Boutiques are caught with dear idle bankers | USAEMALL.com

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Ken Moelis on Wednesday tried to put a brave face on what is going to be an ugly year for mergers and acquisitions. “Remember, there are no tariffs on relationships,” he said after his advisory shop Moelis & Co released its first-quarter results, with the likes of Lazard, Evercore and PJT set to share their earnings and outlooks in the coming days.

These warm ties are not bringing in much in the way of business, at the moment. While revenue of $307mn jumped sharply year over year, turnover was down sharply from the fourth quarter. More importantly, Moelis admitted that since “liberation day” on April 2 the firm’s pipeline had shrunk, with some deals simply collapsing on tariff-induced pressure. Moelis held out hope that the vast majority of deal discussions were merely on a temporary pause. President Trump might revive the transactions market by simply turning off his trade penalties.

Perhaps, but the stock price of Moelis’s firm is down 36 per cent from its post-election sugar high, implying a current market cap of $4bn. And while Moelis did remind Wall Street that his investment bank’s balance sheet carried no debt burden, what he could not avoid were questions about expensive bankers sitting idle, at least when it came to generating fees.

Total compensation and benefits at Moelis and Co registered at 69 per cent of revenue in the first quarter. The company had beefed up its ranks in recent years, in the hope that this would pay off in 2025. The usual target is around 60 per cent. Pay, especially for bankers on guaranteed contracts, is increasingly a fixed cost. Unless deal flow picks up again, that will lead to ugly profit margins later in the year.

Large investment banks may thrive whatever the weather. When volatility chills dealmaking, traders enjoy a moment in the sun. Boutique advisors, however, are fully exposed to the dealmaking lull, save for some countercyclical restructuring fees. Analysts at UBS have already cut net earnings estimates at boutique banks by a quarter for 2025 and only a little less for 2026. Still, UBS notes that valuations for the sector — around 17 times forward earnings per share — remain above historical averages.

Ken Moelis was recently granted a $25mn retention bonus to keep him at the firm he founded, and motivated for another five years. His name is on the building, and he is the largest shareholder with hundreds of millions of dollars’ worth of company stock. Even so, more alignment was apparently necessary.   

Moelis pleaded for patience, telling analysts that the bank was positioned to benefit from an inevitable but unpredictable snapback. In the meantime, in lieu of closing deals, bankers will just need to keep pounding those pavements.

sujeet.indap@ft.com