Since time began - for the last ten years at least - there's been an unofficial hierarchy in fixed income sales jobs in investment banks. Top of the tree were the hedge fund salesmen and women who held the hands of 'high touch', high turnover hedge funds. They had the ears of the hedge fund moguls of the day and basked in reflected glory. A rung below them were the salespeople who dealt with 'real money' clients - the traditional fund managers and pension funds. And somewhere in the mire at the bottom were the corporate salespeople who helped corporate treasurers with the mundane task of hedging their cash flows.
As of the past quarter, this hierarchy has changed. Suddenly, the corporate business at the bottom of the pile has become a lot more important. Bringers of those corporate relationships are a lot more valuable than they used to be.
Citigroup CFO John Gerspach signaled the new state of affairs a few weeks ago. "We believe a greater portion of our rates and currencies revenues are generated with corporate clients relative to that of our peers," Gerspach told investors, adding that, "We view this as a differentiating advantage and one that provides scale and stability to our fixed income platform."
Bank of America CEO Brian Moynihan expressed a similar sentiment. In the second quarter of 2016, BofA achieved its second highest fixed income sales and trading revenues for five years. Moynihan said this was thanks to the integration of BofA's global markets business with its broader corporate banking platform, which helped deliver clients and fees.
The change has not gone unnoticed. In a note out last week, J.P. Morgan's European banking analysts observed that U.S. banks with a big "corporate franchise" achieved some of the strongest fixed income sales and trading revenues in the second quarter. - It was J.P. Morgan's big U.S. corporate client base which drove its 35% increase in fixed income revenues, they suggested. By comparison, banks like Deutsche Bank and to a lesser extent, Goldman Sachs, which are more focused on 'money' clients (investors), lost out.
James Chappell, banking analyst at Berenberg in London, says corporate clients become more important in times of extreme volatility (ie. Brexit). "The recent shift to corporates is a reflection of sentiment," he says. "Because of the uncertainty, institutional clients have been less active, but corporates are pretty constant in their requirements."
"It's the corporate risk solutions business which is important now," agrees the head of a fixed income search boutique. "You have corporates with huge amount of cash on their balance sheets and they need to hedge that against changes in the exchange rate and expected changes in interest rates."
By comparison, one senior salesman says hedge fund relationships are dwindling as hedge funds lose assets and therefore trade less. At the same time, hedge funds are increasingly using products like listed derivatives and swaps which can be traded electronically and don't require hand-holding by human beings.
Corporate trades are often placed electronically too, meaning it's the people who can bring corporate clients to the banks' overall platforms who are particularly important. And they aren't the high profile institutional salespeople of the past. Although the people devising the 'corporate solutions' might sit within the investment bank, relationships with corporate clients are often owned by the bank as a whole. For example, the strength of Citi's corporate-focused fixed income revenues was directly tied to the bank's "global network and...treasury and trade solutions business," said Gerspach.
For the moment, therefore, the new top fixed income salespeople are corporate bankers. And that's a bit of a shock.