Boutique vs. Bulge Bracket in a Recession
If a recession were to hit, would it be more secure to work at a boutique or a BB? What was the situation like in 2008?
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Boutique. I know a boutique bank that paid retroactive bonuses to the associates once they weathered the storm.
Think it depends but the boutique I’m headed to seems they are going to be fine. Have managed to close 3 deals this month despite everything going on and things are still pretty busy for them even though everyone is WFH.
I think bad boutiques will struggle. Good boutiques are less likely to start cutting people
By good boutiques do you mean EBs, or are there some MMs that will weather the storm? How will Jefferies do in your opinion? Thanks in advance.
I was actually talking about industry specific boutiques. So think FT Partners, Leerink, MTS, etc.
I wouldn’t consider Jefferies a boutique at all. I don’t know what you could call them though lol. I think Jefferies seems to be fine. A close friend got the email today assuring FT their offer wasn’t in jeopardy.
For the elite boutiques, I don’t think they’ll disappear by any means. As the same with Jefferies though, some groups will do better than others and eventually they might make headcount cuts or keep hiring really low till things get better. My opinion is that any bank with multiple offices, huge HR, with large amounts of staff is far more likely to start cutting people (obviously includes BBs as well). Some random guy high up somewhere decides they need to cut x amount, then group heads are told they don’t have a choice but to make hard decisions and are forced to lay people off. That doesn’t happen as much at the small banks that only have 1-2 offices. The other side of that though is if the small banks with 1-2 offices aren’t doing well they don’t have any other way for that to be offset normally and they will just struggle
Without a doubt BBs, are you guys serious? When there is a recession who will fare better, JP Morgan with over a trillion in assets and a million different business lines to feed the bonus pool, or some random boutique that gets one or two deals a year and when theres a recession JP, GS and MS suck up every deal bc they are willing to go lower on fees to get something through the door. Wow I cant believe I even needed to write that...
You do realize that BB are typically barred from doing RX work, which comprises most deal flow during a recession?
They're a lot more similar than the comments are making them out to be. BBs may even be less safe. Considering it from all sides, I'd say its a wash.
Sure BB has a has a mix of revenue streams and that theoretically allows them to prop up IBD in tougher times. But has that actually played out in reality? Do BB's have a track record of fewer layoffs?
I don't think they do. I don't have data but anecdotally it feels like I'm hearing about rounds of cuts at BBs more often than boutiques.
Fact that BB has more ways to make money can cut against them just as easily. They have more ways to lose money too. PWM has brought in steady cash flow for years, but the bank has levered up against that . . lots of hiring and additional investment in that business. Now let's say there's a hit to PWM revenue, which there probably will be soon. Do they just cut PWM to right size it? Maybe not . . maybe that's still a long-term growth area and they cut IBD instead.
Meanwhile a boutique, knowing they're levered heavily to M&A volume and that it can be unstable, might've hired more conservatively to begin with.
Just one example. Different examples will cut different ways. Bottom line is, neither one has an obvious advantage in the area of stability in a recession. I think any data would back that up.
Which is the best career within the realm of Finance (IB, PWM, HF, PE) today or in the near future? If you could start over, would you still be in HF/ Finance? I was discussing this with a few colleagues and a lot of them said they would be in tech or became a Quant if they could start over. What about you? What would you do knowing what you know now.
I think people should do what they'll be best at, because that's also what they'll be most successful at. If that sounds wishy washy, hear me out.
I think the idea that certain fields/industries tend to be lucrative is almost entirely a myth. A few examples:
Survivorship bias makes some fields appear more lucrative. Average senior investment banker makes a lot of money. But you don't see all the former bankers who are now doing other things, many of which make less money. The only bankers you see are the ones who survived. The average pay for an IBD career isn't the same as average pay for someone who begins their career in IBD.
Some careers pay more because they work you more, or because the risk of layoff is high. Again, IBD a perfect example.
Some careers pay less because they compensate you elsewhere. Think of someone who slaves away in a medium-paying life sciences lab job but then is incredibly valuable to VC firms later because of that acquired expertise.
The world changes. Teachers are famously underpaid, but I don't think we're far from a world where online education turns the very best teachers into millionaires. We currently have 50,000 algebra teachers in America and I'm not sure we need more than one.
I could go on, but what's my point. My point is, the path to wealth/success is not simple. It's not even remotely as simple as "this field will do well so go do that." There are (fortunately) many paths and its all about how you navigate.
But one thing is relatively reliable: the top people in their field are almost always rich. You'd be hard pressed to find people at the top of any endeavor who aren't doing well.
So my advice to anyone would be to learn about the actual work of each job . . the skills, tasks, etc. Ask yourself if you'd enjoy that. Because answer to that question has huge impact on whether you'd be successful doing it. Everything else is speculative.
To respond directly to your examples of people who now wish they did tech/quant . . that's so classic. I got out of college in mid-2000's and the world was full of tech folks who wish they'd gone into finance. Go figure. Everyone wants to win the last battle.
