An i-bankers survival guide

Summer is always a yucky time in the world of investment banking.

For those who are busy, they are invariably busy on mergers and acquisitions. As the window for equity offerings is usually closed to all but the chosen corporate few from July 4th until Labour Day, there’s not much else to do as an i-banker other than advisory assignments. And it’s all indoor work: squatting in front of excel spreadsheets and pouring over powerpoint presentations outlining “strategic alternatives”.

If you’re not busy with live M&A files, summer is still a yucky time, for you can’t take off the entire summer as an i-banker. No matter how senior you are. With the fiscal year ending in October, your colleagues need to see that you’re at least trying to generate some revenue. After all, there are still four months of the fiscal year left to put a puck or two into the net.

For the busy M&A bankers, the sad reality is this:

– For confidentiality reasons, no one can know what you are actually working on. Which means that you are holed up in the office on sunny days, with no ability to defend your crazy all-day, all-night schedule with a tidy retort of “well, did you see XYZ deal in the newspaper? That’s what I’m working on, honey.”
– If your family is in town, there is little time to see them during daylight hours. If your family is up north, you don’t even get a kiss goodnight and there’s no incentive to go home at all. But, despite your family enjoying the shores of ABC Lake, you’re still in the doghouse as you can’t be there with them, except maybe on Saturday nights.
– At least half of the M&A deals you’ll work on in your career don’t actually come to pass. Your client loses an auction, so example. Which means that half of the time you are actually working on a non-deal. No tombstone to show for your efforts.
– M&A deal fees are all paid on success. Which means that half the time your efforts will result in no revenue to the firm, despite your best efforts. No revenue, no bonus pool points.
– To make matters worse, the time you spent on XYZ Co.’s doomed project took time away from covering the rest of your client list. While you had your head down, someone else was taking the other CEOs and CFOs golfing at Bigwin or Red Tail. Double whammy.

This summer is a particularly yucky time for the i-banking crowd. The Dow is hanging around Bear Market territory. Global firms are pruning the investment and corporate banking staff, and the local dealers are following suit. The TSX initial public offerings of 2007 are, in many cases, underwater — which will serve as a bar to any new traditional common share IPO or follow-on equity deals during the Fall of 2008.

To make matters worse, the long-term incentive plans (“LTIPs”) that were priced last Fall at the various Canadian Chartered Banks are deeply underwater. Even the LTIPs from 2006 are, at best, flat to their issue price.

For the 2005 LTIPs, which are scheduled to pay out this Fall, BMO (BMO:TSX), CIBC (CM:TSX) and National Bank (NA:TSX) shares are trading below the October 31, 2005 share price (between 16% and 25% down). Scotiabank (BNS:TSX), TD (TD:TSX) and Royal Bank (RY:TSX) are trading between 10% and 13% above their share prices of that date. That should generate a payout for some, but certainly not all, of the Big 6’s i-bankers if the stocks can hold in there for another 15 weeks.

Yucky, yucky, yucky.

Investment banking bonuses will be down 30% this year across Bay Street (except the Analyst category), according to headhunter Bill Vlaad, of Vlaad & Co. If the long term incentive plan bonus folks received in October 2005 doesn’t pay out this Fall, times will definitely be tighter than they’ve been for half a decade.

So, as a public service, here are a few things than an i-banker can do to survive in these difficult times:

– Switch dry-cleaning services: while you’ve been busy at work over the past two years, Creeds has jacked up their prices. That shirt you wore today cost you $5.50 plus tax. Try Sketchley’s “P1” level, instead. You’ll probably have to drop them off, but there are a couple of bucks to save each day.

– Downgrade your suits: as fun as “Doctor cuffs” are, few really know the difference between Brioni, Armani and Canali. As for Kiton, I’ve never understood the point of a $5,500 off-the-rack suit. For the Brioni crowd, cut your suit cost by $1,000 and try Canali.

