Morning Coffee: Citi and J.P. Morgan show how Brexit's helping banks. "Most unusual economic environment for 30 years"
Maybe it was all a horrible exaggeration? Maybe Brexit isn't about to decimate banking headcount? Maybe everything will be fine and the apparent 30% year-on-year reduction in London banking jobs in June was just a blip?
Hopefully so. And even if there's no cause to be quite that Panglossian, last week's results from J.P. Morgan and Citi suggest Brexit has brought some definite advantages. As the Financial Times points out, the primary beneficiaries have been fixed income salespeople and traders, for whom revenues rose by 35% at J.P. Morgan and 14% at Citi, mostly thanks to rates and FX trading.
Brexit's bounty hasn't been restricted to rates and FX though. Michael Corbat, CEO of Citigroup, said investment banking divisions also got some of the love. "On the heels of Brexit, we saw actually quite good deal flow," Corbat told analysts. "You saw debt capital markets, equity capital markets, M&A getting executed, getting announced.” This entirely glossed over the 41% year-on-year decline in ECM deals at Citi in the second quarter, but the analysts the FT spoke to didn't seem to care. "Deals are still being announced, for companies wanting to take advantage of low interest rates,” said one. "The rebound in trading activity in the second quarter was better than expected,” declared another. Tin hats off then?
Separately, Richard Buxton, the 52 year-old Oxford University English graduate turned motorbike fanatic and star fund manager, has a cautionary word anyone starting a finance career today: things are deeply abnormal. This is, "one of the most unusual economic environments I have known in my 30-year investment career,” Buxton tells the Guardian. His sentiment is echoed by Blackrock CEO Laurence Fink, who says global investors are, "afraid" and "pulling back", and that Brexit, historically low interest rates and the coming U.S. election are all taking their toll.
Last year, investment banking revenues were $228bn, says BCG. This year, they were going to be $212bn, but thanks to Brexit they're now forecast at $204bn. M&A revenues in Europe are expected to fall by 60%. The 'Brexit bounce' won't last. (Bloomberg)
European banks could be forced to put as much as €40bn of extra capital into their UK branches as a result of the country’s decision to quit the EU. Brexit will trigger an 8-22 per cent rise in annual costs for the banks’ capital markets divisions and says this may prompt lenders to withdraw from some activities. (Financial Times)
UK banks fear an additional £700m in tax as the government struggles to raise money. (Telegraph)
Bill Winters on Standard Chartered's HQ: “There is so much fiscal pressure on the government; it could be tempted to take another swipe at the banks and that would cause us to take another look at the headquarters issue.” (Financial Times)
Matchmaking contest for unemployed hedge funders. (Business Insider)
Jet leg, explained: 'The body’s internal clock has a natural period of slightly longer than 24 hours, which means that it has an easier time traveling west and lengthening the day than traveling east and shortening the day.' (NY Times)
Maybe sugar doesn't strengthen your willpower after all. (Discover)
“I wanted to have an adventure. I have been working for six years and I was desperate for a break. And Pokémon gave me the chance to live that dream.” (Guardian)