2019 has not started well for the world's leading investment banks. What does this mean if you're already working for one, or planning to work for another? Based on banks' recent statements and strategy announcements, this is what you can expect in the months to come.
Bank of America: Still hiring in M&A (especially the middle market). Still watching expenses
2019 is supposed to be all about M&A hiring and recovery at Bank of America. Late last year, the bank reportedly authorised its investment banking head, Matthew Koder, to recruit up to 50 managing directors plus mid-ranking staff to support them.
This process is ongoing. During BofA's first quarter investor call, chief financial officer (CFO) Paul Donofrio said that so far this year, hiring for the bank's investment banking capital markets division has been taking place at three times the pace of 2018.
Chief executive officer (CEO) Brian Moynihan said BofA "still has room to add" bankers, particularly in the middle market where growth is fastest.
However, BofA is also being careful with its spending. Moynihan said the bank has a, "laser like focus on expense management," and is "digitizing" processes to improve efficiency.
Barclays: Lower bonuses rather than layoffs, focus on electronic trading, technology and capital allocation
One thing is certain at Barclays: bonuses will be lower this year than last.
During the bank's first quarter investor call, the issue of lower performance pay was raised five times (at least). "If performance is good, we'll pay for it as we did last year," said CFO Tushar Morzaria,"And if performance isn't good then we won't pay for it."
Performance wasn't good in the first quarter, so bonuses will be down. CEO Jes Staley said the bank will flex variable compensation spending rather than investment spending to account for the weakness. "It's a pay for performance type environment," confirmed Morzaria.
While bonuses are being cut, Barclays plans to continue to invest in "digitization" and electronic trading and to seek to optimize its capital allocation and capital velocity - all of which may be areas for hiring.
The capital measures should (hopefully) deliver a much needed improvement in the investment bank's return on equity. They imply ongoing emphasis on the bank's Firmwide Resource Management (FiRM) group, which was run by Art Mbanefo until he left last month.
Meanwhile, Barclays continues to prioritize the improvement of its electronic trading systems. Staley said the bank is, "increasing algorithms for electronic trading." The bank has just relaunched its BARX platform to combine equities and fixed income products.
BNP Paribas: Big ongoing cost cutting, but room to hire in cash management, trade finance, maybe macro trading
BNP Paribas' fixed income traders had an exceptional first quarter. But don't be deceived: the French bank is still in major cost cutting mode.
BNP wants to take out €1.8bn in costs from across the bank in 2019, rising to €3.3bn by 2020. So far, it's only extracted €1.3bn. - This is not over yet.
As part of its cost cutting programme, BNP is closing its Opera proprietary trading business and its U.S. commodity derivative business. It's also launched a new capital markets platform to help improve corporate clients' access to global markets and has been "digitalizing" and "automating processes."
With costs being cut, BNP wouldn't seem to have much space to hire. However, growth in cash management, trade finance and macro revenues all suggest room for a few additions.
BNP is also moving its operations to lower cost locations. CFO Lars Machenil said this is one reason why the bank's cost savings aren't apparent immediately: the bank has to run dual operations until the new locations are ready to take over from the existing ones.
Citi: Leadership changes, equities pruning, ongoing cost-cutting
Cit's Institutional Clients Group (ICG) is still reeling after the retirement of Jamie Forese, who left last month after heading the unit and working at the bank for 34 years. Forese was replaced by his deputy, Paco Ybarra, who already seems to be making changes following yesterday's news that Citi is closing a dark pool used for equities trading.
Citi has spent the past few years hiring for its equities business. However, the bank's equities sales and trading revenues fell 24% in the first quarter, leaving equities looking exposed.
Broadly, Citi says it's continuing to invest in "higher return franchises" whilst "maintaining expense discipline." Citi CFO Mark Mason said $500m to $600m should be shaved off the bank's costs in 2019 by improved productivity measures.
Credit Suisse: Ongoing cost cutting, squeezing pay for bankers, investing in wealth management tie-up - especially in Asia
Credit Suisse's traders had a good first quarter, while its investment bankers had a bad one. This doesn't mean the Swiss bank's salespeople and traders will avoid further cost cutting in 2019. - Credit Suisse plans to extract another CHF100m in costs from its global markets division this year (although restructuring there is theoretically finished). In the first quarter, it also lowered variable compensation (ie. bonuses) for its underperforming bankers.
