Morning Coffee: Banking post-Brexit - work harder than ever, earn a lot less. Top Deutsche Banker says it's all fine
The true nature of the hollow in which the investment banking industry finds itself after the Brexit vote is starting to become apparent and it's not especially comfortable. The declivity is one in which banks will almost certainty cut pay, and where bankers are already performing feats of endurance to keep clients happy and stay employed.
Take the traders at Credit Suisse. CEO Tidjane Thiam says some of them worked 36 hours straight after the referendum vote was cast and that at one frantic point volumes were 27 times higher than usual. Will those traders get rewarded for such assiduousness? Unlikely - the cost/income ratio in Credit Suisse's global markets business was 158% in the second quarter, suggesting the bank's not exactly in a position to be generous at bonus time. Thiam's praise is probably as good as it gets.
Although that 36 hour marathon hopefully won't be repeated, markets professionals aren't in for a leisurely trot. In future they'll need to know their clients and products exceptionally well if they want to make money - and that takes diligence. Nomura's chief operating officer Tetsu Ozaki explained the situation to Reuters. "Our clients' needs have increased more than we imagined," said Ozaki, adding that the macro and FX environment is becoming harder to read and that "skills" in providing liquidity will soon be in demand. Unfortunately, Nomura's in no position to reward sales traders who can provide liquidity in thin markets either - its international business has been unprofitable for the past seven years and is struggling to move into the black.
However, the worst horrors are reserved for bankers in equity capital markets and M&A. There, volumes were down 45% and 18% year-on-year in the first half according to Dealogic. While the execution of fewer deals invariably means lower pay, it doesn't necessarily mean less work: live deals are simply replaced by frenetic pitching. This is why one ECM banker told Financial News that he's now doing two-and-a-half hour conference calls every day whilst on holiday. The old clients and opportunities have gone, new ones must be found, urgently.
Separately, following last week's doomy prognostication about the situation at Deutsche Bank, Alasdair Warren, head of its corporate and investment bank in EMEA, informed Bloomberg that Deutsche is in a strong place: “It’s not a rosy picture, but we are well-positioned and our relative share of the available fee pie will probably rise." Warren himself was hired from Goldman Sachs (on a probably large package) last November. He intimidated that might even be more hires to come, saying that Deutsche has "under-invested in people" and needs to "change that."
Angela Merkel says she expects the next British prime minister to fulfill the Brexit decision. (Bloomberg)
It's not too late to go back on Brexit, says JPMorgan. (Bloomberg)
US elites don’t think Brexit will actually take place. (Financial Times)
In which British prime ministerial contender Andrea Leadsom completely dismisses the single market. (Twitter)
In which British prime ministerial contender Theresa May says she'd be happy to lose the single market in order to regain control of British borders. (Twitter)
Deutsche Bank's chief economist says European banks need a $166bn rescue fund, but he recently bought 100,000 Deutsche shares as an indication of confidence in his employer. (Bloomberg)
"When you have 100,000 staff and 30,000 consultants you can easily cut more costs,” says J.P. Morgan's chief banking European analyst of Deutsche. (Financial Times)
“The number of banks [in the US] halved in the last 20 years, and they’ll halve again in the next 20.” (The Financial Times)
Fantasy bank mergers. (Bloomberg)
Points-based immigration systems don't work. Post-Brexit, Britain would be better to go for a 'pool'. (Economist)
If you really want to build resilience, you can start by strategically stopping. (HBR)
The high status laugh. (Quartz)