Why don't banks just hire more people?

I think if you do a per hour breakdown of what analysts make, it isn't as much as the salary would make it seem. Since people tough it out, Banks save a lot of money at the cost of quality of life.

I think there are many ways you can look at this question. But mainly, IB analysts are not really compensated for working 100 hours per week. They are payed a fixed salary and a year-end bonus that is not tied to hours worked. So, by hiring more people, the bank would have to reduce the average salary paid to analysts in orded to maintain total overhead at the same level. As an IB analyst, for instance, it means that you would get paid less than before. The bank would then lose top talent to PE firms, possibly consulting firms, and other lucrative finance jobs.

As well, I believe that the heavy workload acts as a filter for banks. Because analysts work endless hours, those who are unable to cope with the workload eventually quit. Over a few years, the bank is left with the most individuals with the most endurance, which it can then promote to higher ranks. I don't think this is the most effective filtering process for talent, but it certainly is used by banks to a certain extent.

I never worked in a IBD so far (but wan´t to break in) so I do not know the actual tasks exactly and how they are divided in the team.

Just something that striked me because we are not talking about hiring a ton of new people because some Analysts work 5 hours more or less each week, one person working 100 hours would normally be a argument to might have a second person for that job.

As I said, maybe all the tasks are so unique and can not be splitted between person, I just don´t have the insights (yet..)

A lot of the hours involved in any corporate environment, whether material or immaterial to revenue generation, are simply dead time created by bottle necks in a process. I don't work in banking myself, but I'm sure many analysts and interns here will be able to recall a time they've had to wait several hours just for an email that says "ready to print."

Tl;dr - unpredictable work demands and division of labor failures.

When you are on a project there needs to be a high level of responsibility that each member on the team has...if the client asks "why is the XX growth rate this % in the DCF" you can't respond "oh let me confirm with the 10 analysts that worked on this project I'll get back to you on that". I think sometimes an extra analyst or two would help a lot to alleviate the burned out analysts that are getting crushed, but you also cannot hire so many people that the quality of the analyst experience (# of deals) is diluted to where they can't be considered A to A material (Analyst to Associate direct promotion).

A final point - a lot of groups absolutely destroy top bucket analysts and therefore hours for some middle bucket and all the bottom bucket analysts are really not that horrible since they get less staffings. No perfect answer, but hope this helps!

From bank’s perspective, especially at BB, they ARE hiring more people. More regional and product groups, all the presentation and research back office functions, bigger middle office, and finally ‘junior analysts’. Whatever that can be streamlined in IB front office jobs are being done. Sadly, your MD’s 5 page BS comments are beyond the scope of improvement.

Another thing people neglect when looking at it from an employer's perspective is worker's comp/insurance, benefits, etc. That shit gets expensive when you start adding headcount. Keeping the headcount low and just paying less people more money to work more hours ends up saving you more in the overhead charges.

A few items that i'd be thinking about:

1. More hires = more risk of having bad ones, ineffective ones, personality issues, etc. Simply speaking you aren't hiring all A+ performers and generally adding 5 mediocre analysts to a deal, to avoid splitting an A+ or crushing one, is doubtful to end well in the long run.

2. More people = more management. Putting aside cost for a moment, just the logistics of having more people, hiring more people, managing the workloads that come in, etc. As others have noted in spades, simply having 10 people vs. 5 on a team creates a whole other set of problems

3. Volume of work expands to the time you allocate to it - someone said that, and it's true today with respect to people/capacity. Adding tons of headcount will, probably, end up with all kinds of needless, bullshit stupid work - deals that are on the verge of not making any rational sense get pushed through because you have 'capacity' which, then stretches capacity - you get the point

4. I think we all severely overestimate the importance and volume of actual work that goes on and is necessary. Honestly evaluate how many hours you spend doing the work you are hired to do, vs. administrative work, random one-offs that go no where, waiting for work, waiting for feedback on work, etc. Sure, when there's a massive deal or things are overflowing there may literally be work that cannot physically get done and you need to pull in more people but largely that isn't going to be the case - and, i think, it sounds much easier than it is to simply slot people in and things get magically done correctly - see my above comments.

Just some thoughts - i'm sure there are good reasons to hire more, or fire some, that i'm not thinking about.

People have said why it's not always reasonable to have many people on the same deal given workflow, but I agree there is no excuse for having someone get crushed with 3 deals at once (could hire away this problem by having 2/3 people)

The banks don't have enough real work to keep the analysts busy for 100 hours. They have 50 hours of real work and the MD's fill up the rest of the time with bullshit.

Of course, the MD's will claim that it's not bullshit work. They'll say that all these far-fetched pitches are worth pursuing. But their bluff gets called because as soon as real work picks up, the bullshit projects get shelved since the analysts only have 100 hours a week to work with. If the bullshit projects were truly legit, the MD's would make the case to hire more analysts.

So roughly speaking: they hire enough analysts to do the real work for 50 hours a week, and the MD's see the analysts' remaining time as a free resources to leverage.

Actual numbers vary but the point is, you won't reduce work-per-analyst by hiring more. The supply of bullshit is endless. Some banks are so poorly managed that MD's are incentivized to rack up pitches even if they have no chance of yielding revenue.

Then it would be a far less lucrative job.

In reality, a big reason is if you have a kid running a model and a book, it isn't very efficient to split it up among say 3 guys. Everyone has their own way of doing things, and one person missing something in a single cell can screw the entire analysis up, resulting in huge liabilities for the firm if it results in a client acting on false information.

If they did it wouldn’t be as “prestigious”

The reason firms don't hire more analysts is because analysts are expensive, don't generate revenue, and, most importantly, turn over every two years.