Wednesday, September 05, 2007

Wall Street Hiring and Bonuses At Risk

I know it is "old" news now but thanks to the credit crisis the Wall Street hiring machine is sputtering; layoffs are mounting and the lavish bonuses are waning and it is likely to get worse before it gets better. Late last year some readers commented that a burst in bonuses granted to investment banker types would likely result in a bump in house buying activity here in Marin and we did see a rise in buying activity in the higher end around the December-January time frame. Will we soon be reading sob stories in the Marin IJ about the poor, innocent, deserving, victim investment bankers who didn't get their expected bonus and/or lost their job and so had to sell their Tiburon trophy house but couldn't find a greater fool, err, of course I mean a willing buyer thanks to the credit crunch that they helped to enable? And what about the trophy wife? Will she still want to continue to hang with a houseless has-been? Inquiring minds want to know.
Hiring has slowed or seized up at many firms including Lehman Brothers Holdings Inc. and Citigroup Inc., where 17,000 job cuts were announced in the spring. And more layoffs loom in many areas in the investment-banking industry in the wake of the August credit crunch, particularly in businesses such as credit trading and structured products, analysts and job recruiters predict. At the very least, bonus season looks a lot tougher this year on Wall Street and in The City in London.

"Substantial losses from this credit debacle are unquestionable," said Sean Springer, chief executive of Napier Scott Executive Search Ltd., a London-based firm that helps banks, hedge funds and law firms track down talent in debt, credit, currency and emerging markets. "If investment banks hire when their profits increase, it's fair to assume the reverse is true when they suffer unforeseen losses."

Areas that could be affected most include credit trading and collateralized debt obligations, recruitment executives said. But hiring freezes have also hit closely related industries such as hedge funds and private equity funds too.

Analysts say big firms will dip into the bonus pool to smooth earnings. Options Group estimates an average 5% decline in bonuses. Traders in the collateralized mortgage securities business may see a 40% drop, maybe more if the conditions worsen.

4 Comments:

Blogger mrlmv said...

Will we soon be reading sob stories in the Marin IJ about the poor, innocent, deserving, victim investment bankers who didn't get their expected bonus and/or lost their job and so had to sell their Tiburon trophy house but couldn't find a greater fool err, of course I mean a willing buyer thanks to the credit crunch that they helped to enable?

Not likely... Investment bankers (a term by the way which is consistently misused - as not all professionals at an investment bank are investment bankers)... Most investment bankers that are old enough that they want to live in Tiburon with a trophy wife (isn't that your second wife) are cash buyers. Even those that have mortgages likely have ample liquid reserves (with the mortgage in place for tax purposes and to allow them to arbitrage a 5% loan into some 12-13% private investment vehicle).

These guys aren't leveraging themselves to the hilt to get into a $4 or $5 MM home - many will make that or a multiple of that in one good year - which by the standards of the traditionalists on this board should put them in good graces for being conservative on a debt to income basis.

Sep 5, 2007, 9:06:00 PM  
Blogger Marinite said...

My tongue was securly lodged in my cheek when I wrote that.

Sep 5, 2007, 9:16:00 PM  
Blogger mrlmv said...

ahhh... sarcasm. My bad - I have trouble identifying it in real life let alone in a blog...

BTW speaking of useless reporting, I loved that article that was written about the Larkspur couple that were the best sort of buyers (already owned a $5MM home, yada, yada, yada) walking from $75K in earnest money because the bank wanted them to pony up an additional $250K in downpayment money...

No critical assesment of that situation at all.. isn't it fishy that a good buyer that by definition of being a good buyer must have had ample reserves (particularly if they own a $5MM home that had any equity) would balk at upping their equity in the purchase to 10%... More than meets the eye going on there - of course it would ruin a good story if it turned out they were overleveraged or speculator buyers...

I can barely read the newspaper any more...

Sep 5, 2007, 11:27:00 PM  
Blogger Frank said...

I assume these investment bankers have not been buying houses lately. Otherwise the Marin Heat Index would have been a lot higher. Besides, how much percentage of Marin residents belong to this category, less than 1%?

My friend who is specialized in commercial real estate told me that even the red hot commercial real estate is feeling the pinch right now. If the commercial real estate goes sour, the whole economy is definitely heading for recession.

Sep 6, 2007, 7:14:00 AM  

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