Bank of America's M&A business is not looking very healthy. In its third quarter results, published today, the bank revealed that M&A revenues fell 33% in the first nine months of 2018 versus the same period last year. Someone is eating BofA's lunch and it looks like JPMorgan, whose M&A revenues were up 10% over the same period, plus - maybe - Citi, Credit Suisse and Barclays, who all rose up Dealogic's global M&A revenue rankings for this year, while BofA fell.
Bank of America's dismal M&A revenues look like an advertisement for the merits of keeping your top M&A bankers happy. Headhunting firm Sheffield Haworth estimates that BofA has lost 28 managing directors (MDs) from its M&A business since the start of 2017. Their exit has coincided with this precipitous decline in revenues.
BofA has also been topping-up its leaky M&A vessel though. While the bank has lost 28 MDs, it's also been hiring: a spokesperson told the Wall Street Journal that 49 MDs were hired in the time those 28 left. The question is who? And, why is it that they haven't helped palliate the pain?
BofA hasn't released the names of the 49 (and didn't immediately respond to our request to elaborate). However, last year, the bank announced a strategy of building out local offices, particularly in the U.S., suggesting that it's going after more provincial mid-market revenues. New hires have been made in Dallas, Boston, Chicago and elsewhere.
This shows in the Dealogic rankings. In the U.S., BofA ranked sixth for M&A deals by volume this year, but only eighth for revenues. Moreover, it's in M&A revenues that the bank has really lost share - in 2017 it was fourth for U.S. M&A revenues; this year it's eighth. The ranking fall for M&A deals by volume (from 5th to 6th) is far less dramatic. The implication is that BofA is replacing its stream of big M&A deals with a flow of less lucrative midmarket ones, brought in by a growing team of bankers across the U.S..
Of course, this might not be all that's up with BofA. One reason for the outflow of managing directors was said to be their frustration with a new risk system which meant BofA scrutinized deals from every conceivable angle and approved them only slowly - if at all. This too is likely to have led to a preference for smaller deals.
Either way, BofA needs to hope that its M&A business doesn't enter a death spiral whereby falling revenues mean falling bonuses which mean even more staff departures. Christian Meissner, the former head of the corporate and investment bank, previously said that it takes three to five years to build an M&A business and for hires to become productive. That's a long wait. The only good news is bankers in the provinces are probably a lot cheaper than on Wall Street.
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