Boutique bank not yet ready to jettison the MDs it spent all that money on
How much do you earn as a managing director (MD) at Moelis & Co., the boutique bank that released its first quarter results yesterday? We can't say for sure, but given that the average of its 1,309 employees was paid $634k last year, it's almost certainly over $1m.
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That's possibly a problem when, as the Financial Times noted yesterday, those MDs aren't doing deals and generating any revenues.
Even if they don't get bonuses, Moelis & Co's 168 MDs are likely to receive salaries alone of $350k+ (executive directors at Moelis earn $280k salaries according to H1B data). That's a salary bill of $59m a year.
Might it be time to let some of them go? Absolutely not. Speaking yesterday, CEO Ken Moelis said he has no intention of casting his MDs adrift. You can't put everyone on the sidelines or send them on vacation and then say "everyone come back" said Ken. "We put together an extraordinary go-to-market team and we’re going to protect it, unless we see something that is so awful that we think it extends out over a period of time," he fiercely added.
For the moment, Ken doesn't think the hiatus in deals will continue for a long period of time. Ok, some deals "have gotten shelled", but much like Ted Pick at Morgan Stanley, he thinks deals are being paused, not deleted. "This is not a world war," said Ken. It's not a "fundamental degradation of the business." -Once the "policy situation" is over, "it will snap back pretty quickly to an active deal market where people will want to execute on their plans that they have been waiting to execute on..."
It's fortunate that Ken thinks this, because as Moelis & Co's presentation yesterday made clear, the firm has spent a lot of money hiring new MDs in recent years. 42 have been added in total since 2020, including 18 covering the technology sector alone.
More are in the pipeline. MDs want to join Moelis & Co. in this environment because it's not levered like a bank, said Ken. If you're levered 10-1, it's hard to have confidence in your balance sheet now, he suggested: "I don’t know any asset that I own that’s not down 10% since April 2." In the circumstances, he said Moelis & Co. is a good bet for people, "looking where to place their lifetime, their family, and their lifetime future career. "
But what are all these senior bankers doing while they collect their $350k salaries and wait in a safe place for deals to return? Ken said some areas of the market are less affected than others. Deals in Europe, US healthcare and anything not related to supply chains, are comparatively healthy. Private capital advisory is still a growth area.
And even when there are no deals, bankers are busy. "Remember, there are no tariffs on relationships," declared Ken. He said that 10 technology MDs hired in April 2023 have been involved in 6,000-7,000 extra client calls in the past two years. They include "ideas calls" chewing the fat on deals that might be done in better times. Hopefully those times will come very soon.
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