December 14, 2009 12:17 am

M&A experts pay for others’ mistakes

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Punished for the sins of colleagues who played fast and loosel

Powerful rainmakers should receive big bonuses and be protected from the effects of the one-off bonus tax.

M&A advisers were not at the heart of the financial crisis, yet now they are being punished for the sins of those colleagues who played fast and loose with their bank’s capital.

Lose a couple of proprietary traders and they can be replaced. But lose the client-facing talent that holds the key to company boardrooms, and you risk losing real revenues.

While M&A advice on its own does not pull in large profits for the banks, it acts as the gateway for other divisions to sell the products that do – such as equity, debt and hedging.

When markets are shaky and acquisitive boards are nervous of attempting large and complex deals, these premier dealmakers matter even more.

M&A advice is an art, not a science, and the ultimate judgment comes down to what price a bidder should pay.

That is why so many of the veterans have turned up on most of the important deals this year.

Kraft turned to the late Bruce Wasserstein to help with its £9.9bn ($16.1bn) hostile bid for Cadbury, while Roger Altman won the coveted role of advising Burlington Northern Santa Fe on its $26.3bn takeover by Berkshire Hathaway.

Banks such as JPMorgan and Bank of America Merrill Lynch do not believe in this star system. They would rather have three or four average bankers covering a client than one, highly paid star, and let their balance sheet do the rest of the work.

But look at what happened to Morgan Stanley four years ago when it suffered a series of high-profile departures after a bitter boardroom battle that led to the ousting of chief executive Phil Purcell and the return of John Mack, who had left the bank in 2001.

The US bank slumped in advisory league tables and it took several quarters before it re-occupied its traditional number one or two position.

The real rainmakers may have egos – one of New York’s biggest dealmakers still has a photograph of himself opposite the toilet in his private bathroom next to his office – but if they bring in the coin without risking a bank’s capital, vanity is forgivable.

lina.saigol@ft.com

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