunities.
When valuations were high, investor appetite for IPOs was voracious, and cheap debt was available even for cash flow negative borrowers, there was a lot for bankers to talk to clients about, and a lot of deals for them to execute.
Today, bankers are under the same pressure they’ve always been to generate good ideas – and convert those ideas into deals and fees – but have less time to devote to each client. One could argue that return-to-office policies, and attendant client expectations that their bankers will meet them in person, has compounded the challenge. Coverage bankers are now frequently on the road multiple days per week, running from meeting to meeting.
For senior VPs and directors, the challenges are even more pronounced. Bankers at this stage of their careers typically carry a heavy workload associated with deal execution, but – whether they know it or not – must simultaneously cultivate their own relationships in anticipation of a senior director or managing director title that carries the unequivocal expectation of deal and fee origination. While less expensive than managing directors, VPs and directors tend to occupy a unique position at the intersection of high compensation without direct responsibility for revenue generation. Their careers depend on their ability to work efficiently, delegate appropriately, and find time to fill their own pipelines, while also supporting the senior bankers who rely on them to get deals done. It is a uniquely difficult balance to strike.
Forward-thinking-but-budget-constrained investment bank are responding by investing in technology purpose-built for a white-glove client service business and that offers a highly defensible ROI that meaningfully exceeds the bank’s cost of capital.
They are also undertaking a systematic review of their client coverage plans, viewed somewhat ruthlessly through the lens of where the near- and medium-term opportunities will be. Corporates and sponsors whose businesses or portfolios, respectively, are on solid footing and likely to transact in the next 12 months will get the lion’s share of bankers’ attentions in the form of balance sheet, sales and trading, idea generation and more.
And finally, we are seeing – and strongly recommending – a renewed focus on communication and collaboration between coverage and product bankers. No banker ever wants to pitch an idea to a client that isn’t appropriate or doesn’t carry with it a high likelihood of getting completed. But with the range of financing and M&A opportunities having narrowed, there is, as there should be, a renewed urgency around pitching only actionable ideas, and only to the clients for whom they are suitable.
Investment banking has always been challenging, and market conditions are never perfect. But it seems fair to say that the prevailing macroeconomic conditions make it ever more important to define and support the role of the coverage banker. Without them, after all, there’s no deal to do.
Brian Bissonette is a principal at Intapp, an industry cloud platform
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