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Morning Coffee: Morgan Stanley's layoffs bode badly for Goldman Sachs. George Soros' mistake

Morgan Stanley CEO James Gorman is a McKinsey & Co. consultant by trade. Maybe this makes him more dispassionate about cutting costs? Either way, Morgan Stanley was one of the first banks to pull the trigger on cuts to its fixed income trading business and has now become one of the first banks to make pre-bonus cuts in 2017.

Earlier this week, we reported that Morgan Stanley was cutting bonuses (by 4%) and heads (an unspecified quantity) in equities trading. Now, Reuters reports that Morgan Stanley has also axed a bunch of senior investment bankers and shaved bonuses by 15%, give or take, due to declining revenue from deal-making and capital-raising. The cuts have reportedly hit senior investment bankers hardest, with around 20 bankers going from the IBD division globally - more than in a usual year

This looks ominous, because as with equities sales and trading, Morgan Stanley was by no means the worst performer. The bank ranked fourth for investment banking fees last year – disappointing perhaps but certainly not catastrophic.M&A revenues at Morgan Stanley were down 10% year on year in the first nine months of 2016 and ECM revenues were down 37%, but at Goldman Sachs they were down 20% and 48% respectively. If Morgan Stanley's making big cuts in IBD, therefore, surely Goldman Sachs should too?

Maybe so. Then again, Goldman CFO Harvey Schwartz said last year that the banks' relationship focused corporate finance bankers were among its most important assets and that the bank is more than willing to sit out a hiatus in deal-making until things pick up again. That's good: Global investment banking fees across Wall Street declined 7% in 2016 to a three-year low, according to Thomson Reuters. Across the industry, equity capital market fees declined 23%, the biggest drop of all banking activities as initial public offerings were few and far between. Mergers-and-acquisitions activity also slowed from record levels in 2015, with global deal volume falling 17%.

Separately, no one is more disappointed about the results of the U.S. election than George Soros, who Wall Street Journal reported lost around $1bn during the stock-market rally in the wake of Donald Trump’s shocking presidential election victory.

Adding insult to injury, Duquesne Capital Management founder Stanley Druckenmiller, Soros’s former deputy BFF who helped him grab $1bn of profits betting against the British pound in 1992, anticipated the market’s recent climb, turned bullish and collected big gains, according to the Wall Street Journal.

Soros became more bearish immediately after Trump’s election, not a lucrative stance as the stock market rallied on expectations that Trump’s policies will boost corporate earnings and the overall economy. The S&P 500 Index has risen 5.6% since Trump’s election through yesterday, per Bloomberg.

The Journal said some of Soros’s trading positions incurred losses around $1bn. He exited a good number of his bearish bets late last year, avoiding further losses.

The silver lining for the Hungarian-born hedge fund legend? The broader portfolio held by Soros’s firm gained about 5%.


Big Four auditing firm PwC is hiring 600 General Electric tax accounting employees. (WSJ)

“Government Sachs” is back as the Trump administration hands over economic policy making is largely being over to people with Goldman ties to an unprecedented degree. (New York Times)

Trump has M&A protagonists getting cold feet and eyeing material adverse change (MAC) clauses, which offer the potential to wriggle out of a deal between signing and closing. (New York Times)

Can the 4Q results of J.P. Morgan Chase, Bank of America and Wells Fargo live up to the optimism priced into their shares? (WSJ)

The options market is signaling that a pause may be looming for the euphoric rally in bank stocks as earnings season commences. (WSJ)

Bank shares may be due for a pullback, but their long-term prospects are strong. (WSJ)

Here's why we could see up to 90 IPOs this year. (Business Insider)

The City of London has demanded an accommodating Brexit deal that enables continued access to the single market and its pool of talent… (WSJ)

…but conceded that Prime Minister Theresa May’s government is probably unwilling or unable to secure those conditions. (Bloomberg)

Banks – going through the five stages of grief – are running out of coping mechanisms for Brexit. (Bloomberg)

“Super Mario” Draghi brought up a touchy issue, saying the European Central Bank should oversee the U.K.’s clearing business even after Britain leaves the E.U. (Bloomberg)

Terra Firma’s profits fell, but chairman Guy Hands, a punk rock aficionado, still got a £3.5m ($4.26m) dividend. (WSJ)

The head of asset management at DNB ASA, Norway’s biggest bank, who manages $64bn in assets, said that the bond market may have been overly optimistic in anticipating a fiscal stimulus from President-elect Trump. (Bloomberg)

With the specter of MiFID II looming, asset managers are split over how they should pay for research – or whether they should do so at all. (The Trade)

High-cost active management is dead – long live low-cost active management. (Business Insider)

SkyBridge Capital founder Anthony Scaramucci has put his fund of hedge funds up for sale and was named an assistant to President-elect Trump. (Bloomberg)

Exchange-traded funds took in a record $400bn in the past year to become a $3.8 trillion industry, surpassing individual shares as the most actively traded securities in the market. (Bloomberg)

Some believe that the Dow Jones Industrial Average is an antiquated anachronism. (Bloomberg)

After Trump’s rambling news conference on Wednesday, the dollar weakened, pharmaceutical and biotechnology stocks were sold, bonds were bought and stocks once regarded as out of favor with the president-elect outperformed. (WSJ)

A lack of clarity around President-elect Donald Trump’s policies disappointed some investors, one possible reason that losses in financial shares dragged down U.S. stocks yesterday. (WSJ)

As loan rates and bank revenues sag, a Japanese bank has branched out into broadcasting, art, video gaming, pinball, rice cultivation, chocolate and blueberry jam. (WSJ)

A group of “manbassadors” – male MBA students – have promised to support women after graduation. (FT)

Student-loan debt stifles the hopes and dreams of would-be entrepreneurs. (New York Times)

New York City taxpayers pay somewhere between $500k and $1m a day for President-elect Trump’s security. (Bloomberg)

Photo credit: Morgan Stanley building by Alan Wu is licensed under CC BY 2.0.

AUTHORDan Butcher US Editor

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