Morning Coffee: "If Deutsche Bank can't make money at this part of the cycle, I don't know if they can." The Citi nickname
Last Friday, Deutsche Bank's share price fell sharply ahead of concerns about its third quarter earnings. Yesterday, the bank's earnings came out and the bank's share price fell another 4.5%. At €8.7, it's now so far from the €23 strike price for the retention bonuses issued in early 2017 as to make them seem risible. Bloomberg describes Deutsche as being in, "dire straits," and points out that the bank is now trading at 70% less than its book value.
Davide Serra, founder of hedge fund Algebris, thinks Deutsche's issues could be terminal. “Deutsche...is subscale everywhere with a very weak US franchise. And if they can’t make money at this part in the economic cycle, I don’t know if they can," he told the Financial Times. Andrew Coombs, an analyst at Citi is equally sceptical and suggests that Deutsche could be caught in a downward spiral: “We fear the bank could continue to cede sales and trading share based on current momentum," he says, adding that the bank's targets are, "overly aspirational." Kian Abouhossein, head of European banking research at JPMorgan, is equally dubious: "...in Deutsche’s case there is no sign of market share stabilisation," he says. Where will it all end?
Deutsche Bank is already a shadow of its former self. JPMorgan's analysts estimate that the bank's fixed income currencies and commodities and equities revenues will be down 41% and 55% from their peaks this year, and with market share still falling this may not be the end.
Does this mean, then, that Barclays is a better bet? After all, it's still busy hiring and had an excellent third quarter in sales and trading. Not necessarily. Barclays' FICC share is down 78% from its 2009 peak. Banking analysts quoted by the Financial Times are lukewarm on the British bank too. Coombs, for example, says Barclays' results were flattered by favourable loan-loss model adjustments under new IFRS 9 accounting rules, which are unlikely to continue. The general verdict appears to be that Barclays had a good quarter which will be difficult to repeat, which is concerning given the lurking presence of activist investor Edward Bramson (who wants big cuts at the investment bank) on the sidelines.
Separately, what kind of moniker can you expect at Citigroup if you're a great performer and a nice guy? How about "Golden Boy"? This was apparently the name bestowed upon Rohan Ramchandani, a Citi trader accused of rigging FX markets, who's on trial in New York. Ramchandani was, "very professional" and "very very smart," said a former colleague in his defence. "Everyone wanted a piece of him," she said. "The salespeople, the managers. I would actually say to him, you have to say no to some of these requests."
Jes Staley: "“There has been a comment that European investment banks can’t compete with the US, and I would just point out that four quarters in a row we have gained market share. The reality of what’s happening with our markets franchise really belies the proposition we can’t compete.” (Financial Times)
Barclays said growth was strong in prime finance, with client balances 11% bigger than last year. Barclays expects to keep growing in this area because attracting clients with funding is the first step, after which it hopes they will use the bank for a growing share of their trading activity. (Wall Street Journal)
At 7%, returns in Barclays' investment bank are still well below its other business areas like retail banking and credit cards, where returns are closer to 20%. (Bloomberg)
Another senior banker left Bank of America Merrill Lynch: Centerview Partners poached the senior Bank of America Merrill Lynch dealmaker Todd Kaplan. (Business Insider)
Blackrock's EMEA operations will remain headquartered in the UK after Brexit, with only a few new roles created in Europe. 40 people will be added in Paris. The largest European office will be Blackrock's technology office in Hungary. (Reuters)
Kweku Adoboli is to be deported after he lost his appeal and the judge described him as, " someone "whose honesty is seriously in question". (Sky)
Christian Byfield, a Colombian former investment banker and consultant, left a string of well-paid but “not fulfilling jobs” in banking and insurance, and started travelling around the world. “A lot of things started to happen because I started to follow my heart.” (BBC)
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