Deutsche Banks’ third-quarter earnings were good, largely because of a 14% year-over-year rise in bond trading revenue.
But during yesterday’s analyst call CEO John Cryan made it clear where the bank stands. He said that the “infuriating” flood of negativity stemming from the U.S. Department of Justice seeking a $14bn fine for allegedly mis-selling mortgage-backed securities “has created uncertainty, uncertainty that affects the market's view of Deutsche Bank as an investment, uncertainty that affected some clients' views of Deutsche Bank as a counterparty, and uncertainty that even affects our financial planning and strategy execution.”
The more challenging outlook has forced the bank to adjust its financial planning and has negatively impacted its liquidity reserves and prime brokerage business as many hedge funds in particular have switched allegiances.
Cryan acknowledged, "We do see a diminution in revenues across many of our businesses…. we know that when our name is in the headlines for the wrong reasons, the phone doesn't ring as frequently.”
Earlier this month in a letter to Deutsche Bank employees, Cryan had warned that conditions “will stay difficult for a while,” said he was working to finalize the settlement ASAP. He plans to intensify the major restructuring already underway. While that honesty satisfied many, a major shareholder told Cryan to make more cuts from its bond trading desks: “Fixed income is still oversized in terms of cost and on group level there are still 10,000 staff too many.”
A Fairesearch Alphavalue analyst said that Deutsche Bank should shutter its investment banking division altogether. That is unlikely, and Cryan did assure analysts that issues such as liquidity had recently stabilized and its capital position had improved.
Separately, Nomura reported turning a profit for a second-straight quarter. This time last year, the Japanese bank posted a loss of $438m in 3Q 2015, which led to a significant restructuring that included 900 job cuts across Europe and the Americas. Reduced costs from those redundancies taken together with increased revenue from fixed-income trading led the bank back to profitability.
But will Nomura be hiring front-office investment bankers anytime soon? That’s still to be determined, but if so, it likely won’t be until next year, and it will probably be at a cautious pace.
Harvard's behemoth $35.7bn endowment has been accused of having an inattentive board, complacent culture, "stable, rather than smart, capital" and "lazy, fat and stupid" money managers. Zing! (Bloomberg)
It is extremely unusual that a majority of Wall Street professionals do not support the Republican Party’s presidential candidate. (The Economist)
The White House is not a fan of non-compete clauses and, along with the National Labor Relations Board and state officials, is pressuring hedge funds with tougher rules to retain employees in an “assault on employment practices.” (HFMCompliance)
The UK’s opposition Labour Party says the Brexit approach of Prime Minister Theresa May’s Conservative government favors the financial services industry over manufacturers and small businesses. (Bloomberg)
The UK’s trade minister said that Brexit will most likely cause London-based global banks to lose their current passporting ability – the right to provide services in the European Union. (Bloomberg)
Barclays CEO Jes Staley denied that his finger is “quivering” above the Brexit relocation button. (Bloomberg)
Barclays believes that the U.S. Department of Justice’s suggested fine for allegedly mis-selling mortgage securities is too high and is willing pay $2bn to settle the charges – not a penny more. (Bloomberg)
Mike Bloomberg, the former Mayor of New York City, said “The healthier the banks are, the healthier our economy will be.” (Business Insider)
Banks and asset management firms might not be hiring many more IT professionals next year after all. (WSJ)
Active stock-pickers had a great third quarter, but the good times are unlikely to last long. (WSJ)
How would you like to do the high-pressure job of selling workplace annuities to public schoolteachers? (New York Times)
If you’re a banker or hedge fund manager who sweats a lot, you’re likely to stay cool under fire as your drier competitors get flustered or panic. (WSJ)
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