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L.A. may take a back seat to New York as a headquarters for investment bankers, but on the brokerage end of the business, it’s far from a backwater.

Managers at some of the top brokerages in the country say the big New York firms tend to hire most of their brokers from Southern California. And Los Angeles represents a huge market for brokerage and other financial services one that executives aren’t always eager to leave for the Big Apple.

“New York has tried to entice me a number of times with staff positions back there,” said Rod Hagenbuch, senior vice president and manager for Merrill Lynch in Los Angeles.

“If your goal is to climb the corporate ladder, then yes, there might be an advantage to being in New York,” Hagenbuch said. “But lots of us are more interested in branch management than we are in corporate staff positions.”

L.A. has a somewhat unusual position in the national financial services hierarchy. Considered a top market for stockbrokers, it’s an ugly stepsister to New York when it comes to investment bankers as the rarity of people like Ken Moelis points up.

From his office in Century City, Moelis heads the corporate finance department of Donaldson Lufkin & Jenrette not just the L.A. office of Donaldson, but the entire New York-based operation. That makes him one of the few L.A. securities industry executives, if not the only one, who heads a company-wide department of a major New York-based firm.

While the biggest U.S. securities firms have hundreds of brokers here, most have only a handful of investment bankers, at least relative to the large corporate finance operations maintained in New York.

Industry executives point to a variety of reasons why New York-based securities firms invest a lot more in brokerage operations here than they do in investment banking staffs.

First, the huge Los Angeles population represents a large pool of individual investors, and it’s simply more efficient for stockbrokers to reach them from local offices, according to Bob Brauns, a former Merrill Lynch and Lazard Freres investment banker who now heads Cambridge, Mass.-based Marketplace Technologies, an online marketplace for business brokers, buyers and sellers.

Meanwhile, the U.S. corporate finance business grew up in New York and there’s no compelling reason to leave.

Typically, Brauns and others said, New York firms have maintained small crews in Los Angeles to find the deals. The folks at headquarters then figure out bidding strategies, close the deals and complete the mounds of accounting and legal paperwork.

“Investment banking is so competitive that people don’t want to be away from the head office, because that’s where the power is, and if you want to get ahead you need to be near the seat of power,” Brauns said.

Traditionally, he said, investment bankers in branch offices couldn’t even be sure they would get to work on the biggest accounts in their own back yards, because the plum assignments would often be snatched away by the New York office.

“Investment banking is like any sales occupation in that everybody wants the big companies as accounts so they can make the big commissions. If a senior guy can make a case that he is the one who ought to be assigned to a large deal instead of the local guy, he might get it,” Brauns said. “The local offices have often had a hard time marking out their territory and protecting their turf from the guys in New York.”

Brokers tell a different story. Hagenbuch says the Los Angeles office of Merrill Lynch ranks high in the company hierarchy because it offers a broader range of specialized financial services than any other office except New York. These include everything from mortgages for $500,000-plus homes to a range of financial services for businesses and large institutional clients.

Bill Buchalter, senior vice president and regional director for the Los Angeles office of Prudential Securities, said L.A. is viewed as a desirable assignment because the market for brokerage services here is growing, and the small business-based economy is expected to generate lots more well-heeled prospective clients.

“We see the clients and potential clients here as affluent, typically more technologically adept and more in need of lots of financial services,” Buchalter said.

L.A. is considered one of the best places for brokers in the coming years because the economy is producing more and more successful entrepreneurs who are “coming into their accumulation years” when they’ll need to invest the earnings from their businesses, he said.

Buchalter said Prudential moved its regional headquarters from Carlsbad to downtown L.A. in June and reassigned him from Houston as part of a plan to focus its Southern California brokerage operations more closely on L.A. Eventually, Prudential plans to boost its L.A. broker force to 500 from the current 330.

As for investment banking, Brauns said L.A. shouldn’t feel bad about taking a back seat to New York, because every city pales in comparison to New York.

In fact, he said, L.A. probably ranks higher in the pecking order than others because it has more investment bankers from big national securities firms than any other city outside the Big Apple with the possible exceptions of Chicago and San Francisco.

Brauns and other industry sources say L.A.’s significance as an investment banking center is likely to grow, too, because of the steadily improving Southern California economy. Most of the New York firms had larger staffs here in the 1980s than they do now, but branches were trimmed or closed when the recession hit. With the reverse happening, local offices are likely to grow, Brauns said.

“Investment banking is basically a sales business,” he said. “Even though there’s a disadvantage to being away from the head office because that’s where the power is, I think you’re going to see them put more people in the field because a lot of the business involves socializing and getting to know people on a personal basis. If you want to do the big deals, it means belonging to all the right clubs and going to all the right churches and synagogues and social events to get to know the big players.”

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