Welcome back. We trust you had a restful festive period, and if you’ve been at work for a while already since Christmas, let’s hope there were at least some opportunities for boozy lunches.
In this edition of Morning Coffee, we’ll aim to distil the news you may have missed over the past week or so, as well as the past 24 hours.
At the risk of getting 2017 off to a sour note – investment banks have been quietly unleashing miserly measures over Christmas with all the joy of a pre-haunting Scrooge.
First, there’s Nomura’s new cost-cutting initiative, code-named the “Waterline Project”. “The waterline on a warship will rise a centimeter each year if the crew brings excess baggage,” CEO Koji Nagai Nagai told Bloomberg. “Before you know it, the ship will sink.”
Nomura will be “trimming” staff after cutting 900 heads since April last year, but the cost-cutting is focused on getting more out of existing employees. This means checking how executives assign work to their subordinates. Whether that report really needs writing, or whether they could be doing something else, for example.
“To be honest, this company can do so much more to control costs. There will be resistance,” Nagai said.
Credit Suisse is taking similar miserly measures. Having already chopped 1,800 London heads in 2016, it has now told staff in Canary Wharf that they have to pay for their own mobile phones, according to Financial News. Credit Suisse needs to cut CHF4.3bn in costs by 2018, so every little helps.
And, if you thought that a couple of good quarters meant a reversal of fortunes for investment banks’ employees, expect to be disappointed this year. The good news is that the number of job cuts last year was smaller than any since 2008. Unfortunately, Bloomberg believes that banks are going to continue to use technology to chip away at the trading floor, whatever benefits Donald Trump might bring to Wall Street.
The FT says that the glory days are over, too. Fixed income revenues found a “base” in 2016 after tumbling for years, J.P. Morgan’s investment bank CEO Daniel Pinto said, but he still thinks they’re down 1% on 2015. Banks are allocating both fewer staff and fewer assets towards their investment banks and this means that any rebound in revenues in the division has far less impact on the overall group than it used to in 2007.
Andrea Orcel, president of UBS’s investment bank, said that the key for banks to be “flexible and nimble” to capture any market upswing, while not “deviating from their core strategy”. In other words, UBS isn’t likely to start rebuilding in areas it scaled back in 2012 any time soon.
“What will be interesting to see is if a pick-up in activity translates into profitability. Revenues are important, but the measure of success that we should be striving for is growth in profits,” he said.
Separately, days after a scathing portrait of Anshu Jain’s tenure at Deutsche Bank by the New York Times, Jain has just landed a new job as president of investment bank Cantor Fitzgerald, according to the WSJ.
Cantor is based out of New York, but Jain will remain in London. While the bank doesn’t have the scale of Deutsche Bank by any means, Jain joins at a time of expansion. Current Deutsche CEO John Cryan has focused on simplifying the bank, cutting costs, reducing risk and shrinking reliance on derivatives since Jain’s departure.
But Jain joins Cantor as it raises “significant amounts of capital” for expansion in areas like fixed income, equities trading and prime brokerage. This is Jain’s strength. He did, of course, help grow Deutsche into a global trading powerhouse, even if his later days were dogged with failure to hit cost-cutting targets and regulatory woes.
Howard Lutnick, the New York-based firm’s CEO and chairman, suggested the expansion was in part down to European investment banks cutting clients: “When they cut those clients back, where are those clients going to go?”
Jamie Dimon was the only bank CEO to buy company stock last year (Bloomberg)
Hedge funds pay their data scientists $2m. In theory, this is still only a third of what they pay their portfolio managers. (Bloomberg)
There is “no danger” of London losing its status as Europe’s leading financial centre after Brexit (Financial Times)
Tullett Prebon has just acquired 1,500 of ICAP’s voice brokers (Financial Times)
M&A will continue to boom this year (Financial Times)
Goldman Sachs didn’t advise on the biggest deals, but has topped the M&A league tables for the sixth consecutive year (WSJ)
London is still dominant in FX, but it's losing market share to Singapore and Hong Kong (Telegraph)
RBS is likely to reduce the maximum amount its senior executives can earn (Financial Times)
There aren’t nearly enough school places to accommodate bankers moving from London to another European city (Breaking Views)
Here’s who died in the world of finance last year (WSJ)
Nearly 1,000 people in UK-based U.S. banks earned more than €1m (Guardian)
People are more likely to be kind if you have a temporary injury, rather than a disability (HBR)
Everybody lies on social media (WSJ)
What London looks like without people at Christmas (Business Insider)
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