Morning Coffee: The worst thing about working for a merged Deutsche Bank-Commerzbank (and the best). Top quant's imperfect maths

It still might not happen, but the likelihood of a merger between Deutsche Bank and Commerzbank increased dramatically with Deutsche CEO Christian Sewing's Sunday memo to staff disclosing that discussions with Commerzbank have begun. 

The Financial Times sketches out a brief timetable for what happens next. Due diligence will begin this week and both banks will set up committees to explore 'specific questions'. This diligence and exploration will take a while, but the merger - which is backed by Deutsche Bank chairman, Paul Achleitner, by Commerzbank chief executive Martin Zielke, and by private equity fund Cerberus - is eventually expected to take place.

One of the key questions to be explored will concern the future of Deutsche's corporate and investment bank (CIB). Bloomberg notes that Deutsche Bank and Commerzbank have engaged in preliminary petting of this kind before. Last time a merger between the two banks was mooted, in 2016, the secret plan was reportedly to merge Commerzbank with a subsidiary of Deutsche Bank containing just DB's retail and corporate banking operations. DB's trading operations would have remained aloof and potentially been sold on to another bank. 

Will a similar scenario take shape this time around? Commerzbank's Zielke is not thought to be keen on Deutsche's CIB in its current form. The FT cites an unnamed Commerzbank insider who says everything will need to be scrutinized, the investment bank in particular. Commerzbank itself has almost no sales and trading activities left, after closing much of its business after the financial crisis. 

Whether Deutsche's CIB is spun-out, shrunk, or sustained as it is, one thing seems certain: pay for traders, salespeople and investment bankers in the new entity is likely to be less. Bloomberg cites an analyst note from Bank of America, which says it would be hard for the combined banks to sustain the pay structure of a global investment bank. The German government is also reportedly keen on keeping a stake in Deutsche-Commerzbank and is unlikely to condone lavish compensation in an organisation partially owned by the state.

If poor pay is the downside to working for Germany's new big-big bank, there might be some offsetting advantages too. As things stand, Commerzbank has a reputation for paying comparatively poorly but no one there particularly cares because it compensates for this by allowing people to work much shorter hours than at rival firms. Something similar could yet come to DB. Tired traders who want an easier life might want to stick around. 

Separately, you don't have to be a perfect mathematician to become an inordinately successful quant fund manager. Institutional Investor notes that Jim Simons, the 80 year-old founder of hedge fund Renaissance Technologies, scored 750 out of 800 on the mathematics section of his SATs. This has not hindered his career. Nor has his refusal to wear socks.

Meanwhile:

Christian Sewing's message to Deutsche Bank staff: "Our stated aim remains to be a global bank with a strong capital markets business – based on a leading position in our home market in Germany and in Europe, and with a global network." (Deutsche Bank) 

The retention bonuses Deutsche Bank paid in 2017 are almost certainly worth nothing at all (DB shares have to hit €23 at the start of 2021 for them to have value). Despite pressure from some senior staff, the bank is refusing to rework them to take accont of the dramatic fall in its share price. (Bloomberg) 

Deutsche’s 12-person management board owned 444,444 Deutsche shares as of February 2018. That amounted to just 0.02% of the shares in issue. “They don’t have an equity mentality – they have a remuneration mentality." (IFRE) 

David Solomon says it's difficult to find Goldman Sachs applicants who can write well. (Yahoo) 

JPMorgan and Citi have both cut desks that deal with small orders as they shave costs from their trading floors. (Bloomberg) 

UBS spent $48m on guaranteed bonuses to 54 staff in 2018. In 2017 it only spent $37m. (Financial News) 

Ken Griffin says he won't move Citadel's HQ to New York City because of the backlash against Amazon. “Successful firms develop talent. That creates success within those firms and then some people leave to start other businesses or drive other success stories. That’s why Silicon Valley is so remarkable.” (Bloomberg) 

5,000 Frankfurt bankers, categorized as “risk takers,” and earning 220k euros ($249k) a year or more, can now be fired more easily than this time last week. (Bloomberg)

Pursuit, a nonprofit social venture, has been teaching people who to code and transforming their incomes from $18k to $85k. (NY Times) 

DeepMind founder Demis Hassabis has a long history of brilliance (he took up chess at the age of four and was beating grown-ups within weeks), but he's now facing a more complex challenge as Google first pitted itself against DeepMind in healthcare and is now assimilating DeepMind's healthcare team into its own. (1843 Magazine) 

David and Victoria Beckham work harder than bankers. "Let me tell you. I was still in hospital. I couldn’t feel my legs because of the bloody epidural, and I’m being asked to approve lookbook images." (Financial Times) 

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