Just hit Bloomberg.....
This is after a large group of healthcare bankers jumped ship to Jefferies as well, writing was on the wall? Crazy stuff going on in the public finance space - UBS also exited the municipal underwriting business a couple months ago.
What does this mean for the future of PubFin? How will other banks react?
asking myself the same thing, my bank doesn't seem too enthused to see a rival collapsing which is scary
It means you have to stop being woke. Get with the program or get out. This was because Citi got banned from doing pubfin in Texas and other big states after trying to pull woke shenanigans.
Wrong - it’s because profitability in munis fkn suck at $3/bond and Citi return metrics suck so natural to cut the business that barely makes enough to support to volume of headcount required for the business.
Bruh wtf, I'll be starting FT at a BB for public finance.
Although we compete for the same business, no muni banker is pleased to see Citi get shut down and 100+ people lose their jobs. It’s a sad day in the space.
I think it does wind up being a net positive for the industry however. Pub fin department leaders are getting the message loud and clear that profitability is critical regardless of market conditions. If you’re not returning solid margins for the shareholders, your entire department can be shut down.
Easiest profit levers to pull are cutting bankers not pulling their weight and de-banking underpaying clients / underpaying sectors. Both are in process in a big way street-wide and both are a big net positive for young bankers starting out in the space.
Apparently RBC PubFin is ripping.
RBC and Jeffries are both doing very well in pub fin, both are taking up a lot of Texas market share now that most big banks are no longer operating pub fin in Texas
How are the other BBs holding up in this market?
It’s a very stable low risk business. It should be a very easy proposition to produce solid returns for the bank each year. It’s not like you’re dealing with leveraged loans where 1 bad deal can blow up an entire department’s year. The biggest risk to profitability is holding on to too many expensive underperforming MDs that drag down the department’s P&L. And from what I can tell JPM, MS, RBC, GS, Jefferies have done a nice job of keeping teams lean and promoting young talent hungry to drive revenue. It’s basically business as usual except the bonus pool will be a little lighter this year - but that’s not unique to munis.
Former employee in Citi munis. It will be interesting to see how this effects the market, but I think one of the largest impacts will be junior retention/development. Juniors in the space have seniors tell them how it's a dying industry, you can't make good money anymore, go elsewhere (obviously not all seniors). And now you have what use to be a powerhouse shutting down because it wasn't profitable. Creates a who's next mentality and makes people want to be in the space even less. It's one thing if a firm like William Blair shutters its business, but one of the BBs that everyone thought was safe? And apparently some of the BBs aren't even trying to pay anymore.
Also former munis. Switched the corporate side of the house and then buyside. I loved the muni space and working on revenue bonds in higher ed and transportation but the lower pay (esp. bonuses) for similar hours as my peers in DCM/LevFin and declining mood from senior bankers on the overall outlook of the industry swayed me to switch on a lifestyle to comp risk/adjusted basis. All of my pubfin bosses were great but their payday came pre-2008 when munis were still clipping $6-10 a bond and not racing to the bottom... some of these takedowns are absurdly low.
Well said. And it is all relative - the MD who made $1.2M / year pre-financial crisis is going to be extremely pessimistic on the industry if he’s making $850k in the current environment even if his revenues are 1/3 of what they used to be and the modest reduction in pay is actually very generous relative to production.
I think there will always be a bare minimum of 50+ pub fin MDs making 7 figures - the fee pool is just too large with too much portable revenue for that to change - there will always be a firm willing to lure a producing banker away for excellent money since the revenue they bring in is 5-10x whatever they’re paid, but gone are the days of a mediocre pub fin banker just managing the firm’s deal flow making a killing.
In a way it’s more meritocratic now than before, but on a risk-adjusted basis it is no doubt a less appealing proposition than it used to be. I would only recommend a junior sticks with pub fin if it’s uniquely interesting to them and if they could see themselves enjoying it as a career. They can still get paid like a Neurosurgeon with…..less than Neurosurgeon aptitude….. but it’s not as lucrative as just about any corporate coverage group in the investment bank.
Agreed. The industry needs to get significantly smaller if bankers are going to get paid given how low we’ve pushed fees to take market share over the years, and it’s what we’re seeing right now. The public finance fee pool is by my firm’s estimate is just shy of $2 billion / year. Say your firm has 5% of the market or $100M of revenue and after non-compensation expenses and a healthy return to the bank you can pay $30-$40m in comp. Obviously it’s a much more lucrative career if you can manage this market share with 50 high quality bankers than with 100. Citi unfortunately started cutting way too late which led to poor returns and it snowballed from there. By cutting we’ll be able to reward the high quality juniors with great comp to keep them in the mix. It’s painful but absolutely necessary for the industry and junior retention.
Super helpful to get your perspective on this and hearing what you have to say about moving to the corporate side for a better risk adjusted comp. If you were an analyst/associate today what would your comp have to look like for you to make the decision to stay?
If I’m being perfectly honest I was always annoyed with my comp through early VP. Usually a 15-20% haircut to corporate coverage and in the lower half of my friend group which didn’t feel great. By the middle of my VP years I had real client coverage responsibility and pay quickly became ~95% of corporate IB.
Longevity is the name of the game in banking. You don’t get carry and you’re not going to get a multi-million dollar windfall from 1 of the firm’s investments. If you like your work and that enables you to stay in the role longer (vs. leaving for corp dev), you should come out ahead financially even with a hypothetical 15% comp haircut.
To answer your question: it comes down to whether in 10 years you think you would enjoy your day-to-day more if you were a Muni MD or a Corp MD (work life balance, type of work, clients, stress level etc.). If you think your answer is Muni MD then I’d suggest you stay regardless of the discount during your first few years. That said, if your firm’s discount is steeper than 20% (i.e. less than $250ish at Associate 1) I’d consider hopping to a different pub fin shop because chances are that firm is struggling to pay the senior bankers as well.
How big are these teams?
Banking was ~110. S&T, Syndicate, and Research was another 40 - 50. Citi had already downsized headcount considerably in the space over the last few years before the department fell from being a top 2 underwriter.
Is this DCM for utilities?
I feel so bad for the Citi people, life is a lot harder after a bunch of banks did 10-20% cuts earlier in the year and then UBS cut their entire negotiated business. A lot of firms that might have hired them already filled up with those folks. Long term I’ve always said issuers should want a healthy underwriting ecosystem with reasonable spreads, but also better coverage and more liquidity. Texas is going to be a bellwether in my mind since so many firms aren’t able to underwrite down there.
This just in ny?
Do they have offices elsewhere?
Citi's public finance investment banking group had offices across the country. New York, Chicago, Dallas, San Francisco, Los Angeles, and they may have had an office in Florida too (Orlando or Miami). Public finance is a regional-focused business, so the bankers covering government clients are often located in offices near those clients.
How many people were in this group?
Probably at least a few hundred people I would imagine - didn't they have offices in numerous cities doing muni?
Have those ex-Citi employees landed anywhere yet?
Saw earlier today that the former Citi head of public finance is opening up an advisory restructuring shop, took on two others with him, and is still working on PR bankruptcy.
Have heard others going to Jefferies, UBS, and boutiques.
My bank, Oppenheimer, took a couple seniors from UBS and Citi
Where in UBS? Thought they blew up their negotiated PubFin practice as well.
No one is going to UBS unless it is for a career shift / non-muni role.
Go woke go broke. This is what happens when you try to virtue signal and spread woke propaganda and then end up losing out on deals in Texas and other big states.
Sorry for being uninformed, but can you elaborate on what happened between Citi and Texas?
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