M&A pros are most likely to come through the current crisis with their careers intact, says author and ex-banker William Cohan.
As the still evolving mess in the global credit markets begins to reach the upper echelon of Wall Street management - who could have predicted that Chuck Prince, Stan O'Neal, Warren Spector, Tommy Maheras, Peter Wuffli and Oswald Grubel would all be purged in the same year! - it is clear that a wave of layoffs among Wall Street's overpaid rank-and-file will soon follow.
Indeed, in many instances, the reductions have already begun: Bank of America announced 3,000 job cuts and a rethinking of its investment banking efforts; Bear Stearns has announced that some 300 professionals will be axed; at UBS 1,500 jobs will be cut; at Lehman Brothers the number of jobs going is around 2,000; and at Morgan Stanley some 600 job cuts have been announced.
These cuts are probably just the tip of the proverbial iceberg as once high flying mortgage-backed security, CDO, credit derivative and leveraged finance specialists, among many others, find that their services are no longer so badly needed.
And for those bankers and traders who remain employed, it is virtually guaranteed that discretionary year-end bonuses will be down significantly across the board (with the notable exception of Goldman Sachs, where the nine-month 2007 accrual for bonuses is already higher than the record bonus payout for the full-year 2006).
Making the case for M&A
How should prospective Wall Streeters and future MBAs grapple with the rapidly changing job outlook on Wall Street?
Assuming you still want to work in finance, the best way to do so during the next several years may be by becoming an M&A advisor. While this may seem counter-intuitive now that a slowdown in the M&A business has begun - although 2007 will go down as the most active M&A year on record - the truth is likely to be that M&A volumes will slowly begin to pick up again during the next few years as strategic buyers begin once again to strut their stuff in a marketplace until recently dominated by financial buyers and private equity firms.
Since providing M&A advice requires virtually no capital - aside from compensation - the profit margins on that advice are huge, and, in the current environment, are likely to be far higher than those for the more capital intensive Wall Street businesses.
Once M&A volumes begin to tick up, it would not be surprising to find firms starting to step up their hiring in this area. The pure-bred M&A firms, like Lazard and Rothschild, have already made noises about a willingness to hire in their M&A businesses.
While not as sexy as leveraged finance or derivatives, and even though becoming a highly regarded M&A advisor requires a long apprenticeship, the job prospects at the moment in this line of work look brighter than almost anywhere else on Wall Street. However, this will only be cold comfort to the coming year's crop of college graduates and MBAs who will soon feel the effects of this latest period of Wall Street excess.
William Cohan is author of The Last Tycoons, winner of the Financial Times and Goldman Sachs Business Book of the Year Award.