Morning Coffee: Senior banker said to leave after “inappropriate conduct” with junior in a bar. And Deutsche is still hiring, despite everything

A high ranking male banker, a junior female colleague, a New York hotel bar and an event that nobody will talk about in public, but which has profound career consequences.  It’s a story familiar to anyone in the industry who has been around for a while and listened to the gossip. The difference is, 2018 seems to be the year in which the career consequences are affecting the men too. Bloomberg is reporting – cautiously, but with quite a bit of specific detail – that when Thibaut de Roux, HSBC’s former head of Global Markets, left his job in September, he was under investigation over an allegation considered serious enough to have been reported to the Financial Conduct Agency.  Bloomberg cites "inappropriate conduct." All the bank will say is that “an allegation was made against an individual” and that they “dealt with it directly, robustly and appropriately”.

Far worse events have happened in the recent past.  Credit Suisse fired two employees from their London office this year over allegations of sexual assault going back to 2010 which came to light as a result of a #MeToo letter, while a senior employee at UBS is alleged to have raped a trainee in 2017. (We should make it clear that at present there’s no suggestion been made that the HSBC case involved criminal behaviour; the complaint was apparently made to HR this summer, but it’s not clear what period it relates to).

The human resources functions of the banking industry, more used to dealing with bonus contracts and high-level team moves, seem to be struggling to keep up with things.  Uncertain about what they ought to do and how cases need to be investigated, managers are starting to kick things up to the regulator in order to cover their backs.  It seems somehow counterintuitive for a financial supervisor to also become the de facto #MeToo authority for the financial sector, but the FCA appears to be willing to take on this role.  In the case of the UBS allegations, for example, they are actually investigating the bank for failing to keep them informed, suggesting that this might have been a breach of UBS’ duty to be transparent to the regulator.

Whether or not the authorities are involved, though, there’s a clear expectation that the old strategy of covering things up, making excuses and protecting senior revenue generators is no longer going to be acceptable.  After ten years of clearing up the toxic waste of the crisis, the industry is having to face up to the fact that some of its biggest risks are behavioural rather than financial.

Separately, we have some rare good news on hiring at Deutsche Bank and another example of the fact that it’s possible to do quite well in a troubled bank.  Earlier in the year, CEO Christian Sewing announced that Deutsche would be cutting 25% of the equities sales and trading staff.  More or less, this target has been delivered.  But when you make big, high profile cuts like that, you tend to damage the franchise.  And when a franchise is wounded to that extent, you have to either cut it completely, or ...

...Or you have to build it back, by hiring people and paying a premium price to do so.  Which is what Deutsche appears to be doing; it’s hired James Rubinstein from Bank of America to head up U.S. electronic equities and expects to do “quite a bit more” next year.  According to the head of equities, “Christian is incredibly supportive of growing the investment bank ... we cut balance sheet by reducing internal inefficiencies and are now able to redeploy this into better opportunities”.  That sounds like at least a temporary about turn.  The financial sponsors team in Deutsche’s IBD is also looking for people, planning to increase its headcount by 20% next year.  Even in an environment of cost cuts, there are always big ticket vacancies.

Meanwhile...

Worse news for hiring in London; Morgan McKinley data suggests that the number of vacancies is down 40% on this time last year, while the number of candidates seeking new jobs is down 28%. (Financial News)

Mike Novogratz gives an interview on Bitcoin, cryptocurrencies and how to hang on to some of your money and most of your sanity in conditions like the ones crypto investors are currently experiencing.  “We did well at not losing money on the first 60% down. But you forget that a market which is down 84% from the peak, like Bitcoin is now, is one that fell 60%, then fell 60%” (Bloomberg)

Bank of America did well in IPO league tables this year as the market played to its strengths with plenty of mid market deals and few technology mega-IPOs.  That might not be the case next year – with Morgan Stanley selected for the Uber IPO and JP Morgan leading Lyft, the 2019 IPO league table could be written quite early in the year. (Bloomberg)

Rumours are beginning to grow that Credit Suisse’s planned share buyback program is going to be disappointingly small (Financial Times)

Vanguard and Fidelity are both implementing the Women in Finance Charter which, among other requirements, means that top executive bonuses will partly be based on success in meeting diversity goals. (Financial News)

If you were arrested on charges of breaking sanctions (and if you think it couldn’t happen, ask your compliance officer) who would stand your bail? Meng Wanzhou of Huawei managed to find a group of 30 friends and neighbours in Vancouver who were willing to pledge part of the value of their houses for her. (FT)

And Andy Ozment, head of cybersecurity at Goldman Sachs, is close to despair at the patchwork of inconsistent regulations and reporting requirements which govern cyber risk in the various jurisdictions in which GS stores data (CNBC)

Some economic research on the perennial question of “are elite colleges worth the struggle to get into?”  The answer appears to be that if you’re a rich white guy then the “Harvard Effect” is close to zero; all the effect comes from providing positive signals for women and minorities to allow them to close the gap with rich white guys. (Atlantic)

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