Morning Coffee: J.P. Morgan is the only bank that isn’t full of blue bloods. Deutsche shareholders are cross about Cerberus
Investment banking is meant to be an egalitarian system where all that matters is your ability to make money, in principle. In practice, anyone with experience of watching hiring and promotion decisions being made knows that the PLULPLU Principle (‘people like us like people like us’) is at least as important as in any other walk of life.
Now a report has come out putting some figures to the perception, and shaming and praising the best and worst companies in London for their class bias. The Social Mobility Foundation has published a list of the top 50 companies for recruiting people from poorer social backgrounds. And finance has not come out well.
Interestingly, some of the top companies on the list are accountancy and legal firms – KPMG, Grant Thornton and Deloitte are all there. The asset management and insurance sectors are also well represented by Aviva, M&G and Standard Life Aberdeen. This suggests that it’s not necessarily anything particular about financial knowledge that makes it easier to acquire if you grew up rich. But of the allegedly meritocratic world of the sell-side, only J.P. Morgan manages to appear on the list.
Why is there such a gap between the myth-making of “poor and hungry” and the reality? Part of it appears to be driven by the fact that top investment banks are even more obsessive than other blue-chip employers when it comes to only recruiting from the world’s top brand-name universities. This means that all the social stratification that’s already in the admissions process of Oxford, Cambridge and their equivalents worldwide tends to be reproduced on the graduate admissions programme at Barclays or Goldman Sachs.
It’s also true that getting a job in banking usually means coming through the internship route, and this means putting together a resume of academic and extramural selling points pretty early on in your university career. That’s something that people don’t necessarily realise they have to do if they didn’t come from a background where finance and investment was a daily subject of conversation.
And once you’re into the industry, there’s an awful lot of path dependency. Genuine rainmakers who can win deals or generate trading profits will find that they can move from bank to bank based on their track record. For the rest of us, the industry is likely to judge you based on what your previous employer looked like. So if you join a second-tier company to start with, it’s that much harder for you to reach the top ranks of the bulge bracket. As a slight first step to remove this path-dependency (and to help reduce discrimination in the hiring process), State Street has banned its managers from asking about previous salaries when making hiring decisions.
Deutsche Bank, of course, has been needing a particular kind of talent – in the chief operating officer division – for a while now. Its attempt to buy in some help from Matt Zames, the former JPM COO and Jamie Dimon lieutenant has not gone down well with its shareholders, though. The decision to hire the Cerberus Operations Advisory Company to advise on restructuring, rather than McKinsey or any other consultancy, has raised eyebrows because of a perception that Cerberus’ 3% equity stake in Deutsche creates a conflict of interest. “You have to ask yourself how Cerberus is earning most of its money”.
The private equity giant has assured the market that there will be full Chinese Wall separation between its advisory and investing activities, and agreed to be restricted in buying or selling Deutsche stock for as long as the consulting relationship goes on. But as the owner of a 5% stake in Commerzbank and (jointly with JC Flowers) of HSH Nordbank, it’s easy to see how Cerberus could be in a position to generate synergies for its own investments. And activist investors might wonder how a shareholder can really hold management to account if they’re partly on the payroll. Deutsche clearly needs help, but lots of people are wondering whether this was the help they needed.
Analysts are getting their scorecards ready for JPM and Citi as they kick off the Q2 results season. (Financial News)
Overall, UBS has tried to analyse the “sentiment” from earnings call transcripts measured by their use of favourable and unfavourable words and phrases. (Business Insider)
Credit Suisse has to decide whether to appeal against a Texas court which ruled that it had misled Highland Capital over a real estate development that collapsed in the crisis. (Reuters)
Deutsche Bank wants to get back into the top five for LBO lending. (Bloomberg)
The European Investment Bank wants Britain to remain a member post-Brexit. (FT)
Nomura are still hiring in some areas - Nezahat Gultekin has arrived from Temasek to head up tech banking in London. (Financial News)
The Kindle version of hedge fund cult classic “Margin of Safety” which briefly went on sale this week turned out to be a pirate edition. (Forbes)
The head of Morgan Stanley’s “Hollywood team” of brokers to the celebrities has left, after some #MeToo allegations. (WSJ)
Goldman Sachs is trying to get the IBD dealmakers to bring in wealth management clients. (Bloomberg)
And Elliott Management has taken control of AC Milan with a €50m equity investment. No word of what AC’s Argentinean players think of this. (Financial News)
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