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 mid-sized companies in regional centres in the US, outside of the traditional hubs like New York, Houston and San Francisco.
They have moved and hired dealmakers there, and have them focused on so-called middle-market companies. The potential rewards are significant: Middle-market companies in the US and Canada paid out $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, 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.
JPMorgan drew up plans to focus on middle-market banking in 2012, and now has around 50 people in the investment bank dedicated to this group of clients, having hired local, senior, experienced bankers in a handful of regional centres over the past three or four years. Each location, including Washington D.C., Atlanta and Dallas, 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,” he 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, chief executive of JPMorgan’s commercial bank, cited growing investment banking revenues from commercial banking clients at the bank’s investor day in February. Revenues 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 like 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 around two dozen bankers to focus on this segment of clients over the last couple of years.
“These are almost always existing clients of the firm,” Meissner told Business Insider. “We have the commercial bank, the mid-market 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.”
An opportunity that was always there
The opportunity to win business in these regional cities isn’t new. It is just that banks previously were 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 out 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,” Bank of America’s Meissner said.
Given the challenging market conditions, any area showing growth is sure to become competitive. And sure enough, middle-market investment banking business is now more keenly fought over than in the past, according to Roddy at JPMorgan.
“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.”