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Morning Coffee: The news that ruined UBS bankers’ weekend. The most powerful man in banking resigns

On Friday, UBS investment bankers were trying to wrap up their work and looking forward to the weekend when the bad news broke: The Swiss bank has put salary increases on hold for everyone in its investment banking division, including for employees who are getting a promotion. It’s a wait-and-see situation as UBS monitors how competitors handle their compensation, according to Bloomberg.

Compensation costs at UBS’s investment bank were equal to about 40% of the unit’s revenue last year, compared with about 36% in the prior two years, and shareholders would probably like to see it closer to the latter percentage this year.

Despite the gloomy tidings, there is hope that UBS will give some top-performing investment bankers a raise around mid-year, as the Zurich-based bank did last year. Plus, the decision to defer pay increases doesn’t affect bonuses, so it could certainly be worse.

UBS’s investment bank had about 4,700 employees at the end of last year, down from about 5,200 a year earlier. Andrea Orcel, the head of the securities unit, said that UBS is now the right size and that the bank pays for performance, noting that 2016 wasn’t as good as 2015. Orcel said he’s “mildly” optimistic that client activity will pick up in 2017, on which investment bankers are pinning their hopes since the division shrank trading for its own account.

Separately, he is the most powerful man in banking – the most important person in the banking business, according to the Wall Street Journal – and he has just handed in his resignation. Is it Blankfein? Dimon? Another CEO of a big Wall Street bank, or a veteran rainmaker or CFO gunning for their job? Nope, none of the above.

It’s former Harvard Law School professor Daniel Tarullo, Federal Reserve governor and the head of its Committee on Bank Supervision, who President Barack Obama named to the Fed at the nadir of the financial crisis in 2009. Tarullo has been the most influential voice shaping the U.S. government’s regulatory response to the economic meltdown and has come to personify Washington’s post-crisis influence over how banks do business – think “stress tests” and “living wills.”

Tarullo earned a reputation as one of the toughest supervisors of banks – the “alpha dog” of financial regulators who demanded that megabanks maintain large war chests of capital and easy-to-sell assets so they’d never again need a taxpayer bailout. He is a big proponent of the Volcker rule to prevent rogue traders a la the London Whale. Hence, many in the financial services industry popped champagne upon hearing news of his resignation.

Tarullo announcing his plans to resign in April gives Trump’s financial deregulation agenda a big boost. Trump has already nominated a new Securities and Exchange Commission chair and is expected to name a new head of the Commodity Futures Trading Commission soon. Many believe he will try to defang the Consumer Financial Protection Bureau


Will the pay ratio rule survive an SEC challenge to it? (WSJ) 

Trump might trade Dodd-Frank for overhauling bankers' pay (New York Times)

Another Goldman Sachs banker Jim Donovan is under consideration for the No. 2 job at the U.S. Treasury Department, but maybe there are “too many Goldman guys” (Bloomberg)

Gary Cohn, who enjoyed a $285m windfall upon transitioning from Goldman president/COO to the White House, has direct access to the president and is often a lonely voice in Trump’s inner sanctum as he has become the go-to figure on matters related to jobs, business and growth. (New York Times)

Trump said Cohn has a “phenomenal” plan to slash taxes. (Bloomberg)

Attempting to avoid the criticism he attracted after his lavish 60th birthday party in New York, Blackstone Group CEO Steve Schwarzman, a billionaire 11 times over, will celebrate his 70th birthday in Florida – and the Trumps will likely attend. (Bloomberg)

RBS will be forced to slash up to 15,000 jobs as it scrambles to cut costs in the face of a ninth consecutive year of losses. (The Sunday Times)

Morgan Stanley may move from its Midtown Manhattan HQ to Hudson Yards, a big development under construction on the West Side. (WSJ)

An executive board member for Germany’s central bank, the Bundesbank, said, "The current model of using London as a gateway to Europe is likely to end." (BBC)

France must choose between either attracting more banking jobs or maintaining its stringent labor regulations. (The Telegraph)

Navinder Singh Sarao – a.k.a. “The Hound of Hounslow” and “The Flash Crash Trader” – has been swindled out of $50m. (Bloomberg)

If you’re a founder of a new hedge fund, private equity firm or fintech startup, pick a name that starts with a letter toward the beginning of the alphabet. (Bloomberg)

Here’s customized advice for how to spend your bonus. (Bloomberg)

Photo credit: Tuned_In/GettyImages

AUTHORDan Butcher US Editor

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