Morning Coffee: Bankers are busy, but bumper bonuses look unlikely. Deutsche Bank is still making big hires
Everything’s fantastic and nobody’s happy. That seems to be the message from the bumper day of Q3 results from Goldman Sachs, Bank of America and Citigroup yesterday. All three big banks beat their earnings estimates, and credit for the beats had to be given fairly and squarely to the investment banking divisions. It would have been reasonable to conclude, as several commentators did, that “Wall Street bonuses have just been salvaged”.
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But by the end of the trading day, the share price gains had been given back – BoA ended the day slightly up, Goldman slightly down and Citi down 5% as concerns grew about the regulatory and systems problems that Anand Selva is meant to be working on. And on the conference calls, CEOs gave some distinctly mixed messages about the near future and, implicitly, the bonus outlook.
The problem appears to be that although both advisory and trading revenues were a lot stronger than expected at the guidance stage – it seems to have been an unusually strong September – they came in ways that are difficult to extrapolate to the fourth quarter, let alone into next year.
On the trading side, FICC (fixed income currencies and commodites) were weak, often due to lower rates revenues, while equities were strong. But the strength in equities appears to have been mainly located in derivatives business, and to have been related to trading desks getting on the right side of the sharp market moves in August and September. Nobody can guarantee that the moves will happen again, or that big banks will be on the right side if they do.
The banking side of the business has similar problems when it comes to forecasting revenue. Jane Fraser of Citi suggested that debt capital markets had been strong mostly because clients wanted to settle financing before the Presidential election, effectively suggesting that revenues have been pulled forward rather than showing underlying growth.
And David Solomon continues to remind people that the party can’t really get started until financial sponsors come back. He noted on the GS call that although it’s better to have M&A volumes at 13% below their decade average (as in Q3) than 25% below (as they were last year), they're still quite a bit below average. And the implicit message here is that Goldman, and the Street in general, is still staffed up for a normal cross-cycle level of business, so below average volumes means below average bonuses. According to the press release, compensation spending at Goldman was actually lower in Q3 24 than in the same quarter last year (although it is up 9% for the year to date, despite a mere 1% increase in headcount).
Where are the bright spots? The answer can only be “anywhere that there is substantial hiring”. Solomon did mention “competition for talent” as a driver of the cost base, so it’s likely that equity derivatives traders will be looked after. Bank of America has been investing in equity derivatives talent too this year, and yesterday noted that it’s directing more investment into the tech stack. All the big banks are keen to bolster their wealth management franchises. But for the time being, bankers might be best advised to write off their expectations for 2024 and concentrate on making a really strong start to 2025 instead.
Elsewhere, although by no means unrelated, the reluctance of the bulge bracket to chase the first signs of revenue recovery has meant opportunities for banks in the second tier to build their franchises, and specifically for European players to increase their presence in the North American market. Deutsche Bank has been at the forefront of this trend, and it’s keeping the pressure on – its latest high-profile recruit is Aly Alibhai, formerly the Global Head of Media and Entertainment at Credit Suisse, who’s joined from UBS to be Deutsche's head of North American M&A.
Alibhai was a former MD at Citigroup, so he’ll be familiar with his new boss, global M&A head Alison Harding-Jones, who also joined Deutsche from Citigroup. Given that Citi today seems to have many regulatory and systems issues similar to those which used to dog Deutsche Bank, it’s not hard to guess where the new Deutsche team might be hoping to take their market share targets from.
Meanwhile …
George Gatch might be the most important JPMorgan executive you haven’t heard of. Although he’s not featured much in the Dimon succession stakes, he’s been CEO of JPM Asset Management for five years and done very well on the public markets side. Now he’s restructuring the alternatives business (which already has $400bn in assets, making it a top ten player) and going after the big private equity and hedge fund players. (Institutional Investor)
The base salary for interns at Jane Street is significantly more than the ever so slightly more selective jobs of “Prime Minister of the United Kingdom” or “Chair of the Federal Reserve Board”. Although the last two positions probably get fewer resumes. (Alphaville)
The world of Swiss banking has been shocked to the core. First the collapse of Credit Suisse, and now the news that the posh bars and restaurants of Zurich have all been (seemingly unknowingly) selling fake Cuban cigars. It’s apparently quite an art to counterfeit all the security printing and labelling to pass off a cheap alternative as a Cohiba Siglo for CHF115. (Finews)
When Tom Barclay was a forex trader, he apparently kept it quiet that his family home was Middleton Castle, outside King’s Lynn in Norfolk. And well he might – traders can be sarcastic sometimes. Now he’s inherited the family pile and is trying to run it as an events venue, which is apparently even more stressful than trading. (Telegraph)
Another “life after banking” – Joakim Cimmerbek was a forex trader at Citi during the global financial crisis, and he’s now selling environmentally sustainable paint in Hong Kong. (SCMP)
Generation Z spends half its time working from home and the other half doing all-nighters, and so bars in Manhattan are having to educate them about what a “happy hour” is, and why it starts at 5 o’clock. (NY Post)
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