Morning Coffee: Caucasian man claims the bank he works for only promotes Asians. And are local governments the new hedge funds?
An employment discrimination lawsuit this week highlights one of the most difficult cultural issues in banking – the relationship between expats and local hires in the overseas offices of an international bank. Daniel Smith, a former senior treasury banker with an archetypally English name, was invited to apply internally for other jobs after UOB (the Singaporean bank) decided it was going to stop offering clearing services. He didn’t get the job he was applying for, the colleague who did was Southeast Asian, and what happened next is disputed by both sides. - Smith says he was told the Southeast Asian was a better "fit"; UOB says Smith is just trying to get some compensation money. It’s hard to tell what really happened by just looking at the court reports, but it doesn't take a genius to spot the issue.
When international banks from Asia or Europe set up trading or investment banking operations in big financial centres like London or New York, they like to use their own people. The same happens when U.S. banks come to London. Usually, the people in charge of these important overseas subsidiaries are going to be senior managers on a fast career track back in head office, and those senior managers are going to have trusted colleagues that they want to keep around them. However, it’s unlikely that head office will be able to supply the whole skill set for the new venture, so they take advantage of the strong local labour market to staff up in the operational and customer-facing roles, while keeping the top management and control posts for their own team.
If it’s not managed correctly, this kind of structure absolutely lends itself to the creation of an us-and-them mentality. The local hires tend to think of themselves as the “foreign legion” at best, or as “mercenaries” at worst – they don’t necessarily have much feelings of affection or identification with their employer, and they might not be interested in building a lifelong career there if there’s an obvious glass ceiling to how far they can get promoted without moving to a different country. These expats have all the pressure of having to deliver the revenue and keep costs under control in a city where their bank’s name doesn’t necessarily carry the same cachet that it does back home.
Add to that the usual tensions between front-office and management, plus a little bit of a language barrier and you can see how this might be even more of a cultural challenge than your average bulge bracket trading floor. When it works well, you get real mutual respect and a unique franchise based on deep understanding of a specialised client base. When it doesn’t, you tend to get separate lunch spots, backbiting and extremely high staff turnover. It’s something that really bears thinking about if you’re ever interviewing at one of these firms; “how do you get on with the guys from [wherever head office is located]?” is an absolutely essential interview question to ask. UOB isn't the only bank to suffer this kind of accusation - ten years ago a Canadian bank was accused of choosing non-Canadians when selecting staff for redundancy.
Separately, the small town of Warrington, half way between Liverpool and Manchester in the North West of England, appears to have taken advantage of a loophole in the regulations to create something almost equivalent to a small sovereign wealth fund. Local governments in the UK can borrow from HM Treasury (via the slightly archaically named Public Works Loan Board), with few constraints on how they invest the money and at something close to the sovereign rate of interest. Almost by accident during the financial crisis when other sources of finances were drying up for local social housing schemes, Warrington Borough Council built up a small franchise in borrowing from the government and lending the money straight on.
By now, they own a solar power scheme in Yorkshire, a stake in a bank in the South of England and sizeable real estate holdings, with a balance sheet projected to top £1.5bn in the next two years. This mini-Temasek already generates more income from the council than they get from business taxes, and enough to fund the entire budget for children’s services. Although it’s hard not to get a sense of foreboding about risks for the future, so far the investment performance has been great.
The thing is, there’s no particular reason why any other local authority couldn’t do exactly the same thing. And it’s probably considerably easier to get yourself elected to a British council these days than it is to raise money for a new hedge fund. You can’t charge two-and-twenty, but you don’t have anything like the same compliance overhead and your capital is committed; it looks like a really good environment for an ambitious young money manager to start building up a track record. This might be the way of the future.
It turns out that the missed trip to Davos wasn’t just unfortunate collateral damage from the Andrea Orcel/Santander saga; it was potentially part of the actual problem. As well as the political optics, Santander had apparently begun to develop buyer’s remorse about Orcel’s ability to fit into its unique management structure, and his high profile at the WEF (where traditionally only Ana Botin used to represent Santander) might have been part of this (FT)
A Barclays rates trader who was not part of the group chats about rigging the Euribor market has told the court he felt “let down and used” when he found out about their existence. His testimony concentrates on how bad it was to rig Euribor and the damage to the bank, but it might have been mixed with just a little bit of resentment about not having been invited ... (City AM)
Apple has a separate “black site” where contractors work on its products, without the perks or job security enjoyed by full employees (Bloomberg)
Deutsche Bank’s problems are beginning to affect the cost of funds, with some investors noting that any more downgrades from S&P might start pushing it into high yield territory (IFRE)
One of Barclays’ top shareholders says that “there is something in the water” at the bank’s head office which “makes [employees’] moral compass shift slightly away from magnetic north” and that the culture needs to be improved. He doesn’t support the Bramson agenda of shrinking the investment bank though (Financial News)
Commerzbank is having relocation conversations with London based staff over Brexit although it is perhaps surprisingly moving its top ECM banker to Paris rather than Frankfurt (Financial News)
A Nordic hedge fund has been buying life assurance policies for years and is now profiting from old Americans dying, making excellent if somewhat macabre returns (Bloomberg)
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