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June 5, 2007 10:10 pm
Top investment banks are struggling to cope with the record volume of deals and their overworked staff are in danger of making costly mistakes, according to senior executives.
The banks have failed to hire aggressively, partly because they did not think the boom would last this long, and they now privately admit they are suffering from serious staff shortages.
“We are bursting at the seams. You can see the fatigue on the bankers’ faces,” the head of investment banking at a leading Wall Street bank said.
“My worry is that people will start cutting corners, will not do the due diligence and will damage the brand.”
Bankers say the problems are serious in New York and London but even more acute in smaller centres in continental Europe and Asia.
“When a New York banker comes to me and says he is overworked I tell him he should see what it’s like in Hong Kong,” a senior Wall Street executive said.
Executives at Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase, UBS, Credit Suisse and Lehman Brothers all say their investment banking departments are under pressure. Most cut back sharply after the stock market bubble burst in 2000. JPMorgan said recently that it now had half the number of mergers and acquisitions bankers producing roughly the same revenues as in 2000.
Rob Sloan, a consultant at headhunters Egon Zehnder, said that after 2000 the banks fired large numbers of junior associates and mid-ranking vice-presidents.
“There is a material gap in the middle. The vice-presidents are very stretched with many junior staff working beyond their experience,” he said.
Michael Wagner, a director of consultants Oliver Wyman in London, said: “The temptation is to drive your people harder. But there is a limit. There could be a danger of people slipping up.”
Senior Wall Street executives say the reluctance to staff up stems partly from the painful memory of the cutbacks after 2000 but also the declining profitability of investment banking.
While the deal volumes are at record levels for some leading banks, profit margins have fallen by as much as half due to pressure on some fee rates and the trend towards multiple advisers on deals. This reduces fees without cutting the workload.
Senior staff are very expensive at the moment, not least because of competition from private equity firms and hedge funds. Some banks have ramped up their hiring in lower ranks.
JPMorgan Chase’s investment bank is taking on 462 summer interns this year, a rise of 39 per cent, and aims to hire about 85 per cent full-time. But other banks say they do not want to train up too many juniors only to see them poached by hedge funds.
While some bankers were happy about the cautious approach to hiring because they did not want to share the pie with more mouths, many say they are struggling to cope. “I just don’t have enough experienced staff to execute the deals and it is really starting to take its toll. My children barely recognise me,” one senior banker said.
Jeff Kahn, a Manhattan psychiatrist and president of Work-Psych Associates, said there was evidence of an increase in stress-related problems on Wall Street. “It is noticeable that people are complaining of more stress,” he said.
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