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The Good, the Bad and the Ugly for Investment Banks

All second quarter results are in. For investment bankers, the glass is somewhere between half-full and half spilled all over your lap, depending on who you work for and what figures you’re focused on.

U.S. investment banks hammered their European rivals, increasing total revenues by 24% in the second quarter over the year-earlier period. That more than doubles gains of top European banks during Q2. Among top U.S. banks, revenue from fixed-income, currencies and commodities (FICC) sales and trading climbed 12%, compared to an 8% decline among top European banks.

The problem, though, is that much of the revenue gains for U.S. banks can be attributed to an unusually hot stock market. Big trading losses, commonplace in previous years, didn’t strike in the first half 2013. Many have questioned whether the revenue gains are sustainable, particularly with increased capital requirements, stricter regulations and the end of stimulus tapering in sight. Income may continue to bloom, but revenue – the key indicator of sustainable growth – may be stuck in neutral for the foreseeable future.

The ugly, astutely pointed out by Financial News’ William Wright, is that investment banks have been successful in cutting staff and compensation, but not costs. Over the past six months, investment banking costs have fallen just 1%. Since 2009, industry costs have barely budged an inch, even as pay has fallen by 15% over the last four years. Indeed, compensation numbers are down, but costs related to IT spending, litigation and communication are rising at nearly the same rate salaries are falling. Operations need to be tightened for real cost-cutting to begin.

Wells Fargo to Hire 5,000 (eFinancialCareers)

Wells Fargo’s wealth management unit has quietly become its fastest-growing business. The bank plans to continue to invest in its brokerage, advisory and private banking units, recruiting both entry-level trainees and veteran brokers.

Private Bankers Beware! (eFinancialCareers)

Private banks have been snapping up talent to build out their front office ranks, but mid- and back-office jobs could be threatened as the industry increasingly opts for outsourcing. Wealth managers have been outsourcing more jobs in global custody, securities lending, client servicing and accounting and settlement of trades, and some firms are beginning to outsource their financial planning functions.

Falcone Banned (WSJ)

In a historic move, hedge fund manager Philip Falcone admitted wrongdoing as part of a settlement with the SEC, something Chairman Mary Jo White has been pushing for. Falcone and his hedge fund Harbinger Capital Partners have agreed to pay more than $18 million for various misdeeds. Falcone will be banned from the securities industry for at least five years.

Partner Wanted (Reuters)

High-speed trading firm Infinium Capital Management is considering adding a strategic partner, a move that could help the struggling Chicago firm keep afloat. Infinium has been cutting staff over the past two years as trading activity has slowed.

Too Independent-Minded?? (Washington Post)

Judging by recent discourse, Janet Yellen likely won’t be chosen as the next chair of the Federal Reserve. Here are the true and rather disturbing reasons she’ll be passed over.

Fancy But Costly (Business Insider)

What do the super-rich do with their money? Invest it in ways that make their financial professionals rich. Investors with over $200 million in funds threw away, on average, nearly $3.5 million in fees and lost returns by investing heavily in hedge funds and private equity firms.

Changes Needed (eFinancialCareers)

Industry groups are calling for cultural changes at investment banks after a 21-year-old Bank of America intern was found dead in the shower of his temporary residence in east London. He reportedly worked until 6 a.m. three days in a row.

Buzz Around the Office

1.86 Times for Fun (Daily Mail)

A high school math teacher and his students have reportedly uncovered a devious plot. Double Stuf Oreos are only 1.86 times the size of regular Oreos. For shame Nabisco, for shame.

List of the Day: Interview Mistakes

No interviewee is perfect, but you’ll get way more offers if you can avoid these common pitfalls.

  1. Poor body language.
  2. Talking negatively about your former boss.
  3. Being vague.

(Source: Glassdoor)

AUTHORBeecher Tuttle US Editor

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