Starting this month, Bank of America (NYSE: BAC ) has had to do without one of its star performers. Andrea Orcel, one of its top investment bankers, was suddenly and surprisingly poached by rival European financial group UBS (NYSE: UBS ) . Orcel is a sharp dealmaker who made hundreds of millions of dollars for his company in merger and acquisition fees -- he's a "rainmaker," in Street argot. His loss is considered a keen one, but the kinds of deals he used to broker have been thin on the ground lately.
A decade of down
Many big-name investment banks are still recovering from the shocks of 2008, when several flamed out spectacularly and others received government care packages to stay alive. Even old moneymaker Goldman Sachs (NYSE: GS ) stumbled; in late 2011 it posted its first quarterly loss since going public in 1999. Eternal rival Morgan Stanley (NYSE: MS ) has seen its total assets drop by more than 28% from 2007 to last year.
Orcel had been at Merrill Lynch, the company absorbed by B of A in 2008, since the early 1990s. That was a good time to be in the business, and he scaled the ranks of the company as it came into the go-go years of the market later that decade. The party didn't last, of course. When the crisis rolled around Merrill rolled over, and B of A was coerced into ... er, voluntarily acquired the investment bank in a fire sale.
Since then, Merrill has labored to be the financial powerhouse it once was. Revenues have slid since B of A's first full year of ownership in 2009, dropping almost 20% from then to last year. Looking at the revenue structure more closely ,the all-important investment-banking fees -- the bread and butter of investment banks and the rain that people like Orcel are expected to bring -- fell steadily each of those years, from 2009's $5.6 billion to 2011's $5.2 billion.
Hunting for work
Like its big-bank cousins, UBS needs a boost in fees if it's to grow its overall results. Total fees and commission income have dropped in the post-crisis years. The company took in 20 billion Swiss francs (around $22 billion at current exchange rates) in 2009, but that figure stood at only 17.1 billion Swiss francs two years later.
Is Orcel the man to reverse that trend for his new employer? Well, he built his reputation by being one of the central figures in several huge deals. There was the 25 billion euro ($33 billion) merger of Italian financials UniCredit and Credito Italiano in 1998, for instance, and the takeover of Dutch bank ABN Amro by Royal Bank of Scotland in 2007. The latter was, at that pre-crisis point in time, the largest bank acquisition in history.
So he's a proven commodity. But in his specialty realm of finance there haven't been too many deals to make lately. Despite a slight rise in overall M&A worldwide in 2011 to more than $2.2 trillion, only around 12% of that total came from transactions in the financial-services industry. The only deal vaguely connected to the financial sector in the top 10 for the year was the sale of a REIT.
In 2011, most banks active in M&A either did much higher deal volume than they did the previous year, or notably lower. In the former club was the No. 1 dealmaker Goldman Sachs, which grew its volume a robust 23% on an annual basis. B of A improved 15% but from a relatively low base, so it ended the year at only No. 6. Laggards included No. 2 Morgan Stanley, with an 8% drop ... and UBS, slipping to No. 10 from 2010's No. 7 on the back of a 18% year-on-year drop in volume.
Let's make a deal ... please
Hence UBS's need for a guy like Orcel. The company is undoubtedly shelling out a pretty penny for its new star and will expect a nice return for its money. Will the rainmaker rope in some deals and earn what he's paid plus the bonuses sure to come his way? He certainly has the ability; the question is whether there are going to be deals to make, particularly at the level he's operated at in the past. Recent history suggests not.
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