The one specific thing I'll say is, be careful of quant. I worked at a quant shop and know many people in that field. In my opinion, they oversell the career to candidates. They make kids think that there's going to be an opportunity to play with models/code to build a better algorithm. When in fact the real purpose of the algo is to sound complex enough to dazzle clients into forking over their money, and there's no real interest in improving it to actually generate returns. That leaves junior employees doing mundane shit So just make sure the opportunity to use your brain is real.
Honestly appalled by some of the answers below Think it's more likely that pure-advisory EBs are going to do better than BBs for a couple of reasons The main one being they have strong RX practice that will probably strive in the upcoming environment, something that BBs can't do because of their conflict of interest
I agree with this completely and can't believe this got more MS than SB - it is absolutely right, particularly for the closely held boutiques. I don't think any reputable IBD cares much about A&E, and (at a minimum) there will be a strong need for independent liability management advice, if not full blown RX. BBs are very weak on RX because they are statutorily prohibited from advising on any companies they underwrote securites for in the last 3 years, so no creds / experience if they are not conflicted For context, some of the boutiques with top shelf RX practices actually added headcount during the GFC.
Well you will absolutely "get crushed" for sure
What about a bank like MoCo? Born in the '08 financial crisis, no debt on their balance sheet and the ability for analysts/associates to be easily cross-staffed on RX deals. I'd say they're also pretty poised to poach MDs from other banks.
Working in a BB M&A group, I'm kinda worried - things have slowed down/been put on hold. Wonder how my fellow EB analysts are faring.
The problem with the BB's is that in these good economic times they have become so bloated.
1) There is an enormous amount of BO positions that support the various divisions and represent a massive fixed cost that EBs don't really have. I'm sure a lot of these positions will be cut if things continue on like this.
2) The FO staffing levels at BBs vs. EBs are dramatically different. The ratio of MD:Juniors is from what I've seen wildly different. I'd estimate that a lot of BB groups have something like 4-5 analysts and 2-3 associates for every MD. From my own experience at my EB the ratio is 1 for both analysts and associates, so unless the firm cuts significant MDs (which is possible), it's hard to see significant cuts occurring at the junior levels - Things are always stretched as is (leading to the feedback that EBs have worse hours) so now might be a time where things normalize.
Also think about these other businesses attached to BBs. With rates at basically 0%, the spread on loans, etc. is basically at its lowest levels ever. I'm not even sure how some of these massive commercial banks make profit in this environment, hard to see these business lines propping up the IB division.
You have 2 options:
Both have a cushion that leave you protected as junior.
Large european banks have the bloat but not the scale...expect UBS, DB, etc to be hit very hard by this. Weak boutiques will also struggle.
I love the broad general statements on this forum. My two cents having spent time in both a BB and a EB. I’m referring to IB (coverage, levfin, M&A) and not retail, PWM, S&T, etc.
In a bulge bracket, you have greater capitalization and broader business lines so the firms financial ability to weather the storm is certainly greater BUT that means nothing when it comes to job security. (A) The notion above that bigger means safer is total crap. Profits in S&T and PWM don’t go to support the salaries and bonus pools in IB so the reality is if deal flow is low, you’re at risk. BBs are notoriously bad at human capital management and approach headcount reductions with butchers knives rather than carving knives. Also, the ability to shift headcount to profitable business lines is negligible. (B) M&A deal flow will NOT necessarily accrue to BBs just because they have a balance sheet. The balance sheet difference between boutiques and BBs has always been there. The reason why deals go to boutiques is for fundamentally different reasons that hold true regardless of whether there’s a downturn or not. Financing is in this day and age, a commoditized product and in a downturn there will be less of it to go around for everyone as lenders tighten the purse strings. High quality deals that can generate strong returns at low risk for the lenders will get attention regardless of BB or EB led. (C) Coverage groups at BBs will benefit from the debt business as companies seek to manage their capital structures. That can lessen the impact of a drying up in M&A and ensure some survivability of certain coverage groups within BBs.
Now on to the EBs particularly those with strong RX franchises such as EVR, PJT, LAZ (HL has a reputable practice here as well). It’s a no brainer that these firms are less well capitalized so present a greater risk on the surface. With that being said (A) the cost structures for these firms tend to be a lot lower than BBs and most are well capitalized enough for their operating model to be able to withstand a downturn. There’s also a lot more flexibility in managing headcount and the ability to make precision cuts rather than massive RIFs is present as even the largest of the EBs has something like 2,500 employees, easy enough for an HR team to handle. (B) M&A deal flow has been increasingly accruing to EBs and even in a downturn, the fundamental reason driving that trend exists so I would expect the EBs to be able to maintain their market share of a smaller pie overall. (C) What M&A deal flow falls away will be somewhat offset by a massive pick-up in RX business. Don’t think it will 100% replace lost M&A deal making but it will help a lot. Again this is EB w/ RX only, I would suspect that boutiques without RX franchises would suffer a lot more.
This is all I can think of for now, sure there’s more I’ll think of later. If I had to pick a side as to who I thought presented a safer environment during a downturn, I’d lean heavily EB at this point.