“It is interesting that we are getting more CVs for investment banking jobs now, when our own business is facing tough times,” said a head of a mid-sized investment banking firm.
The dry-up in the IPO market is not only forcing merchant bankers to downsize their teams but also look for other revenue generating options.
There are no volumes in the market. The overall revenues have dipped by 60 per cent, say investment bankers.
Awaiting trigger
“The scenario has changed over the last one year. This year there are very few IPOs. The SME issues don’t count as big revenue generators for us. We are all waiting for some trigger to revive the equity markets,” said Sundar Rangan, who heads the fifteen-member merchant banking team at Arihant Capital Markets.
“There are investment bankers who have lost jobs. As they have to find jobs in the financial industry only, they are taking up back office jobs in KPOs (knowledge process outsourcing) for example. They are also open to working in different geographies,” said E. Balaji, CEO, Randstad.
During the Calendar year 2011, there were 39 public issues. Of these, 17 public issues were small issues with issue sizes below Rs 100 crore. There were only three public issues with issue sizes above Rs 1,000 crore. This was sharply down from the 2010, when there were 14 public issues above Rs 1,000 crore, said a note from SMC Global Securities.
All-round freeze
“These are difficult times. There has definitely been a freeze in the salary hikes as well as general expenditure such as perks, travel expense etc. Diwali bonus also looks difficult. If things don’t improve, we will have to look at down-sizing teams,” said Rangan.
Some merchant bankers are looking at optimising their teams. “If four people were previously working on an IPO, now three people will work on it. There will definitely be a marginal reduction in the hikes/ bonuses that employees will get,” said Pankaj Namdharani, an investment expert.
Weak global scenario
Globally also investment banks are cutting jobs after they experienced a drop in profits in their second quarter revenues. Recently, Deutsche Bank cut 1,900 jobs after its second quarter profit fell 46 per cent. These job cuts will come from the investment banking division. Morgan Stanley, Goldman Sachs and JPMorgan have all also, globally, announced plans to cut jobs or, trim compensation to minimize expenses.
As merchant bankers cannot solely sustain on the revenue generated by IPOs, they are concentrating on buyback issues, corporate debt restructuring, private equity and mergers and acquisitions. They are also betting on the offer-for-sale route for revenue generation.
Motilal Oswal has shifted its IPO team to private equity. “As the markets are bad, companies who had previously planned to raise money through IPOs are now exploring the private equity route. For instance, Karaikal Port chose to raise money through private equity rather than get listed,” said Ashutosh Maheshvari, CEO, Motilal Oswal. In June, Karaikal Port raised Rs 130 crore from Standard Chartered Private Equity.