Morning Coffee: JPMorgan traders told to rein in their bright ideas. Goldman gave bankers a prize for dubious deal
Creativity is a difficult balancing act. On the one hand, you want people to make suggestions for improvements and new markets. But on the other hand, you don’t want your technology systems to turn into a swamp of half-finished projects, all unable to link up with each other and each one needing to be separately maintained at vast expense.
David Hudson at JPM knows this as well as most. He was originally hired to be “Morgan’s Moonshot Man”, carrying out Google-style big initiatives to disrupt business areas and enable mass replacement of employees by technology. But now his role has developed to a place where he is turning down new ideas as much as trying to generate them.
The problem appears to be that it’s difficult to get business units to take a view across the whole bank. Everyone was trying to launch their own system to solve their own local problems, without considering whether it could be scaled up across the whole operation. Lack of “scalability” is the number one reason that Hudson intends to be saying no to what the Financial Times describes as 'employees pitching projects' in 2019. Given that Hudson's official title is head of markets execution, it seems fair to assume that these ideas are coming from the bank's traders.
The thing with having big bank-wide moonshot exercises is that you only want one of them in each system; not a load of overlapping mega-projects set up by bosses who were keen to deploy some of the $10.8bn technology budget. Guy Halamish, the co-head with Mr Hudson of the Digital and Platforms Services team, notes that “managing a large organisation with competing priorities” is always a problem.
One indication of how much of a problem it might be can be gleaned from the org chart. In order to coordinate activities, there are now 18 senior managers in the Corporate & Investment Banking team with responsibility for digital leadership as well as their own business area. Eighteen dotted line reports to a pair of divisional co-heads is usually a sign that either you’ve had the consultants round, or that you’re dealing with some tricky turf war issues. An unnamed senior executive said that “the old system [of every division building their own platform]... was clearly bananas”, but we’ll see whether the new spirit of cooperation lasts when favourite projects start getting cancelled.
Hudson regards the problem as “existential and urgent”, which is dramatic enough in itself, but becomes even more so when you consider that JPM actually has a pretty good reputation in the industry for management of its technology spending. In future, Hudson says the bank's technology focus will be 'payments' - building a streamlined and universal backbone for all the payments business in the investment bank, and nothing is going to be allowed to distract from that. Old systems may find themselves starved of necessary investment, and new projects are only going to be pursued if they fit in with this agenda. Mr Hudson hopes that this sense of urgency will spur more creative thinking. “Too much undisciplined spend can actually be a problem”, he says, “People stop inventing and being creative”.
Separately, people were also inventive and creative at Goldman Sachs’ Southeast Asian business when it came to dealing with Jho Low at 1MDB. A deal under which Goldman underwrote a bond issue for 1MDB to carry out an acquisition of some power plants, taking a $200 million fee but effectively pre-selling away nearly all the risk, was such a great example of “solving an important client’s problem through outstanding firmwide cooperation” that it won the Michael P Mortara Award, the top award at their internal equivalent of the Oscars.
Only trouble was ... well, 1MDB. The power plants were written down in value shortly after the transaction closed, and the seller had made a side payment to 1MDB’s charitable fund, which is currently the subject of prosecution in Malaysia. It’s hard to say whether having given this transaction an award is good or bad for Goldman in its struggles to keep the corporation out of the 1MDB affair. On the one hand, it makes it harder to characterise the banker responsible (Timothy Leissner) as a rogue operative acting without knowledge of senior management. On the other hand, it does make it look less like there was intentional wrongdoing. After all, this wasn’t a deal that everyone wanted to cover up and keep at arms’ length; they were happy to be giving it awards!
In the Netherlands, the “awkward conversation with your dad” over bonus payments is set to be enacted into law. In the latest proposals to tighten the Dutch law on compensation, as well as mandating five year clawbacks on payment in shares and bonds, banks will have to explain how the pay awards relate to the social value of the job. (Bloomberg)
Former JP Morgan superstar, inventor of the Credit Default Swap and recent blockchain entrepreneur Blythe Masters has stepped down from her position as CEO of Digital Asset Holdings (Fortune)
Might not be many end-of-year awards at Citigroup’s FX Prime Brokerage team; there appears to be a loss of as much as $180m on a loan to a hedge fund. The FX PB division is being restructured as a result of this loss and placed under the overall prime finance unit rather than the FX division (Bloomberg)
Labour’s Shadow Chancellor agrees that there is a “problem of trust” between him and the financial sector (Financial News)
Successful people talk about their “worst job interviews”. As you’d expect, most of them are humblebrags (New York Times)
Paradoxically, despite a poor year for hedge fund performance overall, it has been a record year for new fund launches. The mega-launches of Point72, D1 and ExodusPoint raised $18bn between them, with other startups sharing another $10bn in total (WSJ)
The New York Department of Financial Services has fined Barclays $15m over the Jes Staley whistleblower affair. This was a corporate fine for not having sufficiently compliant governance and controls, and so can’t directly be compared to the FCA fine from May. (Financial News)
Deutsche and Commerzbank have taken part in a “trial run” organised by a subsidiary of BGC Partners, to practice moving swaps positions from LCH to Eurex in the event of a no deal Brexit. (Bloomberg)
A profile of Donald Knuth, master of algorithms and “Yoda of Silicon Valley” (New York Times)
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