Morning Coffee: Where to find 8,500 more jobs, soon. When Goldman Sachs derivatives structurers go wild

21 July 2014

5 minute read

Morning Coffee: Where to find 8,500 more jobs, soon. When Goldman Sachs derivatives structurers go wild

In theory, there are 8,500 new jobs every month to be had in banking in London. If you're a bit dubious about their attainability, you could always look to Johannesburg instead. The Financial Times reports that PwC will be doing some big hiring there.

By the end of 2019, PwC reportedly intends to invest 'several hundred million dollars in Africa' and to double its current African headcount of 8,500. Much of the recruitment is likely to take place in South Africa, where 4,500 of PwC's African employees today are based. PwC reportedly intends to make lots of local hires, but it's also preparing to transfer an estimated 250 of its UK-based staff who are first or second generation African and will hopefully want to relocate or take a secondment to the continent. Expertise will be wanted for key sectors: capital projects and infrastructure, oil and gas, government and public sector, and financial services.

Separately, the Independent has had sight of an elaborate mathematical formula developed by some derivative structurers at Goldman Sachs. The formula was reportedly used to determine the interest rate on a swap sold to Portuguese state-owned train and subway company, Metro do Porto, in 2008. Metro do Porto was attempting to reduce the interest it was paying on €126m (£100m) of debt. Instead, the Independent says the formula below resulted in charges of millions of euros.

Derivatives have become less complex since the financial crisis. Nonetheless, what we have below is a good example of the more opaque algebra with which you'll need to be accustomed if you intend to join Goldman Sachs' popular 'strats business'.

Goldman Sachs' formula for the interest payable by Metro do Porto:

Interest: PayIndex[1]+PayIndex[2]+PayIndex[3]

PayIndex[1]: If Index 1 is less than or equal to 7.75%, 1.665%+Radial [1,n], subject to a maximum of AverageCap [1,n]

Otherwise,

7.75%+Radial[1,n], subject to a maximum of AverageCap[1,n]

PayIndex[2}: Radial[2,n]subject to a maximum of AverageCap[2,n]

PayIndex[3]: Radial[3,n], subject to a maximum of AverageCap[3,n]

Index1: Max (12m Euribor, 12m USD Libor), Reset in Arrears

Index2: 10 year EURSwap Rate - 2 year EUR Swap Rate, Reset in Arrears

Index3: 10 year GBP Swap Rate - 10 year EUR Swap Rate, Reset in Arrears

12m Euribor: EUR-EURIBOR-Reuters, with a Designated Maturity of 12 months as published on Reuters page [EURIBOR01]

12m USD Libor: USD-LIBOR-BBA, with a Designated Maturity of 12 months as published on Reuters page [LIBOR01}

10 year EUR Swap Rate: 10 year EUR Interest Rate Swap Rate

Source: Reuters Page ISDAFIX2, 11am London Time Fixing

2 year EUR Swap Rate: 2 year EUR Interest Rate Swap Rate

Source: Reuters Page ISDAFIX2, 11am London time fixing

10 year GBP Swap Rate: 10 year GBP Interest Rate Swap Rate

Source: Reuters Page ISDAFIX3, 11am London time Fixing

Radial[1,n]: Max (Radial[1,n-1]+Index1-7.75%,0),Radial[1,0]=0

Radial[2,n]: Max (Radial[2,n-1]-0.30%-Index2, 0), Radial[2,0]=0

Radial[3,n]: Max (Radial[3,n-1]-0.45%-Index3, 0), Radial[3,0]=0

n: Number of the Interest Calculation Period, n=1,...,80

For the avoidance of doubt, n=1 corresponds to the Interest Calculation Period from 15feb08 to 15May08

AverageCap[i,n]: {SumDCF[n]x6.33%-SumCpn[i,n-1]}/DCF[n], Where i=1,2,3

SumCpn[i,n] = SumCpn[i,n-1]+Cpn[i,n], SumCpn[i.0]=0, Where i=1,2,3

Cpn[i,n]:PayIndex[i]xDCF[n], Where i=1,2,3

DCF[n]: Daycount Fraction of Interest Calculation Period n, according to 30/360, adjusted modified following convention

SumDCF[n]: Daycount Fraction from the Effective Date to the Interest Payment Date of Interest Calculation Period n, according to 30/360, adjusted modified following convention.

Meanwhile:

Morgan Stanley wants to hire a dozen commodities traders and sales staff in the US. (Reuters)

Charles Stanley has told 11 of its 25 dealers that their jobs are at risk. (Telegraph)

From this Thursday, the FCA will have up to six years to bring disciplinary action against City professionals – up from three previously. (The Times)

A junior investment banker at Rothschild could expect to be paid around £60,000, according to research from Financial News. A top-of-the-range flat in Manchester city centre costs £450,000. After a few years saving your bonus, you could expect to buy a flat a few minutes’ walk from work. (Financial News)

Students suddenly turned on to “less brutal” asset management careers. 30% of Cambridge University’s Judge Business School’s class of 2012/2013 went into asset management last year. 43% went into banking. (Financial News)

55% of European banks and 47% of non-European banks are using cash-based allowances to sidestep the bonus cap. (Financial Times)

32% of people think they'll get a bigger bonus this year. 27% think they'll get a smaller one. (Bloomberg)

Barclays employees had been voicing concerns about its dark pool for months. (IBTimes)

Where in the world can you pay the least tax? (Telegraph)

Ex-chef wins hedge fund trading competition. (Traders Magazine)

How to become an indispensable employee. (Inc)

Goldman Sachs? Or Morgan Stanley? The crazy patience of coverage bankers

Is it worth burning out for less than £100k? Retail bankers causing annoyance at Barclays

When naïve traders agree to informal bonus formulae. BofA’s big junior hiring won’t benefit interns