The best place to work at Credit Suisse remains the equity derivatives business - or failing that the International Trading Solutions (ITS) business which aims to bring structured products to the bank's private clients. Credit Suisse's equity derivatives trading business had the best quarter in five years in Q1, suggesting the bank might be inclined to do some more hiring there. Meanwhile, ITS remains CEO Tidjane Thiam's pet project and is - he says - "making a material contribution to our top and bottom line." Accordingly, Thiam said the bank has recently created an APAC ITS business which is in the process of expanding.
Deutsche Bank: Hiring in global transaction banking; hiring in fixed income and debt origination; integrating sales forces, paranoia in US equities
Following the failure of the Deutsche Bank-Commerzbank merger, it might be thought that Deutsche Bank would have a new plan. However, this doesn't seem to be the case and enquiries about a new course of action brought some snappy responses from the bank's executives during the recent investor call.
Instead of steering a new course, Deutsche plans to adhere to the strategy laid out by CEO Christian Sewing last year. This means a big focus on Stefan Hoops' transaction banking division, plus hiring in 2019 in "fixed income and debt origination."
Theoretically, Deutsche has finished making redundancies in the front office (although back office job cuts may still be forthcoming). However, the bank says it's in the process of "integrating capital markets sales forces," which sounds ominous.
Meanwhile, there are ongoing external suggestions that Deutsche should make further cuts to its U.S. equities sales and trading business (and maybe do away with it altogether), which JPMorgan says loses €200m-300m each year. However, Sewing is adamant that this isn't planned.
Goldman Sachs: Still strategizing, shunting technologists around cutting bonuses; a bad time to work in traditional sales
Goldman Sachs was supposed to have whopped out a new strategy under CEO David Solomon by now. Instead, the firm used its first quarter results announcement to reveal that it won't be opening its kimono until 2020 and will be cutting bonuses in the short term instead.
Even so, there are a few definitive things happening at GS in 2019. The bank is, "vertically integrating 7,500 operations and engineering professionals directly into the business," which sounds like a big and complicated process. It's also, 'leveraging shared platforms', and, "migrating more...efforts to locations like Bengaluru, Warsaw, Dallas and Salt Lake City." In other words, 2019 sounds like a year of change if you're working in technology or operations for the firm.
2019 could also be a year of pain if you're a voice salesperson at Goldman Sachs. "It used to be entirely the front end human intensive sales person that mattered," said CFO Stephen Scherr during the investor call. This is changing, said Scherr. In future, clients are more likely to interact with the firm through automated platforms like Marquee. Goodbye old-school sales traders.
J.P. Morgan: Making technology spending more efficient, emphasis on dynamic algo trading
J.P. Morgan is continuing to steer the course outlined during its 2019 investor day. In the coprorate and investment bank, this means a big emphasis on new electronic trading innovations like DeepX, Algo Central or LOXM. The bank recently launched DNA (Deep Neural Network for Algo Execution), which allows machine learning programs to improve execution based on previous trades.
JPM is also trying to pare its huge technology spending through modular technologies that are reusable. Oh, and it's investing in cloud products, distributed ledgers and cybersecurity and data analytics and visualization functions for sales.
Morgan Stanley: "Tight" management of compensation, investing in machine learning and less in compliance
Like most other banks, Morgan Stanley is keeping a lid on investment banking pay after a difficult first quarter. Also like most other banks, it's doing some of its more exciting spending in tech.
CEO James Gorman says the "mix" of Morgan Stanley's technology budget is changing. "We're moving into some of the more innovative areas of technology, and we've made a major push with our cyber-defence. We have been doing a lot of work around machine learning at the moment, big data management," said Gorman. By comparison, he said spending on regulatory compliance is now falling. - You probably don't want to be working reguatory compliance, therefore. You probably do want to be working in big data and cyber-security.
UBS: Defensive mode, not much hiring in Europe, curtailed spending
UBS didn't have a great first quarter, and the bank is taking precautionary measures. CEO Sergio Ermotti says UBS is now engaged in "tactical cost actions" to cut $300m from spending. These mean slower hiring, reduced spending on some IT projects, and lower bonuses. The Swiss bank is still recruiting in APAC and building out its wealth management business and investment bank in the Americas. In wealth management, however, UBS is reportedly requiring that five support staff have to be eradicated for every new hire, or that two staff must go for every hire into the front office...You'll need to be good.
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