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Morning Coffee: The most aggressive 39 year old at Deutsche Bank. And how headhunters are making more money in today’s markets

“Under-promise, then over-deliver” is usually a pretty good rule to follow in a banking career.  For Stefan Hoops, though, the rule being followed seems to be more like “over-promise massively, in an interview with the Financial Times”.  The 39 year-old head of Deutsche Bank’s transaction banking business seems to be saying not only that he will be able to keep revenue losses under control in the event of a merger with Commerzbank, but that there will be none at all.

This is pretty ambitious stuff.  Most bank mergers, particularly in corporate and investment banking, tend to create “negative synergies”.  This happens partly because corporate clients want to diversify their banks; the fees that they feel like paying to a merged Deutsche plus Commerzbank won’t be the simple sum of the fees they currently pay to the two banks.  Competitors also generally see the upheaval of a big merger as an opportunity to aggressively pitch for business on the expectation that some of the coverage teams will take an eye off the ball in order to concentrate their attention on internal matters.

For the ambitious Mr Hoops, on the other hand, “one plus one will equal two, even though some ‘helpful’ French and US banks hope that’s not the case”.  He suggests that “overlapping clients will get twice the attention” and intends to double the transaction bank’s earnings.  This is a bit of a big ask given that revenues have been falling for the last two years, partly as a result of Deutsche’s need to close down a number of correspondent banking relationships for compliance reasons.

Mr Hoops, on the other hand, is going to be given the resources to have a solid attempt at making his aggressive boasts true.  The global transaction bank isn’t subject to Christian Sewing’s headcount and cost reduction targets; it’s seen as one of the crown jewels of Deutsche and potentially a more “stable” source of earnings than trading or underwriting.  Whether or not the Commerzbank merger goes ahead, Stefan Hoops has been allocated 300 more in headcount (transferring coders from electronic trading to payments services) and €200m more in costs.

All of this might explain why the usual rules about promising and delivery don’t necessarily apply.  If you’re a protege of the chief executive, as Mr. Hoops is, and you’ve been promoted young into a major role on the back of aggressive targets, the last thing you want to be doing is using a high-profile strategic deal promoted by your mentor as an excuse to walk away from them.  Mr Hoops is presumably hoping that the organic effect of throwing all these resources at his business unit will be enough to outweigh any negative effects from the merger and make him look like the banker who managed to overcome the best-established rule of banking M&A.  And by saying so in public, at a time when shareholders are clearly sceptical about the deal, he can do a favour for the boss.  Sometimes it’s not the worst thing in the world to overpromise just a little bit...

Speaking of over-promising and under-delivering, plenty of banks seem to be running into problems meeting their targets for hiring women into senior roles, and are now prepared to pay a “diversity premium” of up to 20% on fees to headhunters who can deliver the goods.  This has been described as “smacking of desperation” by senior bankers, and even the headhunters seem quite ambivalent about the practice – one of them notes that “considering the extra work required” by a mandate to find only female candidates, a 20% fee bonus isn’t really enough.

The trouble, of course, is that it’s a zero sum game; the mere fact that banks want more senior women doesn’t actually create any more experienced candidates.  While any one bank might be able to meet its targets for diversity by lateral hires at the top levels, the industry as a whole can’t.  Over time, internal promotions are going to have to be the way in which the targets are met.  But investment bank bosses aren’t renowned for their patience, so in the short term – which might last for years – it’s quite likely that they’ll continue to bid up salaries and fees.

Meanwhile ...

Mega-boutique investment bank Perella Weinberg is ramping up ahead of a planned IPO – it’s now hired Clinton Ray and Guy Morgan from Goldman Sachs to expand their European restructuring business (Bloomberg)

Apparently not an April Fool – fleece manufacturer Patagonia has decided it will no longer be producing branded vests for financial services companies.  That’s likely to be a tectonic moment for hedge fund fashion (Twitter)

Not quite the next Ken Griffin – Omar Zaki ran a hedge fund fraud from his dorm room at Yale University, claiming to have an algorithm for trading biotech stocks and raising $1.7m from investors.  He’s now been banned from the industry for at least three years. (Bloomberg)

Practical jokes at work, and the greatest sell-side note headline ever (FT)

Large redundancies are coming at Canaccord Genuity, as the small-cap broker starts to adjust to the worst UK IPO conditions for some time.  They have cited political uncertainty and Brexit as the underlying causes. (Financial News)

And a hiring freeze in France and the UK for BNP Paribas’ investment bank (Le Figaro)

Two and twenty is pretty much dead as a hedge fund pricing structure (FT)

A compilation of some of the most amusing “fat finger” episodes from the last few years.  The conclusion appears to be that there’s no way of preventing them (Bloomberg)

Profiles of Colin Bermingham and Carlo Palombo (who were found guilty) and Sisse Bohart (acquitted) in the context of the Barclays Euribor rigging trial.  Palombo sounds quite interesting – it seems that banking’s loss was gong therapy’s gain, although the gain will be deferred by a few years.  (Bloomberg)

If you think you work hard, have a look at the schedule of Peloton’s “vice president of programming” Robin Arzón, possibly the world’s most popular fitness instructor (New York Times)

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AUTHORDaniel Davies Insider Comment
  • En
    7 April 2019

    "transferring coders from electronic trading to payments services".No sane engineer in electronic trading will take a position in payment service.

  • An
    3 April 2019

    It sounds as if the diversity targets may need reclibrated to reflect the number of suitable candidates.

  • An
    2 April 2019

    As the commentary on the article says, there is a shortage of experienced female candidates. The reasons for this should be looked at, but trying to bend the fact in the name of diversity is not desirable.

  • An
    2 April 2019

    Which banks/recruiters are involved in the 'diversity premium' matter?

  • An
    2 April 2019

    Surely paying a 'diversity premium', in other words a bung, to recruiters as part of discriminating against candidates on the basis of gender is illegal?

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