Hedge fund group Citadel is beefing up its investment banking business, hiring up to five bankers including Todd Kaplan, a leveraged-finance specialist at Merrill Lynch. WSJ says the hire will be announced in the next few days.
The story really represents the intersection of two trends. One is that talented bankers are leaving TARP-dependent firms for greener pastures without paycaps. That’s the bad news for Merrill Lynch — owned by Bank of America (BAC) — which isn’t going to be out from under the government’s yoke anytime soon.
But it’s also a white flag of sorts from Citadal — an admission that the big, leverage-aided trading profits from years past won’t come so steadily in the future and that they need to diversify. It’s the same bet that everyone’s making.
Investment banking, you may have noticed, isn’t exactly a growth industry. Investment banking pure play Lazard (LAZ) just posted a significant loss. But still, the future looks to be in lowish-margin nuts and bolts businesses: deal advisory, underwriting, stock broking. People stuff. Citadel, by diversifying away from its core hedge fund business is running into a crowded field.
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