The redundancies have begun. As we reported yesterday, Berenberg has suddenly pulled the plug on its expansion plans and is dumping up to 20% of its staff in London. BNP Paribas has been at it too. Others will almost certainly follow. So who will survive until 2019? And who is top of banks' shopping lists as we move towards a whole new year? Here's how the land lies in early November.
Bank of America: Bring on the senior investment bankers
Bank of America is all about one thing right now: top investment bankers. The Financial Times reports today that BofA plans to hire "up to 50" managing directors (MDs), plus all the mid-level staff needed to support them.
It certainly needs to do something: revenues in BofA's M&A business fell 33% year-on-year in the third quarter. However, BofA has already been adding M&A muscle: after losing 28 MDs earlier this, a spokesperson told the Wall Street Journal last month that it had already hired 49 to replace them. The implication is a complete refresh of the investment banking business. During BofA's third quarter investor call, CFO Paul Donofrio said the investment bank needed to "renew" its focus and "re-energize" its teams.
Meanwhile, BofA's London office is afflicted by the opening of the new Paris office early next year. Various senior people have already been transplanted and more are likely to follow. As the bank compensates for the cost of the new French operation, there are fears that BofA could cut spending (and heads) in London.
Barclays: All about electronic trading
As we reported last week, Barclays is said to be urgently attempting to fill vacancies on its London rates desk before the year is out. However, this is just one gust in the bank's hiring storm. Yet again Barclays has been the big hirer of the year.
Between January and September 2018, Barclays said it made 275 external hires to its markets business. This followed big hires the previous year too. Since the start of 2017, Barclays has added 50 managing directors to its markets business and 33 to its banking (M&A, ECM and DCM) business. It's also been investing in technology and in data science. Barclays has even been investing in equity researchers.
So what next? Barclays' big focus now is electronic trading and digitalisation. During the bank's third quarter call, Jes Staley said Barclays began investing in a program to overhaul its electronic trading business in mid-2016. After completing the upgrade to rates trading he said the bank had seen a 10x increase in the amount of trades being placed electronically, and that it had just rolled out a new electronic trading program for equities to match this. "It's a combination of getting the right people there, giving them the support of senior management," Staley said.
BNP Paribas: Digital transformation and quiet cost cutting
As we noted last week, BNP Paribas is not meeting growth targets in its corporate and investment bank. It's already been quietly cost cutting (150 jobs have gone according to insiders) and there are likely to be more cuts to come.
During BNP's third quarter investor presentation, CFO Lars Machenil said the bank's strategy for 2019 will be all about generating revenues that are growing faster than costs: "....Going forward, the priority for management will be to have positive jaws in 2019...basically focusing on the costs and delivering the positive jaws."
BNP's 150 redundancies suggest it's not afraid of cutting jobs in the front office, particularly it seems in fixed income trading. However, it's back office employees at the bank who should be more afraid: the bank's main lever for cost cutting is process automation. BNP says it's already automated 120 process and has identified a further 200 that are ripe for automation in future. These include client on-boarding and credit processing. Jobs in these areas are most likely to disappear.
Citi: Combining corporate and investment banking with capital markets origination
Citi's big focus now is restructuring rather than recruiting. The bank is in the process of combining its corporate and investment bank with its capital markets origination (equity capital markets and debt capital markets) businesses. During the third quarter investor call, CEO Mike Corbat said the bank is "integrating advisory services with capital raising." This week, it named Philip Drury head of the combined business in EMEA.
The new structure may take some bedding in. The Financial Times noted that Citi moved late to combine the two units after a painful merger between its corporate and investment banks in 2008, when its investment bankers treated its corporate bankers like underdogs. At the time, Citi executives told the FT the new move was more about growth than cost cutting - although it some fallout seems likely as the businesses are combined.
The stars of Citi this year are likely to be its macro traders. The bank has been hiring in FX and U.S. government bond trading and departing CFO John Gerspach highlighted the bank's strong third quarter performance in G10 rates and G10 FX. In equities the bank has been building its Delta One desk.
Credit Suisse: Equity derivatives praised, questions about cost cutting elsewhere
If you work at Credit Suisse now, you want to be in equity derivatives. During the third quarter, equity derivatives revenues at the Swiss bank were up 70% year-on-year and CEO Tidjane Thiam was effusive in his praise for the individuals responsible. "We've really got a first-rate team now driving our equity derivatives business," said Thiam during the bank's third quarter call, before going on to praise global head of equities Mike Stewart and Ross Mtangi, the U.S.-based head of the exotics business. Stewart and Mtangi seemingly have a mandate to hire: Hippolyte Agkpo, the former global head of quant strategies and exotic derivatives trading is joining in London after leaving Bank of America in New York.
If equity derivatives are thriving at Credit Suisse, the same cannot be said for the rest of the investment bank, which had a terrible third quarter. The global markets division has cut operating expenses by nearly 20% since 2015 and is on track to achieve its goal of $4.8bn in operating expenses per annum. However, following a third quarter loss of CHF96m, the suspicion is that there will be more global markets job cuts to come.
