In Calgary, banking’s brain drain is the energy industry’s gain

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Investment dealers struggled with a slump in energy-related business this year, and one major consequence has been an exodus of talent.

Lured by a higher base pay and expectations of a less frantic lifestyle, observers estimate that since 2012, more than three dozen investment bankers, oil analysts and associates have crossed the street in Calgary to join energy companies.

"In the 20 years I've been doing this, it's the highest incidence that I have seen," said Shane Fildes, managing director and global head of energy at BMO Nesbitt Burns.

A key driver of the shift is the shrinking of salary bonus pools among investment dealers, due to a decline in energy financing. Merger activity dropped off this year, as natural gas and heavy oil prices slumped and asset acquisitions by foreign state-owned enterprises also declined.

"What we saw is obviously a downturn and the fact is we had overcapacity in the banking market," Mr. Fildes said.

"I do think that this is a career that's difficult to do for a long period of time and some of that is just people saying, 'I'm not sure I can last much longer,' with the pace and the activity and, clearly, the pressure on compensation."

Meanwhile, as raising money for operations has become increasingly difficult and complex, energy-company recruiters have placed high value on capital markets know-how.

During the year, Swiss-owned UBS Securities shrank to a skeleton staff in Calgary, Stonecap Securities closed its Calgary operations and Stifel Canada and Fraser Mackenzie disappeared altogether.

Others, from bank-owned dealers to energy boutiques, lowered head counts or restructured.

It's not hard to see why. In 2007, the last boom year for Canadian energy, the industry racked up $42.6-billion worth of mergers and acquisitions and it tapped $25.5-billion in debt and equity financing, according to Sayer Energy Advisors.

In the first nine months of this year, mergers and acquisitions totalled $9-billion, and financings limped in at $9.2-billion. Activity picked up in the fourth quarter, but it was not enough to turn a bad year around.

"The interesting trend here is the exodus from the sell side in Calgary. The pace of capital markets professionals leaving the equities business to work on the corporate side not only continued in 2013, but picked up," said veteran Bay Street headhunter Joe Kan.

"In a normal year, you can count on one hand the number of research analysts or investment bankers that make the switch to industry. But at least a dozen made the move in 2012 and almost 30 switched over in 2013."

They included some prominent names in the investment industry, such as former CIBC World Markets analyst Andrew Potter, who became senior business advisor at Cenovus; ex-Peters & Co. Ltd. analyst Kam Sandhar, another recent Cenovus hire; and former UBS analyst, Chad Friess, who joined Gibson Energy in a business development role.

In many ways, it's an easy career move to make, especially in tough times when the often-hefty bonus components of salaries at investment dealers shrink, while demands on time, such as early-morning conference calls and frequent travel, don't cease.

Jobs in the corporate world may not necessarily be cushier, however.

In 2012, rather than sign on with another brokerage, former Canaccord Genuity analyst Frederick Kozak joined small oil explorer United Hydrocarbon International Corp., where he is vice-president of capital markets. Mr. Kozak has not reduced his travel schedule, he says, but he relishes the new opportunity, especially with the brokerage market in a trough.

"I've actually experienced more stress in a startup company than I did as an oil and gas analyst because of the nature of the company, but I am enjoying it as much as the sell side," he said.

It's unclear whether the stampede out the door at dealers will continue. A wave of corporate restructurings, budget cuts and layoffs in the oil industry may stem the tide, industry sources said.

In addition, the bonus pools at the brokerages are now being spread over fewer professionals. As a result, compensation may be that much richer when the deal flow rebounds, Mr. Kan said.