As we said yesterday, French bankers are the largest non-British EU cohort in the City and many of those French bankers work in the traditionally French field of equity derivatives. Unfortunately, therefore, equity derivatives businesses are being trimmed. First, equity derivative strategists were dispensed with. Now it seems corporate equity derivative professionals are being cut too.
Specifically, RBS is said to be reconsidering its commitment to 'strategic equities' (AKA corporate equity derivatives). The UK bank closed its equities business earlier this year, making around 250 people redundant. However its equity derivative staff stayed on. However, this week it has emerged that the bank's 10 man strategic equities team in London under Peter Miholich is being redeployed. RBS declined to comment, but we note that corporate equity derivatives weren't much mentioned in John Hourican's recent investor day presentation - instead he emphasised RBS's intention to defend its position in ETFs.
RBS's withdrawal marks a big turnaround for an area that -back in March this year - was considered hot. Six months ago, corporate equity derivative professionals told us they were receiving 10 calls a day from headhunters and various banks said they were hiring. Rachel Lord, head of corporate equity derivatives at Citigroup, told Bloomberg: “This is one part of the investment-banking industry where, despite compressed margins, the business remains a high priority because it’s so important to the client base.”
Not any more. "It's hard for banks to commit to corporate equity derivatives," says someone close to the market in London. "This is a financing business that require balance sheet (cheap funding) and good rating and also a relative appetite for risk (some trades are hairy). It's not all that straightforward."
Yesterday's McKinsey & Co report suggests structured equity derivatives will only just break even under new regulations.
Any pull-back will disproportionately hurt the French banking community in London. The French own the equity derivatives space: at least a third of RBS's team appears to have been schooled at the country's Grandes Ecoles.
A headhunter specialising in the area says many banks have already closed their structured equity derivatives businesses. "A lot of banks are exiting or severely downsizing their structured products businesses," he says, pointing to Barclays which has downsized its retail structured products business and lost key traders like Jonathan Leak. "Barclays were going to close that business altogether, but it was given a stay of execution and is hanging on quarter-to-quarter," he alleges. Nomura is also pulling back from equities, among other areas. And Bank of America Merrill Lynch is said to have been taking a serious look at its business too. Remi Genlot, head of equity and fund structuring, left the bank in September.
On the other hand, however, some areas of equity derivatives are also still hiring. Jonathan Beebe joined Barclays as head of equity trading (including cash equity derivatives trading) in May. Barclays has also hired Richard Evans, a delta one specialist from Morgan Stanley, as COO of EMEA equities, along with Richard Carson, the former head of equity market risk at Deutsche. Credit Suisse is said to be hiring in ETFs, HSBC is looking to build out in Delta One.
Within corporate equity derivatives, however, not much hiring is happening. “There’s very little going on, maybe some upgrading.” says Ibrahim Zaheer at Kennedy Associates.
RBS is said to be redeploying its unwanted equity derivatives professionals internally. They may be thankful of that.