Deutsche Bank: Infrastructure cuts coming next
Deutsche Bank is targeting €23bn in costs for 2018 and €22bn for 2019. In theory, cuts to the front office of its investment bank are over. During the bank's third quarter call, CEO Christian Sewing said Deutsche has completed the restructuring of its front office in line with its original target and will now be chopping back office and support jobs instead. "Further workforce reductions, as we said in July, are now more focused on infrastructure and support functions. This enables us to now focus on profitability and returns also by continuously focusing on client activities," said Sewing. Deutsche's investment bankers now have a mandate to chase clients and to focus on growing revenues. However, any additional hiring - unless it's at the junior level - is unlikely.
Who stands to lose their jobs as DB pursues the additional €1bn+ in cost savings? Deutsche Bank CFO James von Moltke said the bank's attempt to cut infrastructure costs will be focused on, "the efficiency of delivery, the technology infrastructure," among other things. So, technologists at DB may be in the firing front line, again.
In reality, DB may also need to make more cuts from the front office of its investment bank. Costs consumed nearly 95% of revenues in the third quarter.
Goldman Sachs: Everything on hold until review of business lines is over early next year, quietly hiring investment bankers
Goldman Sachs is in a sate of flux under its new CEO and new CFO. Incoming CFO Stephen Scherr says the bank is, "reviewing all of our businesses front to back to ensure that our people and our financial resources are optimally deployed.” Scherr said this week that Goldman is scrutinizing the amount of capital it allocates to each division. “We’re looking at . . . what is the revenue potential for these businesses and against that looking at what the expense base is . . . and then coming to an assessment very clinically on whether that business is meeting its cost of capital.” The fear is that the review will end up with cuts to the under-performing fixed income currencies and commodities business.
Despite the review, Goldman has an ongoing growth plan which Scherr reiterated in a presentation this week. Like Barclays, the bank is chasing a perceived opportunity in automation and electronic execution - and, indeed, has been hiring (and losing people) here.
However, Goldman has also been quietly adding investment bankers too. As we noted in September, then incoming-CEO David Solomon (himself an investment banker by trade) seems to have been focusing on adding managing directors to the investment banking division. Between January and June, Goldman said it had added 20. This week Scherr said Goldman added another 20 between June and September. MDs who don't want to join BofA can always try Goldman instead.
J.P. Morgan: Hiring investment bankers and investing in technology
J.P. Morgan's plans for its investment banks boil down to two things: technology and bankers. CFO Marianne Lake said the firm is "investing in technology and bankers" when the third quarter results were released. Headcount in the corporate and investment bank rose by 5% in the three months to September, an increase of 2,652 people.
Who were all these hires? Some are likely to have been graduate trainees, but beyond technology and bankers, Lake didn't say. Three years ago, Daniel Pinto, head of the investment bank promised to hire "dozens" of M&A bankers. J.P. made several senior M&A hires from Morgan Stanley in May. It's also been busy building out the technology function in its corporate and investment bank under Mike Grimaldi.
Morgan Stanley: Technologists wanted to sit on the trading floor
Morgan Stanley's mantra has long been that the front office its investment bank (its salespeople, traders and investment bankers) is just the right size. Instead, the bank's focus seems to be on hiring technologists and quants/strats.
During Morgan Stanley's third quarter investor call, CEO James Gorman said: "We're continuing to invest across all of our technology platforms, in automation, in AI and big data or cloud computing, digital, our whole digital initiative across wealth management expansion across the asset management businesses and building out new platforms, raising new funds. All of these are investments that we're making continuously and we've been hiring talent."
Morgan Stanley has been revamping its offices to help accommodate all these new hires. The bank is redesigning its offices with brown leather sofas, stone floors, and pouffes to appeal to "the next generation of the best and brightest." 9,000 "seats" have been upscaled so far (in New York, Houston, Frankfurt, Chicago, Glasgow, Budapest, London, Mumbai and Bangalore) and more are coming soon. "Our traders need to be with our techies,” said Rob Rooney the bank's head of technology. “You’ll see a very different trading floor in five years time than you see today.”
UBS: Going for growth in M&A, ECM and the Americas
UBS is engaged in a very small amount of hiring. In the third quarter, the investment bank added just 179 staff (including graduate trainees), so it's not exactly boom-time. In London, the Swiss bank is busy relocating 64 staff to continental Europe as part of its Brexit preparations. It's also been hiring for its financial sponsors team and its consumer team in London. Following the exit of Andrea Orcel, the new heads of the investment bank - Robert Karofsky and Piero Novelli - want to grow M&A and equity equity capital markets revenues. "Talent and technology are the key inputs," Novelli told Financial News - so there may be hiring ahead.
UBS's ongoing focus, however, is the Americas. CEO Sergio Ermotti noted that the American investment banking business put in a "notable outperformance" in the third quarter. This followed the bank's earlier declaration of a "very aggressive plan" for Americas expansion and it intention to hire "old fashioned bankers'" with relationships there.
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