(Bloomberg) — Jefferies Financial Group Inc. expects Wall Street’s fierce battle for talent to continue even as the red-hot streak in global dealmaking begins to cool.
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“There is still tremendous demand for good talent in investment banking,” Dominic Lester, European head of investment banking at Jefferies, said in an interview. “This year’s market slowdown hasn’t had a material impact on that.”
Deal values are down 10% in 2022, having fallen below year-ago levels in the week that Russia began its war in Ukraine, data compiled by Bloomberg show. Even before the invasion, the prospect of rising interest rates was threatening to derail a $5 trillion-plus run in mergers and acquisitions that fueled more than a year of bumper fees and bonuses at the world’s biggest banks.
That saw Wall Street lenders elevate pay for junior and senior dealmakers to new highs as they sought to poach stars from rivals and keep their best talent from leaving to join free-spending private equity firms. At Jefferies, which has been recruiting from the likes of Credit Suisse Group AG, Barclays Plc and Deutsche Bank AG, pay for some of the best performers has surpassed $25 million, Bloomberg reported last month.
Lester said the fight to hire and retain the best bankers came down to more than money. “Of course, it’s important but you have to provide a good, dynamic culture, challenges, development and an interesting work environment to retain your team,” he said.
Jefferies has a market value of about $8 billion. Its shares have risen more than 160% since the start of April 2020, making it one of the big winners of the deals boom that began during the Covid-19 pandemic. A focus on mid-market transactions — an area where bulge-bracket banks have struggled to make inroads — and expertise in hot sectors like health care and technology, helped it grow net revenue 36% to $8.2 billion in its fiscal year ending Nov. 30.
“Our strategy as a pure-play investment bank is to continually invest in talent and capability,” said Raphael Bejarano, co-head of global investment banking at Jefferies. “As a result, we continue to build market share across products.”
Last year, Jefferies hired more than a dozen bankers to strengthen its financial institutions group, including Armando Rubio Alvarez and others from Credit Suisse. In the U.K., it’s brought in City of London veteran Philip Yates and there has also been expansion in cities including Amsterdam, Madrid, Milan and Paris, according to Bejarano.
“Many of our clients value the local team, and it’s important for us to offer genuine global reach,” he said.
In total, Jefferies hired more than 40 managing directors across investment banking and trading in Europe, the Middle East and Africa in the two years to February, according to a spokesperson for the bank. Other hires in EMEA included financial institutions specialist George Maddison, and Arnaud Fornas as head of investment banking advisory for France.
Like its rivals, Jefferies is having to contend with increasing market uncertainty stemming from the ongoing war in Ukraine. As well as reducing the value of takeovers, the conflict has effectively shut the market for initial public offerings. In Europe, this has raised questions about if and when roughly $300 billion of M&A and listings will go ahead.
“Geopolitical events and the overriding impact of higher inflation have negatively impacted risk appetite for M&A,” Lester said. “Market volatility has also closed the window for IPOs year to date, putting significant pressure on equity capital market revenues for 2022.”
Jefferies’s position as a pure-play investment bank sitting between the Wall Street juggernauts and boutique advisory specialists can help it weather the downturn, according to Lester. On one hand, it doesn’t have the complexity of a JPMorgan Chase & Co. or Citigroup Inc., which offer a slew of products that need to be cross-sold along with core investment banking businesses. On the other, its equities and leveraged finance businesses give it an edge over boutiques like Lazard Ltd. and Perella Weinberg Partners.
A more than 80% rise in fees from advisory and underwriting work last year helped offset more sluggish performance at Jefferies’s bond trading desk, which jolted the bank’s shares in January.
Lester sees private equity firms and strategic buyers returning to dealmaking to try and pick up targets on the cheap as valuations become more attractive. His colleague Philip Noblet, head of U.K. investment banking, agrees.
“The U.K. market continues to be undervalued relative to its peers and especially when you compare with the U.S.,” Noblet said. “We see continued appetite from private equity firms for U.K. assets. You can expect to see more take-private situations in the U.K. this year.”
(Adds hires in 10th paragraph.)
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