Sideways: Where time is not money

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The untimely death of an intern at Bank of America prompted a spate of headlines about the long hours worked in the City of London and Wall Street. Forcing junior staff to put in exceptionally long hours is clearly counterproductive in any sector of banking, as it is in other industries. But the practice reaches a peak of pointlessness in corporate finance, where the Bank of America intern worked. Pure corporate finance, such as mergers and acquisitions or advisory work, is the area in the City where the greatest nominal effort is applied to the least practical effect.

Despite consistent demonstrable underperformance, corporate finance is still almost as well staffed as fixed income or equity trading, however.

The Coalition Index of 10 top investment banks counted 16,800 full-time front-office producer employees in the origination and advisory function, which lumps corporate finance with debt and equity capital markets, at the end of the first half of 2013. That was fairly close to the total of 17,800 front-office staff in equities and the 19,600 producer employees in fixed income. Revenues were far from comparable, however, even in a challenging year for fixed-income sales and trading businesses.

Fixed-income trading among the index members generated $45.4 billion of revenue in the first half of 2013, compared with $22.4 billion from equities and $19 billion from origination and advisory.

And within the origination and advisory bucket it was buoyant debt and equity capital markets revenues that dominated, while pure corporate finance fell further from a lacklustre 2012. DCM revenues rose 28% on the same period in 2012 to a healthy $10 billion in the first half of this year, while ECM was up 49% to $4.9 billion. Mergers and acquisition revenues, by contrast, fell 4% to $4.1 billion.

Yet senior managers with a corporate finance background continue to prosper within investment banking hierarchies, in part for cosmetic reasons. It is seen as more palatable to promote a corporate financier as one of the faces of the investment bank at many firms, rather than a trader or sales head. This helps to foster the image that the bank is focused on supplying traditional uncomplicated services to clients, even when corporate finance has a limited impact on actual revenue generation.

Of course there is also a practical reputational management aspect to this in the current climate, given that corporate financiers are far less likely than trading veterans to be forced to resign in disgrace because of regulatory investigations into market abuses such as Libor fixing.

But it is still difficult to see how some of the current crop of investment bank CEOs or co-heads with a corporate finance background deserve their positions.

At the other end of the banking totem poll it is equally hard to see why the practice of imposing exceptionally long hours on junior corporate finance staff is perpetuated, given the minimal value of conducting repetitive tasks such as updating undifferentiated pitch books into the evening hours.

Work as an associate at an investment bank long ago became the equivalent of qualifying for an MBA, where application rather than ability is being tested.

But this practice has developed cruel and unusual aspects in corporate finance, where weekly totals of 70 to 100 hours have become standard, according to industry polls, compared with 50 to 60 hours for the lucky devils in sales and trading who at least get to go home not long after the markets shut and the actual producers depart for the day.

The only comparable workload within the professional services industries in developed economies is that shouldered by junior corporate lawyers, who work similar hours to their peers in corporate finance. There is at least some economic justification for forcing young lawyers to stay in the office, however, as their presence is used to generate billable hours for law firm partners.

Junior staff members in corporate finance stand alone in the sheer meaninglessness of their Sisyphean efforts.