Layoffs at Evercore: did it over-hire?

Yesterday, Evercore pulled the trigger. After years of adding staff globally and expanding internationally, the boutique investment bank is now cutting back gently. Six percent of staff are being dismissed, seemingly immediately, and Evercore is reserving the right to "restructure operations in certain smaller markets" in 2020.

Evercore employed around 1,900 people at the end of the fourth quarter, suggesting that around 115 people will be let go. Insiders say the layoffs began yesterday, with staff let go from associate through to senior managing director level. In yesterday's call with investors, Evercore's president and CEO Ralph Schlosstein said the cuts were focused on, "individuals who were not performing up to our expectations," and that they occurred across "all major businesses." Chairman John S. Weinberg said the cuts represented a, "realignment and a reinvestment in the really strong growth areas." Employees were cut in areas where they, "were not as strong," added Weinberg.

The layoffs come after a period of significant hiring for the independent investment bank. Between 2017 and 2019 Evercore increased its overall headcount by 300 people, or nearly 20%. Between 2018 and 2019, the number of senior managing directors (SMDs) went from 98 to 112 people, with seven SMDs recruited externally.

With average pay at Evercore hitting $622k last year, all those new staff will not have been cheap. Compensation rose to absorb 58.2% of revenues last year, up from 56.7% in 2018. Schlosstein said the increase reflected, "the elevated level of expense associated with the significant investment in advisory talent, as well as increased expense from deferred compensation, including that associated with recruiting senior talent in prior years." Hiring M&A bankers is both expensive and comes with a lagged effect.

Even so, Evercore remains bullish about its recruitment plans. It's not clear whether the Paris office which Evercore was said to be opening last October is still going ahead, but Weinberg said the firm continues to, invest "in the areas and the sectors that really have that growth." Schlosstein said the firm has plenty of 'white and grey spaces where, "the opportunity is very high and we could -- if we could find them, we would add an SMD or two." Many of these are in Europe. Globally they include the software industry and financial sponsors. 

Nonetheless, despite a promising pipeline Evercore will be mindful of the fact that advisory fees in its investment bank fell 5% last year. While this was a better performance than large U.S. rivals (at Morgan Stanley, advisory fees were down 13%, for example), it was still a decline.

Before it hires too zealously, Evercore may also want to get its existing staff up to speed. Weinberg said yesterday that Evercore has, "30 SMDs in various stages of ramping up right now." The implication is that nearly 30% of its current SMDs are too new to be productive. That needs to change in 2020.

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