Morning Coffee: The bank that lost its MDs and found some juniors to replace them. Morgan Stanley's new friends

There is a paradox of cost cutting exercises, which is that they tend to over-deliver on the headcount reductions.  If you fire 10%  of your staff, then you will typically find that another 10% leave. This would be good news for cost cutting managers, except that the 10% who leave tend to include many of the ones that you wanted to keep.  As soon as a headcount reduction is rumoured, sensible bankers will start feeling out the market to see what their options are if the worst comes to the worst.  And once a resume is out there, it’s out there; strong revenue generators will always find a bid somewhere, and it’s likely that the external bid will seem a lot more attractive than hanging around in an office that appears to have developed sick building syndrome.

We’re talking about Deutsche Bank, of course; in this case, specifically its Asian operations, where something like 30 per cent of the workforce as of May this year are no longer there.  The bank has lost fifty front office staff in Hong Kong and Singapore, including eight MDs and a dozen Directors, and replaced them with 35 new hires, who are in general much more junior – only three MDs and one Director, according to one source.

“Juniorisation” has been a trend in several parts of the industry over the last year, but it’s doubtful that this is what’s going on in DB Asia.  At least twenty of the departures in Hong Kong went to rival banks including Credit Suisse and Natixis.  It’s more likely that the majority of the departures were not planned, and that Deutsche has been scrambling to fill roles with a combination of trading-down in the job market and internal promotions.  There’s not much else that can be done in the space of six months.

Looking into 2019, however, this may be setting up some interesting hiring opportunities.  Christian Sewing has pledged that Deutsche will remain strong in Asia, and has specifically committed that it will not be leaving any Asian market where it currently has a presence.  Assuming that commitment is still valid – and that the CEO turnover slows down to the extent that Sewing is still able to deliver it – Deutsche is likely to find itself in the same position in Asian IBD that it has in EMEA equities.  That is to say, with a franchise that has been badly damaged by the cost cuts (Deutsche has not lost fee market share yet, but it seems likely for the near future), and needs to be rebuilt.  In situations like that, investment banks tend to pay over the odds to recruit franchise players.

What does that mean for the juniors? Basically, there is a short window in which to shine. There will be employees at Deutsche in Asia who have enjoyed the equivalent of “a bloody war and a quick promotion” into roles they might have had to wait awhile for if the top level turnover hadn’t been so fast. But next year is likely to see management wanting to make franchise hires into those very roles, which is an awkward situation to be in.

Morgan Stanley, meanwhile, appears to have the opposite problem to the one that JP Morgan was talking about yesterday.  Rather than too many bright ideas leading to a plethora of half-built systems that never go anywhere, MS has found that it’s too difficult to get new ideas off the ground, particularly if they involve collaborating with an outside fintech company.  They’ve reduced their vendor agreement from twenty pages to a single page and set up an internal portal to allow employees to trial new tech.  Shawn Melamed, the head of technology business development and innovation, used to run a fintech startup himself and so he’s aware of how difficult big regulated institutions can be to deal with.

The position that Stanley is in is somewhat different from JP Morgan; the overall bank strategy isn’t based on being a payments behemoth, so there is less need to focus on scalable and bank-wide platform solutions and more opportunities to customise products to individual client groups. It is interesting though, that while JPM views IT execution as the art of saying “no”, MS is still keen to let flowers bloom.

Meanwhile ...

Closing the books at the year end brings something of an ominous feeling to anyone who has a derivatives position or loan that they had spent the last few weeks hoping it might get better.  In two weeks time, things will need to be justified to outsiders and the benefit of the doubt will be in short supply.  For this reason, we seem to be seeing a spate of announcements of trading losses, as banks get out in front of the curve and clear the decks for the FY results. Natixis, for example, has declared a €260m loss on hedging issues in Asian retail derivatives, while Citi is reorganising its prime brokerage business after a loss on lending to a hedge fund which is reported to be as much as $180m.  If you have any positions you’re not happy with, remember that there are only five trading days left in the year, and if it hasn’t come right by now, it probably isn’t going to. (Reuters)

One of the odder insider trading cases the SEC has brought – the husband of a UBS M&A banker is being sued over allegations that he eavesdropped on his then-fiance’s phone calls and used the information he gleaned to make profitable options trades.  The wife was apparently unaware (Bloomberg)

Guzman Carles might be an important man in Europe next year; he has been promoted into Stephen Carter’s role as head of EMEA FIG M&A, going into a year when considerable consolidation is expected (Financial News)

“Coporate broking”, the strange mix of advisory, investor relations and stockbroking, is a peculiarity of the UK market which everyone expects to wither on the vine, but which never seems to go away.  Euromoney surveys the outlook (Euromoney)

As well as plugging gaps, Deutsche seems to be hiring to reinforce its strengths; after a good year for its software investment banking team, they have hired Greg Thorne from Stifel as a managing director (Business Insider)

French labour laws are easy to mock, but this week (nearly ten years after the event), an appeals judge ruled that SocGen was within its rights to fire Jerome Kerviel and does not have to pay him €450k compensation (Reuters)

The private equity investment boom in vegan food companies, complete with borderline unforgivable puns (Bloomberg Businessweek)

And ARM plc have invented a computer chip that will sniff your armpits, if that’s what you want. (New Scientist)

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