More bad news from Deutsche Bank’s cost-cutting program. James von Moltke, Deutsche's chief financial officer, is encouraging employees to “take every opportunity to restrict non-essential travel”. Veterans of troubled investment banking franchises will always recognise this statement, and it’s usually a bad sign. That and the close cousin, restricting business class travel to senior ranks, or extending the minimum duration for a business class ticket to slightly more than the average transatlantic flight. It’s a common sign of a cost-cutting program that has taken on a life of its own, and which is being regarded as a more important objective than the business it’s meant to serve.
All the mischief is contained in that little phrase “non-essential travel”, and the question of what it is that makes a trip essential. Very few people take business trips for the fun, and almost no investment bankers under the age of 30 (not only is this when family considerations start to matter, it’s the rough point in the age and career ladder when an average business hotel room is no longer nicer than your house). People travel in banking because they have to, not because they want to.
The travel budget is the sales and marketing budget. If it was explicitly designated as such, it would be obvious that it shouldn’t be subject to the same kind of restriction as fruit bowls and free breakfasts. But for some reason, foreign travel is still seen, by people in head office who don’t do it very often, as a perk rather than a chore.
If a banker is worth his or her franchise, the value generated, over a reasonable forecast horizon, from a trip to meet clients will be multiples of the cost of the ticket and hotel. If the banker can’t generate enough revenue to cover the cost of the trip, then the problem is the bad staff or bad franchise, not the travel budget. And clients need to be seen.
Partly, they need to be seen because there are some things you can’t communicate over the phone. Even in a world of algorithms and data based decisions, investment banking is a people business, and most revenue-related decisions come down to matters of personal trust. We are human beings, and we prefer to trust people who we have seen, touched, spoken to face to face (and potentially, at the back end of a week-long marketing trip, smelt).
But even if video conferencing technology was perfect, there would still be a reason for travelling to meet clients. And that reason is that in some cases, the trip itself is a message. If you fly half way around the world to give a half hour presentation that could have been done by phone or email, the main message that you’re conveying to the client is “hey, I think you’re so important that I’m prepared to take three days out of the office, sleep uncomfortably and away from my family, and feel awful with jet lag”. You can fake all sorts of sincerity, but the glazed redness round the eyes that comes from a really bad overnight flight is a signal of commitment that clients will always appreciate.
So it could be that Deutsche is making a mistake. Meeting the cost targets is no doubt important to James von Moltke. But the old proverb of the advertising industry is that when you cut the sales budget, a terrible thing starts to happen. Nothing.
Some other people who might be cashing in the airmiles next month are the former employees of Lehman Brothers, among whom a group email is currently circulating to organise a global reunion on the tenth anniversary of its insolvency, 15 September 2008. It will be, as reunions are, a chance to see who’s gone bald, who’s still hot, who got a better job and who dropped out to go surfing in Goa, but also to reminisce about the corporate culture that led to one of the biggest collapses the industry has ever seen.
The plan has generated a bit of outrage from people (including the Northern Rock Action Group and the UK’s Labour Party) who seem to believe that every former Lehman employee ought to be hiding their past in shame. But it’s hard to begrudge the staff their party, and even their touch of bleak humour. From junior associates to managing directors, the vast majority of Lehman staff bore roughly no responsibility for the decisions that led to its downfall, and given the very stock-heavy and deferred compensation policy the firm used to run, most of them lost considerably more from its collapse than the people who are berating them for having a reunion.
Returning to the theme of potential false economies, the UBS “mega merger” restructuring of its wealth management division is coming in for criticism. Analysts are still puzzled as to how it will work, whether it really delivers value for clients and whether the cultural divide between the global private bank and the former PaineWebber brokerage in North America can really ever be bridged. (FInews)
Many firms have blurred the lines between coders and traders, but JP Morgan is now launching a team to bring algorithms and digital prowess to advisory and capital markets work too. Using programming techniques to automate the traditional analysis of shareholder registers for activists, timing and distributing capital issues and even for bookbuilding, JPM hopes to gain a competitive advantage. (Bloomberg)
Credit Suisse has always played catch-up in Asia against the powerhouse wealth management business of UBS. Tidjane Thiam’s team now, however, see an opportunity as the industry’s centre of gravity moves away from the traditional hubs of Singapore and Hong Kong and toward onshore franchises in the main Southeast Asian economies themselves. (Bloomberg)
Alex Abagian, of Morgan Stanley in Hong Kong, has been given a promotion with his role expanded from head of Asia-Pacific equity syndicate to co-head the entire regional ECM business (Global Capital)
Goldman Sachs is encouraging its employees to spend time on the road, and is serious about retaining its female staff. The bank is now even paying for bankers who are nursing mothers to have their breast milk collected from their hotel rooms, frozen and delivered back home. (Evening Standard)
Financial News has an in-depth interview with the complainant in the UBS alleged rape case. (Financial News)
Viktor Hjort, who was formerly at Brevan Howard and who stood for election as a Liberal Democrat councillor, has joined BNP Paribas as the global head of credit strategy and desk analysts. (Financial News)
The Goldman Sachs transaction where the bank bought bonds from Venezuela’s central bank attracted widespread criticism last year. Now it is losing money too. (Financial News)
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