Positioning themselves for a market rebound, boutique investment banks are hiring financial services bankers laid off in top-tier companies' purges and finding it easier to poach those who still have jobs at large institutions.

Small outfits like KBW Inc.'s Keefe, Bruyette & Woods Inc., Sandler O'Neill & Partners LP, Houlihan, Lokey Howard & Zukin Inc. and Stifel, Nicolaus & Co. are hoping to benefit from the market turmoil that has hurt advisory practices at companies like Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley.

"Smaller firms are viewing this as a once-in-a-generation opportunity to reconfigure their franchises," said James Murray, a managing director in Houlihan Lokey's financial institutions group. "It may not require a large paycheck commitment" to get bankers at large firms "to move in an environment like this."

Boutique bankers say they want to be ready when the market recovers — whenever that occurs.

Rick Maples, the co-head of investment banking and head of financial institutions at Stifel Nicolaus, expects business to pick up when the industry's conditions improve.

"In the short term, we see it as a challenging market, evidenced by how the bank stocks are trading," Mr. Maples said. "But over time we think that the banks are going to need a lot more capital. There is a lot of consolidation that needs to happen."

Michael Diana, an analyst at Noble Financial Group who covers KBW, expects small firms to increase their revenue helping banking companies raise capital to pay back federal aid over the next five years.

All the money distributed through the Troubled Asset Relief Program "has to be refinanced," Diana said. "With all this compensation stuff — people just don't want to be in Tarp. They just want to get out of there as soon as they can."

Stifel just added two senior members to its financial advisory practice, including a former director of Citi's financial institutions group. Last year, Houlihan Lokey recruited three senior bankers from JPMorgan Chase & Co.'s real estate advisory business. Sandler O'Neill hired a 10-year Goldman Sachs veteran last month who specializes in Midwest financial companies.

"We've got a unique opportunity right now with all the turmoil in the street and people downsizing. There is going to be a fine opportunity for Sandler O'Neill," said William F. Hickey, a principal and co-head of investment banking at the firm.

These small firms describe themselves as safe havens that, for the most part, steered clear of the risky bets on derivatives and securitized products that have dragged down large banking companies. Also, observers say bigger firms also are less interested in advising banking companies whose shrinking market caps offer lower advisory fees.

Bill Burgess, who joined Sandler O'Neill as a managing director from Goldman last month, said he moved because his coverage area — regional banks with market capitalizations of around $1 billion or less — was slipping off Goldman's radar.

Many of his clients, like Amcore Financial Inc. and Fifth Third Bancorp, have suffered sharp stock declines in the last year. Amcore's shares have dropped 96% since the beginning of last year and were closed at 76 cents on Thursday, making its market cap $17 million. Fifth Third's shares have tumbled 94% and were trading at $1,37 Thursday afternoon, making its market cap $791 million.

"The market values of depositories in the U.S. have come down significantly," and the smaller the customer, the lower the fee for advising it on a deal, Burgess said.

He is one of two managing directors who have left Goldman's Chicago office in recent times, he said. The other, Scott B. Kauffman, is scheduled to join Oak Hill Capital Partners as a principal this month, according to a spokeswoman at Oak Hill.

Andrea Rachman, a spokeswoman for Goldman, said its investment banking strategy has not changed, despite the recent departures. "We still focus on mid- and large-cap banks, as well as a select group of small-cap ones."

Even with conditions difficult, Sandler O'Neill, Keefe Bruyette and Stifel Nicolaus have not exactly languished on the merger and acquisition front. Last year they ranked fourth, eighth and 13th in total value of deals advised, according to SNL Financial. They were also the top three advisers in terms of deal volume. Goldman ranked first in deal value and fifth in deal volume.

Roy Bejarano, a vice president in Houlihan Lokey's financial institutions group, said companies like his have an edge right now, because a growing roster of public and private companies are getting "very nervous" about the lack of attention they get from their large-cap corporate finance advisers.

"There are a lot of clients out there that are used to getting 24-hour service, and no one is returning their calls," Bejarano said. "There is just so much turnover at these shops right now."

Andrew Senchak, vice chairman and co-head of corporate finance at Keefe Bruyette, said it makes sense to capitalize on market dislocations.

"Our place in that overall constellation of relationships that larger companies have had" with midmarket financial institutions "is maybe a little brighter," Senchak said.

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