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Morning Coffee: These clients will save your investment banking job. Nomura cuts in the U.S. again

Which fund managers are listed in the little black book?

If you work in sales or trading now, it's all about serving big clients. Deutsche Bank said in its big strategy update last year that 30% of its clients generate 80% of its profits and it will pare back the smaller ones - this could mean significantly fewer staff. Morgan Stanley's fixed income hiring has focused on its 'senior relationship management team' - which schmoozes significant clients.

Quite how beholden investment banks are to a select band of behemoths who generate the lion's share of their revenues has come to light through some leaked documents on Bloomberg.

For example, Citigroup’s equity-research team in downtown Manhattan has a secret list, known as the “Focus Five,” of heavy-hitting hedge funds that get the best trade ideas, customized trading models, easier access to research and the most contact with analysts and other executives. The favoured elite on the list are Israel Englander’s Millennium, Steven Cohen’s Point72, Clint Carlson’s Carlson Capital, Ken Griffin’s Citadel and one of its subsidiaries, Surveyor.

However, Citi is far from alone in this policy of preferential treatment for the largest sources of profits. An HSBC spokesperson said that it is “reducing the number of dormant and low-revenue clients,” tacitly acknowledging that a comparable practice is in place.

Morgan Stanley categorizes its fixed income customers into a three-tiered hierarchy consisting of “supercore,” “core” and “base.” Approximately 2,000 firms that weren’t deemed worthy of one of those tags get only limited access to the bank’s management, sales and research departments, Bloomberg reported.

In fact, as banks’ profitability has shriveled under the weight of increased regulations, historically low interest rates and unfavorable market conditions, among other factors, it has become common practice on Wall Street to focus on the small percentage of clients that trade the most and thus pay the banks handsomely.

The result is that a majority of clients, which includes small-to-medium-sized mutual funds and hedge funds, are denied access to banks’ research and other services they used to rely on.

Separately, Nomura plans to cut anywhere from 20% to 30% of its North American workforce. It currently employs approximately 2,500 people in the U.S. and Canada, meaning between 500 and 750 Nomura employees are likely to lose their jobs.

This is yet another change of strategy at the Japanese banks' U.S. business. This time last year, Nomura was hiring and added over 50 people, and as late as December its CEO revealed plans to hire at least 20 more M&A investment bankers this year.

So what changed? Less revenue from trading and dealmaking leading to a sixth-consecutive quarter of pretax losses for Nomura.


Deferrals are coming to Wall Street. Bonuses are likely to be held for three years, rather than five years in Europe (WSJ)

Donald Trump has lost a lot of money through hedge fund investments. He doesn't care (Reuters)

Junior financial advisers work 60 hours a week, sue for $14m for lack of overtime. (Reuters)

Investment banking analysts work at least 65 hours a week. (eFinancialCareers)

Morgan Stanley has fired the adviser who slept with a married client, allegedly made excessive trades in his account to generate fees and cost her employer $34m. (Tampa Bay Times)

BofA Merrill is saving money by downsizing its Tokyo office space. (Bloomberg)

A dealmaker who left a career at Blackstone Group after working there for 25 years is launching an acquisition company that hopes to raise – wait for it – $1 billion in an IPO. (Reuters)

J.P. Morgan has thrown its support behind IEX, the stock exchange designed to thwart high-frequency traders made famous by Michael Lewis’s Flash Boys. (MarketWatch)

Jeff Perlowitz, whose reputation was inextricably tied to mortgage-backed securities, is stepping down from his position as co-head of the Citigroup division that trades bonds backed by home loans and credit-card debt. (Bloomberg)

This treasure hunter found a horde worth $500m, then lost it all on Wall Street. (Harper's)

Don't mind sitting at a desk all day? These are the highest-paying jobs for you. (Business Insider)

She quit her investment banking job to travel the world for two years and has no regrets. (Business Insider)

“Dry Powder,” an off-Broadway play about private equity at the Public Theater now in New York. (NYT)

Photo credit: lolostock/iStock/Thinkstock

AUTHORDan Butcher US Editor

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