FT Due Diligence

Rise of the boutique banks

In dealmaking, big used to be better. Banks such as JPMorgan Chase, Deutsche Bank and Citigroup dominated the M&A market.

The financial rewards for the top deal bankers were huge, too. But after the global financial crisis, as the FT’s James Fontanella-Khan explains in this animated film, banks became more strictly regulated and pay and perks more tightly controlled.

This gave bankers a choice. They could either stay at the behemoths and get 15 per cent of overall fees – or leave to set up a small bank where they could earn closer to 40 per cent.

As a result dealmakers began to leave the safety of their jobs on Wall Street or in the City of London to create a new generation of boutique banks. This exodus included top rainmakers such as Paul Taubman, previously at Morgan Stanley, and Gordon Dyal from Goldman Sachs.

The boutique model harked back to an earlier era where senior partners owned and operated the firm, encouraging a more prudent approach. Boutique advisers say they are free of the conflicts of interest that can be found in bigger banks since they do not have other products to sell to their clients. Instead, they offer just one thing: their advice.

A decade since the financial crisis many of these boutiques have come of age. Larger rivals like Goldman Sachs and JPMorgan have survived, but for Europe’s top banks, the extra competition has been more damaging.

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FT Due Diligence is a video channel analysing the fast-moving world of M&A, illuminating the trends behind the complex global transactions and how to unlock value from acquisition deals. The channel alternates between independent reporting from FT journalists and insight on global dealmaking from law firm Baker McKenzie.