– Buy your suits on sale: although your spouse might wonder what’s come over you (more on that later), there’s nothing wrong with buying a suit on sale. To help with the Bear markat reality, Harry Rosen is featuring a Summer Sale right now: “Take an Extra 25% off already reduced prices. Save on a wide range of sale sports jackets, dress shirts, ties, sportswear, outerwear and shoes from our Spring/Summer Collection.” Call Ralph Sansone at 416-972-0556; he’s not really a “sale” kind of guy, but I know he’ll accomodate you.

– Buy out your car lease: when your lease comes due on your M5 / S550 / 911 / E420 etc., just buy out the residual. Your neighbours won’t wonder what happened, and your family might even buy the line that you “loved the car too much to turn it in”. I know that you’ll still need to finance the buyout, but that’s better than reloading with a new $10k deposit, a new 39 month commitment and so forth. The cars don’t really change that much from year to year.

– Stop buying Sunoco 94 octane gasoline for your sports car: I know the manufacturer recommends the highest octane you can find, and it probably makes the car go a bit faster up University Avenue. Not only will you save money, the new speed laws make it awfully hard to take your sports car up to any speed where the type of gas you’re using actually matters.

– Avoid highend art auctions: prices aren’t yet affected by the U.S. economy, so there are no bargains to be had. The safest way to avoid finding yourself bidding on a picture that you shouldn’t be buying is to avoid showing up at the auctions.

– Stay sober at charity fundraising dinners: do you really need a Harley Davidson? No, probably not. So, why are you bidding on a $25,000 toy that you don’t have a licence to drive? ‘Cause your snapped at a fundraising dinner for Heart & Stroke / COC / National Ballet / Canadian Art Foundation….

– Cash in your Aeroplan points: remember all of those long flights and expensive hotels from the Bull Market? Well, check your Aeroplan statement. There are more than a few free flights there. March Break isn’t that far away, and while you still have Super Elite status, Air Canada will let you sue your points even during blackout periods. If you always go “J-Class”, that’s $10k saved right there.

– Cash in your Amex points: did you know that your 1 million American Express points can be converted to cash gift cards for Golf Town, Holt Renfrew and The Baby Gap? 60,000 points gets you $500 of spending money at these fine stores. Ask yourself why your spouse is using the line of credit to buy new clothes at the Baby Gap. Clothes that’ll be too small for your baby after a few weeks of wearing. Amex gift cards are the answer.

– Switch to Birks from Royal de Versailles or the Cartier Boutique: first of all, a diamond is a diamond when you are in this realm, so why spend the extra dough? And there’s nothing wrong with the Birks pedigree. Birks also carries the same Cartier watches that your spouse was eyeing for her anniversary present, but Birks will probably take 15% off the retail price. After all, they read the same newspapers that you do. The Cartier staff are in denial.

– Donate stock to satisfy outstanding charitable donations: it is still a good idea that you promised to give your alma mater a big chunk of money a few years ago on a multi-year payment plan. But, with cash flow being tight, why don’t you utilize the new “capital gains” deferment that former i-banker D.K. Johnson made happen? Rather than use your line of credit to make good on the instalment, just donate some publicly-traded stock that you own that’s still in the money: no capital gains tax will be payable, and no trading commission on the sale, either. And your University Foundation still gets the donation, even though you can no longer afford it. A triple win.

– Turn up your house airconditioner by one or two degrees: Do you really need the house to be at 71F? 73F is plenty cool. You’re never there anyway. Tell your family that you’ve been doing some work in the Alternative Energy space and everyone needs to do their part in conserving energy. And the good news is, local hydro utilities are promising big discounts this summer to everyone who cuts their useage by 10%. How hard can that be?

– Cancel the guard service offered by your home alarm company: If the house is empty for the summer, it’s just a waste of money. They take 10 minutes to get there, and the average house thief will be in and out within 6 minutes. If you’re lucky, the robber will take some of your fine art, generating a nice winfall with your insurance settlement. Money that can replace your missing bonus. And, if you really want someone to respond, Metro Police are better equipped to deal with masked men rummaging in your wine cellar or trophy room.

These are but a few ideas that’ll help an enterprising i-banker reduce his burn during these lean times. But there are literally hundreds of them.

MRM