Morning Coffee: Barclays is the latest bank to tell clients to take a hike. $2bn hedge fund implodes spectacularly
If you're a salesman dealing with smaller, low touch clients, you should be feeling scared. Investment banks are increasingly less tolerant of client relationships that aren't helping bring in big profits. They are, in effect, telling clients lower down the totem pole to start spending more or take their business elsewhere, thank you very much.
Deutsche Bank has scaled back coverage of approximately 3,400 clients. Morgan Stanley, HSBC and Citigroup have separated their clients into tiers based on their profitability, instructing staff to spend more time on big-spending asset managers and less time working with the less-profitable ones, according to Quartz. Citi has a group elite hedge-fund clients known as the “Focus Five.”
The latest move in the banking industry’s trend of winnowing down customer lists to the ones that produce significant profits? Barclays, which is about to tell 7,000-plus clients to trade more with the firm or find another bank to do their trading, according to Bloomberg. That is in addition to the 17,000-plus bank clients that it has culled since 2014 in response to tougher capital rules that make dealing with smaller firms less profitable.
Barclays wants at least a 10% return on capital from every client – those that fall under that threshold will be given the option to do more business with the bank or leave in a “managed transition.”
Many banks have talked about focusing on top-paying customers, ramping up the competition for those target firms, many of them asset managers. If every financial institution whittles their prized customers down, there will a lot of overlap among those preferred bank clients, and the problem of stiff competition will get worse the more customers banks cut. That lead to increasing importance for the senior sales staff with rock-solid relationships with big-spenders, but is not so good for everyone else.
Separately, Mark Nordlicht, a founder and chief investment officer of the New York hedge fund Platinum Partners, David Levy, co-chief investment officer, and five others were arrested and charged with perpetrating a billion-dollar fraud.
Senior Platinum staff allegedly used new investor money to pay older investors. They are also accused of overvaluing the assets that Platinum invested in and misrepresenting the performance of certain funds, inflating the value of some significantly.
In 2012, after an explosion on a platform in the Gulf of Mexico operated by Black Elk, an oil and gas company controlled by Platinum, resulting in the deaths of three workers, various other injuries and an oil spill, the firm was unable to pay all of its investors back, so executives allegedly decided to pay some ahead of others.
At its peak, Platinum managed nearly $2bn and its flagship fund consistently reported double-digit returns for investors, according to the New York Times.
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