Morning Coffee: Credit Suisse might cancel dozens of bonuses because of one person’s mistake. The hot quant field where the hedge funds are hiring

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One of the most frustrating things in banking is to have one of your best personal years coincide with a disaster somewhere else in the bank.  You can work your heart out, win deal after deal or double your market share, but if there’s a big trading loss made by someone else, you can end up with nothing to show for it except some warm congratulations and a promise (rarely kept) that “you’ll be looked after next year”.  Think how the commodities finance team at Credit Suisse in Zurich must be feeling then, after staff members were called in over the weekend to inform them that their bonuses for 2018 might be lost entirely because of a deal that went sour.

It’s hard to tell what the details were from the news reports; all the company will say is that the team in question consists of a few dozen people, one of them has recently been removed as a result of the issue, and that the amount of money in question is not big enough to have a material effect on the overall Q4 results (due tomorrow).  But there’s usually two kinds of situation in which something like this happens.

The first is where the bonus pools are arranged by team, one pool gets a big hole in it, and the management are unwilling or unable to top up payments for the people who get hurt by no fault of their own, simply by being in the same business unit as a big loss.  This is generally considered a bit unfair; it’s accepted that banking is a risk business, that things tend to even out over time and that in the long term everyone benefits from a bit of risk sharing between desks.

The second kind of situation is one where management could have topped up the pool if they wanted, but have decided that some level of collective punishment is in order.  If a loss is due to a compliance breach, for example, they might want to send out a message that everyone is responsible for keeping an eye on their close colleagues.  Or if a particular team was particularly aggressive in demanding to be paid based on its own performance rather than the bank’s during some good times, they might find colleagues inclined to be uncharitable when they slip up.

What’s really quite rare is to cut bonuses altogether, though; even when losses are really bad, investment banks which want to maintain their franchise will usually make an effort to pay at least something, because a zero bonus is generally taken as a signal to start looking for alternative employment.  If the usually highly profitable domestic Swiss investment bank at CS has opened up a Kripsy Kreme stand (handing out lots of doughnuts) for its commodities business, this might suggest that they no longer want to be in commodities financing at anything like their current scale.  Whatever it is, there are likely to be some people thinking bad thoughts about a former colleague over the next week or so.

Separately, although many investment banking segments are in the doldrums at the moment, big data and quantitative analysis are still hot sectors for hiring and for venture capital.  Goldman Sachs and Citi Ventures are both investing in Second Measure, a startup that crunches huge volumes of credit card transactions for the benefit of the asset management industry; or at least, that part of the asset management industry that doesn’t yet have its own teams doing the same thing.  Opimas Analysis, the financial consultancy, estimates that the asset management industry will be spending $7bn on alternative data sources by 2020. 

Perhaps even more staggeringly, Opimas also estimates that one in twenty web page visits last year (10.2bn visits a day, equivalent to the daily users of Google search) came from buy-side or sell-side quants scraping data from webpages to use in the hope of generating an edge.  The consultancy forecasts this to grow to as much as 17bn visits per day by 2020, accounting for $1.8bn of the total alternative data spend.  It’s a good time to have the right skill set to handle and process this sort of information, and perhaps not such a good time to be the hedge fund manager who asked Second Measure’s founder how you get two terabytes of data into a spreadsheet.

Meanwhile ...

Revolut have been put in the always-uncomfortable position of having to deny that they are an asset of the Kremlin.  The accusation has come from a Lithuanian MP and appears to be largely based on the family connection of founder Nikolay Storonsky to Gazprom, where his father is a director.  The former CS and Lehman trader has indeed denied the accusation. (The Times)

The litigation surrounding Goldman Sachs’ syndicated finance deal for the health food wholesaler UNFI is illuminating. Goldman had been acting as the arranger for some acquisition finance, until a bit of market turbulence combined with a poor set of results from UNFI made it look like the deal would be hard to sell.  Fearful of being stuck with the loan, they started to renegotiate pricing, made some aggressive moves in syndication which made things tougher for their client and used some clauses in the documentation to withhold $40.5m of the $2bn raised.  (Financial Times)

Tidjane Thiam has been praised by the CEO of Scor for apparently pulling the bank out of its advisory mandate for Covea, another insurance company which tried to bid for Scor last year.  There are allegations of misuse of confidential information which have resulted in litigation, in which CS is not involved. (FT)

Rumours reported to Bloomberg have the UBS Asia bonus pool down as much as 8% yoy after a bad year for ECM deals.  Managing directors will be taking most of the pain, to help preserve payouts for juniors (Bloomberg)

A former Deutsche Bank FX trader, Andrew Donaldson, was yesterday found guilty of recording fictitious trades in order to pretend to have made profits in Sydney between 2013 and 2014.  He was fined A$10,000 but will not go to jail (Finextra)

The story of Hard Rock Park, with its Led Zeppelin themed “Whole Lotta Love Rollercoaster”, its junk bond financing courtesy of Jeffries and Deutsche, and its inevitable bankruptcy (Vice)

A sign of the times and how difficult it is these days to make even a 1% return; Ram Nayak has been promoted to co-president of CIB at Deutsche.  A former head of fixed income trading, he will be in charge of investing Deutsche’s surplus cash liquidity in order to improve returns; the story suggests this portfolio might be around €30bn, with the target of generating €300m of revenue (Financial News)

Confessions of a ski instructor, from Aspen where bankers and the ultra-high net worth go to misbehave in the snow (Bloomberg)

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