Banking MDs on the problem with 2023: Working harder for less money
As Blackstone's Q1 results reflected today, there are still issues with leveraged finance in 2023. With interest rates rising and leveraged deals falling, European and US leveraged finance revenues were down 63% and 62% respectively in the first quarter, according to information provider Dealogic.
It might therefore be presumed that leveraged finance and financial sponsors bankers don't have much to do.
That would be incorrect.
"There are very few highly paid deals, but we are all working super hard," reflects a managing director (MD) in a financial sponsors team at a European bank in London. "- It's the most bizarre market," he adds. "There are no deals to anchor our activity. Everyone is busier than when we actually had the deals, but very little is happening."
In leveraged finance it's similar, but different. An MD in leveraged finance at a rival bank, says it's not just the volume of leveraged finance deals that's the issue, but the kind of deals that are taking place. "We're actually doing a lot of deals this week," he says, adding that the moment there's calm in the markets, then the pipeline of deals is executed. The only problem is that those deals are less remunerative in terms of fees. "Most of the deals we're doing now are best efforts transactions," he says. "They don't involve underwriting, and so the fees are low - we simply place the bonds on a best efforts basis."
In the past, 70% of deals were underwritten, he adds. "This year it's closer to 20%."
Both MDs say they're working as hard - if not harder - than before, but are far less productive. The same applies to their teams. "We're having thousands of conversations with clients. Everyone has a fear of missing out," says the first MD. "And the juniors are busy doing thousands of pieces of analysis."
The frenzy of work explains why bankers in both areas haven't been cut as aggressively as the decline in revenues might suggest. Goldman Sachs trimmed levfin people last year and Barclays cut an associate in London this week, but most teams still have plenty to do. "The general feeling is that the collapse in leveraged finance deals has been overplayed," says the leveraged finance MD.
This doesn't mean that the future is assured. "It's almost impossible to price risk at the moment," says the MD in financial sponsors. "Who knows if you're buying a falling knife? And there's still a big discrepancy in price expectations between buyers and sellers."
In the meantime, there are signs that some leveraged finance bankers are riding out this year better than others. As the charts below show, Credit Suisse has (predictably) dropped off the charts everywhere, as has BNP Paribas in Europe.
Top banks for leveraged finance 2021-2023
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