Morning Coffee: Are U.S. investment bankers just better? Hiring the Tom Cruise of finance

European investment banks have not just lost the battle with their U.S. counterparts, they’re losing the war. U.S. banks are beating them on their own turf, European firms are pulling back from entire business areas while U.S. firms continue to talk about ‘cyclical’ problems and they’re in a losing position just as the industry face further challenges.

“The problem for the European banks, especially with big investment banking arms, is that the U.S. firms have won,” said Martin Gilbert, CEO of Aberdeen Asset Management. “What we are seeing is a retrenchment back to profitable bits within investment banking. ”

Deutsche Bank is one of the select few European banks to breach the ‘bulge bracket’, but Gilbert thinks co-CEO has the most challenging job turning around the German bank. He’s not alone - Berenberg analyst James Chappell said that the bank is stuck in a “vicious circle” and can’t cut costs fast enough.

Europeans might be just too reserved for investment banking. “Maybe U.S. bankers are better at handling the risks that come with their cutthroat culture,” says Leonid Bershidsky at Bloomberg.

“It's painful for European banks to shrink as they realize they've been playing an American game that didn't quite fit their skills, traditions or goals,” he says.

Even worse, they’re competing for a smaller portion of a shrinking pie. Investment banks earned 53% of all revenues in capital markets back in the pre-crisis era of 2006, according to Boston Consulting Group’s new report into the outlook for the industry. Last year, they accounted for 38% of all revenues and this will fall to 31% by 2020, it predicts, as fintech firms and the buy-side eat their lunch.

“It is clear that investment banks are losing many battles. We think that a few of them, but only a few, will win the war, but it will require significant changes," said Philippe Morel, a senior partner at BCG and one of the authors of the report.

Separately, despite a generous bonus scheme that locks in senior employees, Jefferies has been losing an unusual number of MDs in its European operation. Around 20% have gone. These include the head of European M&A, Andrew Bell and its head of capital markets Reinout Koopmans.

And new faces are coming in. Jefferies has hired so many senior bankers from bigger banks that the number of MDs is at a record high at 43. What’s going on? It’s a simple case of ‘upgrading’ its people, according to senior bankers there.

"If you're making a movie, and you can have Tom Cruise in the role, then you might make room for Tom because then your revenue will grow," one of the people said. "It's a war of talent in our industry."

Meanwhile:

It’s looking better, says Goldman Sachs’ head of M&A, David Solomon (Bloomberg)

Senior female investment banker claims to have been $8.25m less than her male counterparts at ‘bros club’ Bank of America (WSJ)

Nearly 92% of J.P. Morgan shareholders are OK with executive pay (WSJ)

Of the ten major industries where women’s pay lags men’s, five were in finance (WSJ)

Alejandro Vicente, the European head of consumer investment banking at J.P. Morgan, is leaving for JAB (Financial Times)

The blockchain exodus: Thomas Chippas, the former head of Citadel Technology, has joined blockchain start-up Axoni (WSJ)

Only one-fifth of brokerages will survive. There will be fewer and bigger firms. Trading will be extremely cheap and efficient, and there will be more semi-automated trading algorithms.” (Financial Times)

J.P. Morgan has 1,600 ‘cultural ambassadors’ who have interviewed 16,000 employees (TABB Forum)

UBS has poached Brevan Howard’s Arend Kapteyn as chief economist of its investment bank (Bloomberg)

Banks’ ambiguous relationship with interest rates (St Louis Fed)

“If cultural fit doesn’t weed out diversity during the hiring process, mandatory socializing ensures that people who are already privileged are the ones who rise to the top.” (Quartz)

Philippine investment banker buys Porche banned in the country (Business Inquirer)

Photo: Dirima/iStock/Thinkstock