GUEST COMMENT: Four big reasons not to join a boutique
In the wake of the new post-TARP realities on Wall Street -- including severe restrictions on compensation for bankers and traders and a new, heavy dose of government regulation -- it's not surprising that there's been a stampede of people who still call themselves "investment bankers" sending resumes to the smaller boutiques that have pretty much avoided the fallout from the financial crisis.
These boutiques -- such as Lazard, Greenhill, Rothschild and Banco Leonardo, to name a few -- never made the fatal mistake of larding up their balance sheets with a plethora of risky securities. Instead, they continued to stick to the tried-and-true business lines of providing M&A advice and managing people's nest eggs for a fee.
They haven't taken a dime of government money and thus are not subject to the newfangled and still-evolving government restrictions. As a result, they retain the freedom to pay their bankers whatever they like, albeit reflective of the new, more sober economic environment.
Does this mean you should go and work for a boutique? Maybe, but for anyone considering a flight to safety, there are a few sobering things to bear in mind.
Firstly, there really is a deluge of resumes flooding these firms. Given that a modest compensation package is far preferable to none at all, they can therefore be hyper-selective and increasingly stingy with pay - Bruce Wasserstein, the CEO of Lazard, doesn't have to be a rocket-scientist to figure that one out.
Secondly, boutiques have also intelligently taken to upgrading their staffs by culling the poor performers and replacing them with the crème de la crème of the thousands of laid-off bankers. So, to compete seriously for any potential job opening, you will need to have world-class skills.
Thirdly, the boutiques aren't immune from the economic downturn, which has resulted in a huge decline in the number and size of M&A deals. Their restructuring businesses may be growing, but they are unlikely to be able to pick up the shortfall left by the drop-off in deals.
Finally, what used to be known as Wall Street banks aren't going away.
You need only look to the recent $60bn deal by pharmaceutical giant Pfizer for Wyeth. Even though Lazard had been a longtime advisor to Pfizer, Wall Street muscled the firm out of a lucrative advisory role in the deal because Pfizer decided to offer Wyeth shareholders $22.5bn in cash as part of the consideration. In return for that $22.5bn, much of which came from banks in receipt of TARP funds, Pfizer agreed to keep Lazard out.
Welcome to the new world of investment banking.
William Cohan is a former senior-level Wall Street M&A banker. He's also author of The Last Tycoons: The Secret History of Lazard Freres & Co. His new book, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, will be published by Doubleday in 2009.
