Is Juniorization Driving Top Wall Street Talent In-House?

Is Juniorization Driving Top Wall Street Talent In-House?

Everyone knows that investment banking is a stressful, high-pressure field with high rates of burnout, which is why some major Wall Street firms are growing more sensitive to their employees’ work-life balance needs, encouraging them to take weekends off or introducing parental leave benefits. An obvious motivation for these changes is retention: These banks stand to make more money if they can avoid burning their young analysts out in a matter of two or three years.

Wall Street may have another new attrition problem on its hands, though, this time regarding star talent at higher levels. “Investment bankers are increasingly leaving Wall Street to work for the companies they advise,” Portia Crowe writes at Business Insider, “and it’s starting to hurt the banking industry in more ways that one”:

JPMorgan’s Alejandro Vicente, a managing director in consumer goods, is the latest to make the jump. … But he’s not the only one. Earlier this year, former Morgan Stanley banker Alban de La Sabliere joined the French drug maker Sanofi, which is now bidding to buy the pharmaceutical company Medivation. …

The departures are a double-edged sword for banks. Not only are they losing top talent, but they could begin to miss out on deals as companies turn to in-house experts rather than hire on teams of bankers.

We saw that a couple of weeks ago with AbbVie’s $5.8 billion deal for Stemcentrx and Comcast’s $3.8 billion deal for DreamWorks. Neither acquirer hired outside bankers, according to The Wall Street Journal. Both recently hired bankers from Wall Street. That meant banks missed out on what could have been $45 million in advisory fees for those two deals, according to estimates from Freeman & Co.

I’ve talked before about the trend of juniorization, a strategy that financial firms like Goldman Sachs are using to cut costs by hiring more junior bankers while paring down their more senior ranks. I don’t know if this latest development necessarily relates to that trend, but this story got me thinking: One of the intuitive implications of juniorization is is that those senior leaders you are getting rid of could end up at competitors, starting their own competing businesses or, as in this case, bringing expertise in-house so it doesn’t have to be bought.

Of course, good outcomes could happen, too: They could become clients, for instance. But this is something that should be part of the calculation when considering whether to juniorize. You do solve a cost issue and can provide better careers for folks internally, but you are also releasing scarce talent into the market that might end up competing with you and costing your organization money. It’s always a good idea to pay attention to where key employees end up when they depart your organization, and that looks like it may be especially true for organizations thinking about juniorization.