JPMorgan is reinvigorating a dealmaking business where it got an early start but whose growth has slowed in recent years as competitors like Goldman Sachs and Bank of America chase their market share.
The bank in May named John Richert to run its regional investment banking group, a collection of 60 bankers who help deliver complex underwriting or merger advice typically reserved for larger corporations to smaller clients such as New Albany, Ohio-based vegetable producer Bob Evans Farms. The team is based in regional hubs across the US, including Atlanta, Dallas, Seattle, and Chicago.
Richert is hiring for a managing director to help anchor the Chicago office, and he’s bulking up with more junior bankers in other cities, he said in an interview on the 20th floor of the JPMorgan’s Madison Avenue offices. The group’s typical clients have annual revenue ranging from $500 million to $5 billion.
“It’s all about just building connectivity at the local level with our client base,” Richert said. “Companies of the size we serve like to feel that they’re dealing with an investment banker who has a vested interest in the region where the company is located.”
It’s crucial that Richert’s team gets this right because the commercial banking clients served by the unit contribute a meaningful chunk to JPMorgan’s investment banking revenue. Those customers comprised nearly 40% to the firm’s total North America investment banking fees last year, according to the bank’s investor letter.
Richert’s dealmakers partner closely with commercial bankers who serve as the “boots on the ground,” talking to clients weekly about basic banking services like checking accounts, cash management or short-term loans, he said. Richert’s group educates and supports those bankers so that when they notice clients in need of more complex and episodic investment banking advice, they’ll know to pitch JPMorgan’s services.
“We sit down with the commercial bankers and say, ‘Give us your list of everybody you’re covering,'” he said. “A third of the names are well covered by the industry teams already — don’t even think about those names. The other two-thirds that are not well covered, we will either partner with an industry banker or maybe it’s such a niche business that nobody focuses on it. Then we cover those companies ourselves.”
In the Southeast region, which Richert ran from Atlanta before the promotion, his team managed about 300 client relationships including Genuine Parts, which used the bank for two deals in the past 18 months, including the $2 billion purchase of Alliance Auto Group in 2017.
Other regions handle similar loads and work closely with clients to underwrite share sales or bond deals, or advise on mergers and acquisitions or divestitures. The team in the South, led from Dallas by Andy Rabin, advised Ash Grove Cement on its $3.5 billion sale to Dublin-based building materials firm CRH, while the Chicago-based team advised Bob Evans on its sale to Post Holdings for $1.5 billion.
The group is made up of banking generalists who don’t specialize in any particular product, and executes its own underwriting and advisory deals, he said. That’s important to attract and retain investment bankers in the regions, who may not want to hand off a deal, for example, to bankers in New York if they think they can do it themselves.
Middle market and regional investment banking has traditionally been the domain of boutique advisory shops like Houlihan Lokey or Harris Williams. Bulge-bracket competitors have dipped their toes in the water from time to time, though typically they staffed these forays with less talented bankers and retreated when the economy turned south.
JPMorgan has taken a different approach, filling their regional rosters with top-rated investment bankers who have lived in or have ties to their territory like Richert, who grew up in Chattanooga, Tennessee. Compensation is also carefully considered, and there’s no pay discount for bankers living in Houston or Atlanta, he said.
The group was created six years ago after CEO Jamie Dimon looked at the investment bank and the commercial bank and concluded they should be working more closely together.
The strategy initially paid dividends, with gross investment banking fees paid by commercial banking clients climbing 38%, to $2.2 billion, in 2015, from $1.6 billion in 2012, according to a company presentation.
But the progress has slowed since, with revenue increasing just 4.5%, to $2.3 billion, in 2016, and flatlining from there a year later.
Richert, whose region in Atlanta has been one of the top performing, is tasked with jump-starting revenue growth in other regions and hitting the bank’s long-term target of more than $3 billion.
Over the next four to five years, Richert said he plans to deploy the techniques he used to grow the Southeast, which had no investment banking presence when he arrived.
“JPMorgan had never had an investment banking office in Atlanta before; we had zero clients and zero revenue,” Richert said, adding that they don’t disclose the figures by region but that both clients and revenue in the Southeast had increased substantially. “I know how to take a region and build it up.”
Richert declined to lay out his specific strategy.
He’ll have competition. Bank of America and Goldman Sachs have both talked up their regional investment banking initiatives. Bank of America has said it assigned several dozen bankers to clients after hearing that they wanted better coverage than just an occasional visit from a banker based in New York or San Francisco.
Goldman has moved some New York-based partners out to regional hubs like Atlanta or Seattle, and it’s filling out those offices with managing directors, vice presidents, and associates. It’s a key component of the bank’s goal to cover more than 1,000 new companies and add $500 million in new investment banking revenue over the next three years. Even so, Richert isn’t worried.
“There’s a lot trying to copy what we’re doing right now,” Richert said. “Quite frankly, we have a six-year head start.”
Leave a Reply
Leave a Reply
This site uses Akismet to reduce spam. Learn how your comment data is processed.
