Turkeys, as they say, don't vote for Christmas. But the country of Turkey might spoil a few people's Christmases if its ongoing debt and currency crises manage to put a big hole in bank profits for 2018. The lists of banks most at risk have began to be compiled by the sell side, and once more it appears to be the European players rather than the Americans with most to fear. Unicredit and BNP Paribas both have material Turkish subsidiaries, and the harsh truth is that even though this sort of business has very little to do with the trading franchise, if a bank is losing money or seeing its capital impaired, the bonus pool is the first source of funds that both management and regulators will look to. So there is potentially some reason to fear at the houses with the biggest direct exposure.
The rule of emerging market crises, however, is that the second and third round effects are nearly always bigger than the immediate ones. After all, nobody has mistaken Turkey for a low-risk proposition for quite some time – people have been predicting some sort of blow up for more than seven years. Big banks with big positions or subsidiaries there are likely to have made detailed plans to manage their risk. Often the most vulnerable players are those with related or semi related exposures which they believed to be safe, or even to be a hedge against risks elsewhere.
If there is contagion from Turkey into a full-blown emerging markets liquidity crisis, then, there is no one on the street who is 100% safe from having a bad enough quarter in their EM business to prompt one of those awful “town hall meetings” where the heads of debt and equities start telling everyone that although most of the business has performed well relative to budget, “expectations need to be revised downward” because of “the situation that everyone can read about in the Financial Times”. You'd normally think that the banks most vulnerable to this sort of disaster would be those with the biggest EM franchises, but in fact bitter experience has taught us that the size of the profits an emerging markets debt business makes in good times are a surprisingly poor guide to the size of the losses it's capable of making when the bottom falls out.
On the other hand, we have to consider the possibility: what if a medium-sized emerging markets crisis was...good? There is always a sweet spot in the markets when newsflow is volatile enough to drive trading volumes and client business, but not quite extreme enough to leave the trading desk with losses. After a patchy Q2 for some houses and a more than usually pronounced summer lull, the return to business after Labor Day could be the make or break period in terms of the difference between a pretty good year and an exceptional one. So from the point of view of financial sector employees, we would like Mr Erdogan to do enough to keep things exciting, but not so much as to blow the thing up. Luckily, that seems to be exactly what many expert fund managers seem to expect to happen. Turkey might make it a happy Christmas after all.
Anyway, let's also start the week with a feel good story. Reggie Nelson was a teenager from East London studying at a further education college when he came up with an idea to set himself apart from the crowd and improve his career prospects. He went to Kensington and started knocking on the doors of the multi-million-pound houses there, asking the residents “what skills and qualities they had, that allowed them to live in the wealthiest area in the UK?”
He was lucky that one of the first doors he knocked on was the house of Quintin Price, who was able to live on that street because he was the head of alpha strategies at BlackRock, responsible for managing just under a trillion dollars worth of funds. (Quintin has since retired, so maybe don’t knock on his door any more). The conversation they had led to a mentoring relationship, and to Reggie getting an internship at BlackRock. He went on to university and to a career in the financial services industry (according to LinkedIn, he’s currently at LGIM). Obviously, this isn't a full solution to the problem of diversity in the City, but at least it shows that initiative and willingness to work can still help you break in, as long as you've got a good doorstep pitch and a fair slug of luck.
Legal firm White & Case has decided it would be good if partners and associates could meet every now and then for informal coffees, to allow junior colleagues to make contacts and get a broader overview of the firm than they might get from the one or two principals to whom they are assigned. Since they are lawyers, they have decided the best way to achieve this is to have a formal process to oversee the informal coffee dates. Human resources will assign the dates to one another, wild the senior partners' PAs will be responsible for scheduling them, monitoring them, and providing a short report to the informal coffee dates oversight committee. This is a law firm that is not scared of the stereotypes, clearly. (RollOnFriday)
Hedge funds come, hedge funds go. Certain Capital, a long-distance equities fund which launched last year with blue-chip investors including David Einhorn, has now closed in what the Wall Street Journal analyses as another example of the tough conditions for raising enough funds to reach critical mass. But Viewforth Partners is launching with its own blue chip investor, Michael Spence, aiming to take advantage of the reduced information environment in European mid cap stocks where research coverage has been hit by MiFID. (WSJ, Financial Times)
Nestor Paz-Galindo will be the new head of M & A for UBS in Europe. He comes from a private equity / financial sponsors background and joined from JP Morgan in 2016. (Financial News)
J.P. Morgan is the latest bank to have revised its training programme for IT staff to be a little bit more like a tech firm and attract the best graduates and programmers. From now on, JPM tech guys will be allowed to call themselves “engineers” and will benefit from a relaxed dress code and offices with foosball tables. More substantially, they will be assigned to real tasks at an earlier date under the oversight of named managers. (Reuters)
Ever since David Solomon took over, people have been noticing a potential cultural change at Goldman Sachs with more recruitment from outside at the top levels. This continues with the hiring of Kurt Simon, brought in from JP Morgan to lead tech advisory, at the coveted partner level. How many of these kinds of hires can be made before it starts having an effect on Goldman employees' perception of the way the firm works? (WSJ)
The head of compliance for Americas at BNP Paribas want all of his staff to be at least basically competent in data analysis – “data comfortable” rather than “rocket scientists”. (Reuters)
And Charles Brennan at Credit Suisse has kicked off a good old-fashioned analyst versus company battle over the subject of accounting treatments for customer receivables at Atos SE. (Bloomberg)
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