Morning Coffee: How to get a job at Brevan Howard now. Could repo traders bring down banks?
All of a sudden, repo traders are in the spotlight. And it's showing up a lot of imperfections that no one had spoken of before.
It all started with the Wall Street Journal, which published an article earlier this week suggesting that the repo market, where banks and funds dealing in government securities lend and borrow bonds overnight and then repurchase ('repo') them in the morning, is 'in turmoil.' The problem is partly down to new regulations like bank's leverage ratio rule, which means that banks have to post more capital against repo trades. Goldman Sachs has cut its involvement in the repo market by $25bn, pointed out the WSJ. It's bad: hedge funds and money market funds are big borrowers on the repo-market. If banks stop lending, funds could find it harder to manage their liquidity. Such is the stuff of financial crises.
The Financial Times has picked up the baton and taken the repo scare story several steps further. In an unofficial follow-up to the piece in the Wall Street Journal, it points out that there was one day last month (July 28th) when so-called 'repo-fails' - namely events when a borrowed Treasury isn't returned on time, thus triggering a cascade of settlement problems down the banks and hedge funds in the lending/borrowing chain - reached $122bn. “From a risk point of view, if that had been one or two of the primary dealers that could easily have overwhelmed their capital,” points out a partner at Basis Point Group, ominously. “If fails get big and proliferate, it burns up capital with systemic consequences,” adds Michael Cloherty, head of rate strategy at RBC Capital Markets. Already high, fails are likely to get higher when interest rates rise. Systemic consequences don't sound good.
Separately, if you want to work for Brevan Howard now, you'll need to be some sort of exceptional rates trader. After a difficult time for the London-based hedge fund (it's lost money in 11 of the past 15 months), the Wall Street Journal reports that Brevan Howard is returning to its roots as a specialist in interest rate trading. At the same time, the fund has reportedly reduced its exposure to equities and FX trading and reduced its risk-taking overall. This is clearly why Brevan has been losing FX traders to the likes of Lloyds and doesn't sound good for all the FX and equities traders the fund has hired in recent years.
Brevan Howard is attempting the ultimate $73m bonus clawback. (Bloomberg)
US rules on mandatory bonus deferrals are supposed to be finalized this year, but squabbles between regulators mean that might not happen. (Financial Times)
EdgeCrest Capital, a Canadian boutique focused on investment banking, equity sales and trading, and equity research, predominantly in mining, energy and special situations, is hiring in London. (Financial News)
Citigroup has made David Haldane head of equity derivatives in Europe. He previously worked for the bank in Sydney. (Financial News)
Aberdeen Asset Management wants to be a bigger alternative asset manager. Following its acquisition of SWIP, it has increased alternatives headcount from 40 to 78. (Financial News)
People the Wall Street Journal thinks you need to follow on Twitter. (Wall Street Journal)
Goldman Sachs is inviting investments of $5m a piece in its new chat service. (Financial Times)
Why Goldman will struggle to replace Bloomberg chat. (Economist)
A long list of all the litigatory action faced by Barclays around the world. It’s scary. (Alphaville)
How type A people can play nice with others. (HBR)
Ardent environmentalist hedge fund manager goes up again shrivelled playboy fashion mogul. (NY Times)
How to handle going on holiday, and coming back again, professionally. (HBR)
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