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Beware the coming cull in equity derivatives

We’ve warned about big cuts in equity derivatives before. It now seems those cuts have either come already or are coming very soon.

Rumour has it that JPMorgan has trimmed various senior members of its equity derivatives team, including Neil McCormick, global head of its equity exotics and hybrids and hedge fund-linked business, David Choukroun, global head of product development for flow and exotic derivatives, and Beat Von Gunten, European head structured products for distributor marketing.

The alleged redundancies are fuelling speculation that JPMorgan may reveal a big loss in equity derivatives trading when it announces its 4Q results early tomorrow.

JPMorgan declined to comment on the rumours, but if it has made a loss on equity derivatives it won’t be the only one. BNP Paribas, Deutsche Bank and Natixis all made equity derivatives losses in November and Bloomberg says $500m of the $1bn losses announced by Deutsche today are down to equities trading.

The head of equity derivatives research at one European bank says the sale of equity derivative products to retail investors has collapsed: “There’s a lot more risk aversion out there and a lot less trading ambition.”

Headhunters say BofA/Merrill are expected to make a lot of equity derivatives cuts as the businesses are integrated and other banks have fat to trim. “There are a lot more equity derivatives people to go out there,” says one.

Comments (8)

  1. BOA is not even interested in keeping ML’s capital markets let alone EQD (which barely made money last year). Structured EQD sales people in the City are the first to go, especially in retail. Structurers are now obsolete as there is nothing to price: most banks will trim teams down to 2-4 max. Senior exotic traders will “in the main” keep their jobs as the books need to be managed and the positions are difficult to unwind. And anyone who had hopes that the flow business might save the day should realise that this business relied on hedge funds doing well.

  2. “The head of equity derivatives research at one European bank says the sale of equity derivative products to retail investors has collapsed”why exactly are equity derivatives being sold to retail investors? Surely as a complex asset, equity derivatives should be targeted for professional invesots such as hedge funds. Why are investment banks going after the average guy in the high street?

  3. Kiko is absolutely right, we are so in trouble. Structuring is in deep problems. Anyway, pricing all day and leaving the interesting stuff to quants/traders, not ideal is it?

  4. RollerCoaster, the main appetite for these products came from Retail and PB clients not Hedge Funds (they like the less complex ones). Moral argument aside, these clients fuelled the expansion of complex derivative products in their constant quest for hedging and gearing. The banks only responded to this appetite. They did not push these products down their throat. Where they could have been more diligent is in explaining the potential risks involved.

  5. Blob – don’t know what you’re banging on about……and hedge funds are PB clients

  6. i think he means private banking…

  7. Kiko is right…Although a lot of investors seem to pushing towards flow and delta1/equity finance products as they are tired of buying complex structured products that they don’t understand which blow up in their face. Flow does rely on HF’s but i think that is the area which will grow…
    RollerCoaster: with regards to retail, retail banks buy structured products and “wrap them up” and joe public invests in them in the form of ISA’s, unit trusts, OEICS etc…

  8. Take a look at the Jan issue of Structured Products magazine for the JP story

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