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Morning Coffee: The most magnificent trading jobs in investment banks. How to handle being fired from J.P. Morgan

Best trading jobs in banks

Why bother with the ague that comes of working for a hedge fund when you can have a perfectly interesting trading job at Goldman Sachs? This is the question every trader is now asking themselves after the Wall Street Journal alerted the world to the achievements of Tom Malafronte, a managing director on Goldman’s New York high yield trading desk.

It’s a question Malafronte seems to have asked himself too. His Finra report shows a dalliance with hedge funds before a betrothal to banking. Malafronte started out at Morgan Stanley in 2005 and moved to hedge fund Blue Mountain Capital Management in 2007. He switched back to banking in 2010 at Credit Suisse, and then joined Goldman’s credit trading desk in 2013. Two years later, Goldman promoted him to MD. While hedge funds have struggled with falling fees and investor redemptions, banking has treated Malafonte well.

Needless to say, it’s not the corporate title that’s drawn attention to Malafonte – It’s the fact that he made $100m in trading profits for Goldman Sachs over a six month period. In a bank employing 35,000 people, the implication is that one man generated 3.5% of first half profits. Even better, he did so by actually taking positions that weren’t sold milliseconds later: in some cases, the WSJ says Malafonte sold his bonds the same day; in others he sold them weeks later.

Clearly, this kind of thing isn’t supposed to be permissible under the Volcker Rule, which forbids traders at banks from taking positions with the bank’s own capital. Equally clearly, this hasn’t been an issue for Malafronte. To understand why, you need to look at the SEC’s pronouncements on the Volcker Rule’s ‘market making exemption’. In illiquid markets, where individual trading desks sometimes need to hold securities for sometime while they match buyers and sellers, the SEC says the Volcker Rule can be held in abeyance. If the value of those securities increases by $100m while you’re holding them and waiting for a buyer, so be it.

There are likely to be other Malafrontes at other banks (and maybe also within Goldman Sachs). The SEC says its market making exemption applies to individual trading desks, so the Malafrontes are likely to be found in clusters. How can you find them? Illiquidity is the key. As the chart below from the Bank for International Settlements shows, high yield has been especially resistant to the move towards electronic market making; humans are imperative if trades are to happen.  On this basis, high yield desks look like the most interesting places to be on banks’ trading floors. Whether Goldman’s paying Malafronte the $20m+ he might’ve earned in a hedge fund is another question.

BIS chart

Separately, if you’re made redundant at J.P. Morgan, you might want to berate Jamie Dimon a year or so later. This is what Dimon did to Sandy Weill after Weill fired him from Citi. “Later I called him up — I called him; he didn’t call me, just so you know — I said, ‘Sandy it’s time to break bread,’” Dimon said during an interview with Carlyle CEO David Rubenstein, The two men proceeded to go out for lunch, whereupon Dimon says he outlined the mistakes both he and Weill had made. It’s not clear whether this endeared Weill to Dimon, but it seemingly allowed Dimon to move on.

Meanwhile:

Morgan Stanley wants to achieve a 9% to 11% return on equity by the end of next year. Right now, it’s on 8.7%. (Wall Street Journal) 

Morgan Stanley has moved roughly 650 jobs to cities such as Bangalore, Mumbai, Glasgow, Budapest and Baltimore and cut jobs in New York, London and Tokyo. It wants to hire another 600 people in its ‘regional back office centres’ next year. (Wall Street Journal) 

Morgan Stanley has been trying to generate $1bn a quarter in FICC trading. Last quarter, it generated $1.48bn. (Financial Times) 

Deutsche Bank won’t be cutting its advisory business in America and would like to point out that it’s going to be pretty well-positioned compared to US banks in Europe when Article 50 is triggered. That said, it might not be paying: instead of pay, employees at all banks should be focusing on how they can develop their skills over the long term (says EMEA head of corporate and investment banking at Deutsche). (CNBC)

Credit Suisse has cut 20 equities trading job, ‘cuts were motivated by cost pressures and adverse market conditions.’ (Bloomberg) 

RBS chairman says banks are preparing to move, “the balance of their activity” out of London and into the eurozone. (Daily Business) 

Head of financial development for Luxembourg says banks are planning to move 30,000 jobs out of London, max. (Independent) 

Lloyd Blankfein says he has not been invited to the secret sect party. (Business Insider) 

Accountant who fails his exams successfully sued PWC for sacking him. (Irish Independent) 

The window seat is for people who retain a sense of adventure about travel. The aisle seat is for utilitarians. (Economist) 


Contact: sbutcher@efinancialcareers.com

 

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