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Jefferies' CEO acknowledges risks to recent big MD hiring

Rich Handler, CEO of investment bank Jefferies, isn’t worried.

The bank has been hiring senior bankers, and it’s planning to hire more of them. That’s not a big deal, usually, but the economy isn’t great, and dealmaking revenues for investment banks are straining their operations – leading to layoffs and reduced bonuses and whatnot. Handler knows this, but he’s hiring anyway.

“Conventional thinking and human nature could easily have led one to conclude that senior headcount should change by a significant amount, but in the opposite direction from where we went,” he said in a leadership letter, but the risks are acknowledged.

“What we are doing is neither easy nor without risk,” he wrote. “Nobody knows for sure when the return of more normalized capital markets will actually occur. There is no doubt that there will be some pressure on margins and profitability as the lag time between investment and payback gets flushed out.”

Also stressed was the variety of investments made by Jefferies, not just in terms of geography (“Europe, Asia, South America, Canada, and the Middle East, as well as in the United States,” per Handler) but also in terms of industry (“Equities, Fixed Income, Research, Support and Alternative Asset Management,” on top of just investment banking).

Jefferies has, of course, added senior bankers at a prodigious rate. Since the beginning of last year, the bank has accumulated 111 new Managing Directors (MDs) just in its investment banking team, both through external hiring and internal promotion.

Handler predicted that Jefferies will have 360 investment banking MDs by the start of 2024, a 70% increase in four years. That scale of hiring has a pretty big impact on a bank’s results and culture. Its pay-per-head was lower in the first nine months of 2023 than 2022, despite many (expected) guaranteed bonuses to lure senior talent from its rivals.

Handler, at least, recognizes the changes that such a significant cultural infusion can have on a tightly-knit team. As he said in the letter: “If we are not able to blend our teams in a unified manner, we will create many of the problems some of our competitors are currently suffering.”

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AUTHORZeno Toulon

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