Compensation for leveraged finance pros at the top banks spiked for 2004 after a year of hectic sponsor activity, an explosion in second-lien loan volume and monster leveraged loan issuance. Across the board, origination, underwriting and syndication pros saw paychecks increase by at least 25% over the previous year, according to Gordon Muessel, managing partner at recruitment firm Libertas Group. "It's been a big year in leverage finance," said Muessel. "A bullish bank and high-yield market and strong investor demand for corporate debt has impacted compensation favorably."
A managing director at a top Wall Street firm in their third year could have collected between $1.5-2 million or more, said Muessel, while those in their first and second years can expect between $900,000-1 million and $1.2-1.5 million. "They're getting an O.K. base, but they make all their money in bonuses, not on base," he said, adding these are just benchmarks. "There are always exceptional performers that will be compensated accordingly."
Those not yet at the top should also be able to put something away for a rainy day. For a senior v.p. or executive director average total compensation would start at $650,000 increasing by an additional $100,000 in the second and third years. A first-year v.p./director all-in average could start at $400,000 with a deviation of $25,000. Toward the second year, v.p./directors can make $450-475,000, rising to $500-550,000 in the third year. Compensation depends on individual performance and the results of the firm, Muessel said.
Muessel declined to comment on individual firms, but street talk indicates that Credit Suisse First Boston, Goldman Sachs and Morgan Stanley were among those shelling out the biggest increases. For CSFB this was propelled by sponsors. Kohlberg Kravis Roberts & Co. and The Carlyle Group were among the over 30 financial sponsors that tapped the bank in 2004. Goldman also had a record year, including landmark deals such as Texas Genco Holdings, which it co-led with Morgan Stanley for The Blackstone Group, Hellman & Friedman, KKR and Texas Pacific Group. Spokesman for CSFB and Goldman declined comment and a Morgan Stanley spokesman did not return calls.
When the banks were not busy with acquisitions, they brought a record number of dividend recaps to the market, sometimes jacking up leverage and much to the chagrin of both bank loan and bond investors--often decreasing the spread.
Given the strong current market, movement between firms has also pushed up pay. This has not occurred in a number of years and that's important, Muessel said. Indeed, a number of firms bulked up this year, including BNP Paribas, Merrill Lynch,The Royal Bank of Scotland and Wachovia Securities. Furthermore, CSFB saw some of its top leveraged-finance pros leave for the newly established Alternative Capital Division.
Based on the current demand for experienced leverage finance bankers and an ongoing healthy bank and investor market, Muessel predicts compensation and movement will continue to rise in 2005. "Things spiral in terms of compensation because the banks don't want to lose their employees and because they need to recruit additional employees to run the business. Anytime there is a shortage of experienced professionals in a rising market, compensation rises."
