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Fleeing the bailed-out banks

The flood of infrastructure investment bankers abandoning bulge-bracket firms weighed down by bailout funds continued last month, with two more high-profile names heading for pastures new.

Within the space of a week, Bank of America, recipient of $45 billion from the US government’s TARP (Troubled Asset Relief Program) bailout fund, lost two of its infrastructure dealmakers in its combined Bank of America and Merrill Lynch investment banking house, Bank of America Merrill Lynch (BAML).

Boutique investment bank Evercore Partners hired Mark Friedman as a senior managing director in its transportation advisory business in New York. Friedman previously headed US transportation and infrastructure investment banking at BAML and was global head of its shipping investment banking business.

Friedman was Evercore’s second acquisition from BAML. In February, the firm plucked George Ackert to establish and lead its transportation and infrastructure practice. New York-based Ackert previously led the same group at Merrill Lynch.

Friedman’s departure came a day after the market learned that Michael Masterson, BAML’s head of airlines and aircraft leasing investment banking for the Americas, would be leaving for Deutsche Bank. In his new role, Masterson will co-head transportation and infrastructure investment banking alongside current head Craig Fuehrer.

These departures are part of a wider trend of infrastructure investment bankers at bulge-bracket firms heading for the exits in the post-bailout world. In February, Kevin Carney, a former executive director in JPMorgan’s infrastructure advisory team in New York, officially launched his own firm – Infrastructure Capital Advisors – to carry out the same work on his own.

A month later, Infrastructure Investor broke news that Rob Collins, head of infrastructure investment banking for the Americas at Morgan Stanley, would be leaving to build up a similar business at boutique investment bank Greenhill. Morgan Stanley has received $10 billion from TARP.

Why does TARP matter? Compensation clearly plays an issue. Politicians are keen to make sure that firms that have received TARP funds do not shower bonuses on their employees. This may include a 90 percent tax on recipients of bonuses at firms that received $5 billion or more from the bailout program. Smaller rivals like Deutsche Bank and boutiques like Greenhill and Evercore – which have received no bailout money from either the US or the German government – are under no such pressure to reduce bonuses.

Another factor may be more unique to the infrastructure asset class. One of the recently departed dealmakers told Infrastructure Investor that his concern over TARP extended to the fact that most of the clients he was seeking to represent were government entities. Showing up with a pitch-book weighed down by billions of bailout funds arguably didn’t help.

“That’s another driver: being able to serve governments without being tarnished by having a government subsidy to keep the entity alive,” the dealmaker said.

So long as the big banks keep taking TARP, smaller fish will probably keep taking their big names.