Where are the bogeymen in banking? Where are the lurking horrors, waiting to lure you insensate, into a job you thought was going to see you through, but will only last until June 2017 (at the latest)?
Last week, Deutsche Bank CEO John Cryan bemoaned all the "lurid headlines" doing the bank down. Today, we have not so much a lurid headline as a detailed Deutsche hatchet job by Spiegel, which succeeds in both making Deutsche seem an unpleasant place to work and questioning whether Deutsche's investment bank is sustainable.
Under previous CEO Anshu Jain, Deutsche was horribly political, says Spiegel ('Jain expanded the Group Executive Committee to 22 people to reward his acolytes.') Under Cryan, politics are less of an issue but Deutsche is left with Jain's junk to dispose of. You can read the entire Spiegel piece here, or you can look at the following tweet which encapsulates the nub of Deutsche's problem: suddenly the investment bank looks like more of a burden than a booster. So, why bother?
— Tony Tassell (@TonyTassell) October 31, 2016
There's been no indication that Deutsche plans to pull back from its investment banking activities. To the contrary, John Cryan has always been very supportive of them. However, Spiegel's article highlights why Cryan's sponsors at Deutsche Bank in German might lose patience...
In the meantime, Deutsche's sales and trading business has a cost problem. Expect some pain as Cryan tightens the screws.
Something is afoot at Credit Suisse. The Financial Times reports that CEO Tidjane Thiam is talking to another bank about a cost sharing project. Thiam doesn't design to elucidate further but it seemingly has something to do with post-trade databases and technology. "If we have two servers and a bank has two servers and each one is not fully utilised, why can’t we share that capacity?” said Thiam. “Often, when [banks] trade securities, we trade the same securities and we each have … those huge databases where we have a lot of information on securities. We could have that as a utility. So this is something we are definitely having conversations about.”
Further details are expected to be forthcoming at the CS investor day in December. In the meantime, it seems that if you're working in a post-trade function at Credit Suisse you might soon find yourself working for a shared services provider, or worse - surplus to requirement.
Following a nasty year in European equities trading at European banks, the chart below contains J.P. Morgan's predictions for their equity revenues this year. Credit Suisse's anticipated performance is particularly gruesome. In the meantime, we hear that the Swiss bank has been letting go of juniors in IBD in London (including some analyst 1s). CS didn't respond to a request for comment.
If you work for Credit Suisse, you want to be in agreement with CEO Tidjane Thiam, who does not appear to welcome questions about his strategy. The Financial Times questioned Thiam on his proposed push into Asia at a time when other banks are withdrawing and analysts say the market is saturated. "There is no indication that we will not do well,” Thiam told them curtly.
In a report out today, Deutsche Bank's banking analysts note that the U.S. foreign banking operations (FBOs) of Japanese banks on Wall Street are still horribly, horribly over-leveraged. Witness the chart below.
For example, Daiwa's US operation is 88 times leveraged. Mitsubishi's is 55x. Both banks may need to cut some of their U.S. assets and businesses before they have to submit them to U.S. stress tests in 2018. BNP Paribas' U.S. trading business also looks like a candidate for trimming, as does the French bank's prime broking business, along with Credit Suisse's U.S. prime broking business.
Excessive-leveraging at overseas banks' U.S. operations
Source: Deutsche Bank
If any jobs are likely to leave London after Brexit, it is fixed income sales jobs that involve selling euro rates or credit products to clients in the European Union. If you're doing these jobs, you should probably feel scared; you will either be removed to outer Frankfurt, replaced by a junior in Germany, or supplanted by a CRM algorithm.
You surely cannot see a 49% year-to-date year-on-year decline in equity capital markets (ECM) revenues without some 'repercussions'?
As we noted in point five, BNP's U.S. trading business looks horribly over-leveraged. Deutsche Bank's analysts suspect the BNP's U.S. corporate and investment bank isn't making its cost of capital. BNP has been making some big name hires in the U.S. but this sounds ominous. If the business isn't generating returns while it's hugely leveraged, how will it do so when leverage is cut back?
As we've said before, under MiFID II you're fine in European equity research if you're working for a top ranked team at a top ranked bank, but if you're a bit player at a bit player, you're in trouble. Witness the chart below, from Edison Investment Research and Frost Consulting. Equity research is already a zombie sector and things are about to get worse.
With only a few kind words from Theresa May in his armoury, Mark Carney has been fighting off the Brexit zombies of Jacob Rees-Mogg and Daniel Hannan. The balmy days of Carney's glitter eye tattoo are all in the past.