2012 has started unpromisingly in M&A. Advisory revenues were down 34% year-on-year in the first quarter at JPMorgan, 23% year-on-year at Citigroup, and 37% at Bank of America Merrill Lynch. In the first quarter of 2012, global M&A fees fell to their lowest level since the second quarter of 2009. Europe was a bit better, with M&A volumes rising 14% in the first three months - albeit thanks to Glencore and Xstrata.
In the circumstances, it's inevitable that someone will shout redundancies. We quietly suggested they might be coming to M&A last week. This morning, the Wall Street Journal makes the point a little more forcibly.
Citigroup, Goldman Sachs, JPMorgan and Morgan Stanley are preparing to cut "dozens" of jobs they say, including some held by senior bankers. Whereas redundancies have so far been largely limited to trading desks, the Journal says they will now focus on M&A bankers and capital markets professionals.
M&A headhunters in London confirm that there haven't been too many redundancies in the area yet. "But people are talking about further cuts coming," says one. "They realise that banks are top heavy for the amount of work they have and that unless the market picks up people will have to be let go."
However, it's notable that the Wall Street Journal talks of "dozens" rather than "hundreds" of cuts. M&A businesses employ fewer people than trading businesses, but headhunters also point out that the dynamic is completely different.
"M&A isn't like sales and trading where you can ramp up and slow down as the market moves," says the chief executive of one headhunting firm. "Banks like Barclays and Deutsche have spent the past 5-6 years trying to crack corporate finance and M&A. It's a long term investment - if the fee pool dries up, you might see small cuts and scaling down but it's not going to be like fixed income trading where you have two bad quarters and fire a lot of people. The time scale in M&A is much longer."
Until recently, M&A bankers sounded optimistic about their oeuvre.
"Some bankers argue that a revival in dealmaking is in the works, as volatility declines and equity markets rise. “There is always a time-lag with M&A from when leading indicators become positive,” said Wilhelm Schulz, head of Emea M&A at Citigroup told the Financial Times at the end of March. “All things being equal there will be a recovery in deal activity. It is already materialising in the intensity of strategic dialogue with corporates and solid pipeline growth."
It's not over yet. Even if fees are slow to come through, "intense strategic dialogues" should save M&A bankers' jobs for a while yet.