The author is a former investment banker and author of The Failure of Power: The Rise and Fall of the American Idol
Once upon a time, if you wanted high salaries and prestige on Wall Street, you aspired to be an M&A banker, advising corporate CEOs on their most important strategic deals.
If you want the highest salary and the highest prestige, you’ll aspire to be an M&A banker for groups like Goldman Sachs, Morgan Stanley, Lazard and First Boston, where the biggest and most exciting M&A deals happen.
In those days, a first-year managing director of mergers and acquisitions at Morgan Stanley was not considered to be paid $1.5 million or more. If you were a rainmaker like Felix Rohatyn at Lazard or Bruce Wasserstein at First Boston, your annual salary could easily be in the tens of millions, back when that was considered real money.
no longer. Over the past 25 years, a number of factors have conspired to reduce the pay and prestige of M&A advisors and other investment bankers, such as those who specialize in debt and equity underwriting, to levels once considered unacceptable.
Bankers told me that managing directors, who used to be paid $1.5 million for the first year, are now more likely to make $800,000. That’s still a lot of money, but nothing like it was when the M&A bankers were the chiefs of Wall Street. “And it’s not coming back,” a veteran M&A banker told me.
There are myriad obstacles for investment banking specialists to get paid the way they used to. At most of the big Wall Street banks, investment banking is no longer the driving force of the business — in fact, it’s increasingly subordinated to the less flashy areas of wealth and asset management, trading, and traditional lending and credit card receivables.
With total investment banking revenue plummeting from ridiculously high epidemic levels, reducing investment banking compensation is the easiest way to cut expenses quickly. Big banks are unapologetically lowering pay-to-income ratios. Compensation expense ratios used to be under 50% of revenue in investment banking; now they’re 30%.
Back in 2012, James Gorman, then Morgan Stanley’s chief executive, was blunt in telling employees unhappy with the prospect of a pay cut: “If you’re really unhappy, get out. Life is too much.” It’s short.”
I suspect Gorman would say the same thing today. JP Morgan, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup are all cutting jobs, as is my old company, Lazard. Even Chicago-based boutique investment bank William Blair is cutting jobs. Overall, European banks are still struggling to recover from the 2008 financial crisis.
All hope is not lost. Gary Goldstein, chief executive of the Whitney Group, a longtime Wall Street recruiter, explained that some corners of Wall Street’s investment banks are still well paid. “It’s all about relationships now,” he told me.
The most paid bankers on Wall Street these days — up to $5 million a year, or more — are the ones responsible for maintaining and cultivating relationships with the big alternative asset management groups like Blackstone, KKR and Apollo, which collectively Become Wall Street’s largest fee payer. Or the bankers who work with buyout groups on leveraged finance deals. “Those who have really deep sponsorships are still getting paid well,” Goldstein said, agreeing that execution-oriented investment bankers are no longer at the top of Wall Street.
Still, the best M&A bankers—those who combine execution skills with enduring relationships—can be paid very well, though they may have to leave Goldman Sachs or Morgan Stanley for successful M&A boutique firms , such as Centerview Partners, Evercore, Moelis & Co, PJT Partners, Guggenheim Partners, and Perella Weinberg Partners. Here, profit margins remain high and the risk of capital loss is low or even non-existent.
Of course, the new kings of Wall Street are not Wall Street banks, big or small. This title rightfully belongs to the Blackstone and Apollo families of the world. These groups — fast-growing, lightly regulated, nimble and diverse — are still where the real money can be made on Wall Street. Blackstone co-founder Steve Schwarzman was worth about $30 billion at last check. No wonder the best and brightest on Wall Street flock to work with him.