Seven Hills - Newsroom


	A Banking Drought In Lotus Land: Once the Land of Opportunity, California is Now Under-Banked, of All Things Christopher O’Leary Investment Dealers Digest December 2, 2002 Considered the land of opportunity for retail and investment bankers in the 1990s, California is now seriously under-banked as a result of Wall Street's recent waves of layoffs and consolidation. The Golden State finds itself the unhappy nexus of three trends that have left it bereft of a serious banking presence. First, many of the longtime California-based institutions have fallen one-by-one to consolidation and in some cases extinction-most notably, Robertson Stephens (bought by Bank of America), Montgomery Securities (bought by Nations Bank) and Hambrecht & Quist (bought by Chase). Then, the technology boom centered in Silicon Valley cratered in 2000, turning California from a hotbed of deal opportunity to a wasteland for tech bankers. Now a third trend has entered the equation: Many of the New York-centered investment banks that had maintained substantial California offices are undertaking severe across-the-board layoffs, and in the process gutting their non-core offices. In some cases, companies are packing up their best California bankers and relocating them to more lucrative areas; in others, they are simply sacking California personnel. California bankers said that J.P. Morgan Chase, Lehman Brothers, Morgan Stanley and Credit Suisse First Boston, among others, have all trimmed their California personnel-in some cases severely. "We've seen the disappearance of the California banks, and in the past six months the dramatic pullback of the New York banks," said William Wisialowski, a partner at San Francisco-based Seven Hills Group LLC, a boutique that sprang up last year in part to take advantage of the declining Street presence. Especially affected by the Street pullback are those issuers valued at under $500 million-in a sense, the entire middle market, he said. Bankers at Jefferies & Co., which started out as a Los Angeles-based firm and now splits its staff roughly half between L.A. and New York, also said they have noticed far fewer New York-based competitors recently. "There definitely has been something going on," one Jefferies banker said. "The high-tech bubble burst, and especially affected the northern California, San Francisco area. A lot of banks have cut down to the bone right now." Street shops are following one of two major strategies: benign neglect or wholesale cutting. Lehman Brothers seems an example of the former. The bank reportedly has no plans to replace Gautam Wadhwani, senior vp and head of its West Coast technology group based in Menlo Park, Calif. (Wadhwani moved to London last month to head Lehman's derivatives and convertibles groups.) Instead, Lehman will make do with Dave Erickson, its head of global technology equity capital markets, who is based in New York but will travel more often to the Menlo Park office. On the other hand, CSFB and Morgan Stanley have been more brutal in their cutbacks, West Coast bankers said. According to rival bankers, CSFB has let go of about half its California office, while Morgan Stanley only has about six to eight full-time M&A bankers left in Silicon Valley. None of the three banks returned calls for comment by press time. Not all banks agree there has been an out-of-proportion cutback in California. While some sources said Goldman Sachs has been greatly reducing its West Coast staff, a bank spokeswoman said that was not true, and that any layoffs in California have been due to simple across-the-board reductions. It's unclear just how the pullback will affect California-based issuers. To be sure, major-league players will continue to have access to capital. The smaller issuers, however, and especially fragile start-up companies and venture capital-backed enterprises, may suffer due to the lack of hometown presence. Several California bankers said that the Street pullout is just another grim chapter in what has become a long story of decline. When the likes of Robbie Stephens and Hambrecht were bought, the local banking community was shattered, and there has been little to replace it. Seven Hills, for one, is trying to fill the vacuum. The boutique, which was founded little more than a year ago, now has about 17 officials and will be aggressively hiring in the next few months. "We founded ourselves just before the world fell apart," Wisialowski said.