There's a hot new posting for Wall Street bankers — and it's not Hong Kong or London
Wall Street dealmakers used to be sent to Hong Kong or London to win new business. Now they're being sent to Seattle, Atlanta, and Denver.
Bank of America, JPMorgan, and Citigroup have been taking steps to do more business with midsize companies in regional centers in the US, outside the traditional hubs like New York, Houston, and San Francisco.
They have moved and hired dealmakers there, and they have them focused on so-called middle-market companies. The potential rewards are significant: Middle-market companies in the US and Canada paid $8.2 billion in deal fees in 2015, according to a Bank of America Merrill Lynch presentation.
That's more than the fees netted in most of Asia, the Middle East, and Latin America combined.
"This is a key focus for us as we have developed the other areas of our investment bank," Christian Meissner, the head of global corporate and investment banking at Bank of America Merrill Lynch, told Business Insider. "Relatively speaking, this represents a greater opportunity than some traditional avenues of growth."
Each bank cuts it slightly differently, but broadly speaking the largest multinational corporations are serviced by the corporate banking divisions within big global banks. These companies — think Apple, GE, Ford, and the like — have bankers crawling over them, trying to win every last piece of business they have to offer.
The commercial banking divisions typically serve tens of thousands of smaller (but by no means small) companies, and it is the commercial banking clients that the banks are hoping to do more business with.
"The premise behind regional investment banking starts from extending relationships from the commercial bank," James Roddy, who oversees the regional investment banking and M&A business at JPMorgan, told Business Insider.
JPMorgan drew up plans in 2012 to focus on middle-market banking and now has about 50 people in the investment bank dedicated to this group of clients, having hired local, senior, experienced bankers in a handful of regional centers over the past three or four years. Each location — including Atlanta, Dallas, and Washington, DC — will typically have a managing director, an executive director, a vice president, and an associate on the ground.
"This isn't about doing smaller deals," Roddy said. "It is working with people where we're already providing treasury services or commercial banking, and we have an opportunity to provide a full service that includes investment banking."
The effort is paying off. Doug Petno, the chief executive of JPMorgan's commercial bank, cited growing investment-banking revenue from commercial banking clients at the bank's investor day in February. Revenue from this client segment hit $2.2 billion in 2015, and the bank has a long-term target of $3 billion.
It's a similar story at Bank of America Merrill Lynch. Many of the bank's clients told the bank they felt that it wasn't local enough and that they would get only occasional coverage from investment bankers who would fly in from New York or another major city. To remedy that, the bank has assigned about two dozen bankers over the past couple of years to focus on this segment of clients.
"These are almost always existing clients of the firm," Meissner told Business Insider. "We have the commercial bank, the midmarket lending business, where we have something like 30,000 clients across the US. What's new is whereas previously they would have gotten episodic investment-banking attention, now they have a dedicated investment banker in addition to their existing relationship banker from commercial banking."
Citigroup, meanwhile, is reviewing plans to put a banker in Denver as part of its energy coverage team, in addition to its existing presence in New York, Chicago, Houston, San Francisco, and Los Angeles.
An opportunity that was always there
The opportunity to win business in these regional cities isn't new — it's just that banks had been more focused chasing opportunities elsewhere. The renewed interest in less glamorous clients and locations comes at a time when many of these more exotic growth markets are slowing.
The $8.2 billion fee pool for US and Canadian middle-market companies is comparable with the fees paid by companies in Latin America, Central and Eastern Europe, the Middle East and Africa, and Asia Pacific excluding Japan put together.
"This isn't a new idea; it's a different approach," Meissner said.
Given the challenging market conditions, any area showing growth is sure to become competitive. And sure enough, the middle-market investment-banking business is now more keenly fought over than in the past, Roddy said.
"It is happening right now," he said. "People are waking up to it. We've been doing it for a while, so it is nice to be ahead of the curve."