Morning Coffee: The real reason Tim Throsby left Barclays, and the quant coders that can’t be bought for money
There were plenty of speculative stories when Tim Throsby left Barclays. - Was it the naked Minotaur that did it? - Or a portfolio of responsibilities too broad for any mortal to have carried out? In fact, it may have been a straightforward clash of the titans. It seems that the head of the investment bank - Throsby - and the CEO of the group - Jes Staley, didn't get on.
The catalyst was the classic conflict between an investment banking division and a head office – targets agreed in December that look impossible by March. Talking to the FT, proverbial 'people close to the event' say the nub of the disagreement between Jes and Tim was the investment bank’s RoE target.
Targets are always problematic for investment banking division heads in large universal banking groups. They have to take part in the same budgeting round as the other divisions, and present the same sort of a divisional business plan from which the group financial targets are derived. But unlike retail deposits or mortgages or even corporate lending, the investment bank has a large proportion of its revenue driven by a market that is pretty much impossible to predict. So typically, investment banking divisional heads tend to be a lot happier with five year plans than one year plans and a lot happier with market share or industry survey objectives than anything which looks too much like audited earnings. When investment bank heads like Tim Throsby are pushed against the wall, they will tend to agree what they hope to be a lowballed figure, then hope for a bull market.
Instead, of course, the investment banking industry has just come through what’s widely expected to be one of the worst revenue quarters in recent memory, with an empty deal calendar, the wrong sort of volatility and poor client activity across the board. It’s the kind of Q1 which digs a hole that the rest of the year has little hope of climbing out of, and quite possibly makes all targets agreed three months ago more or less academic. The sensible thing to do would be to sit down with the boss, look at some sensible run rate calculations and agree a new set of targets based on what it’s reasonable to expect any franchise to deliver.
Except this is the one thing that had to be intolerable to Jes Staley. The key target for the investment bank was to start contributing positively to the group RoE target. That’s the number that Staley has set his reputation on; not just in terms of the group’s ability to sustain a double digit return on equity, but specifically on the investment bank as a major contributor which deserved all of the investment he has put into rebuilding the franchise. A trusted lieutenant who seemed to be walking away from the flagship commitment of the CEO on the basis of a bad Q1 revenue outcome was surely playing with fire. Throw in the naked Minotaur picture, Throsby's 'colourful language' and 'direct management style' and a seeming innate dislike for each other (an insider tells the FT there was “tension between Jes and Tim if not from day one, then from day two”), and there you have it.
Now that Throsby’s gone, Staley will presumably want someone who is prepared to tell him what he wants to hear in terms of the RoE target. But saying something’s possible doesn’t make it so. Unless Barclays has a few secret year-transforming megadeals in its back pocket, sooner or later the bad news is going to end up making itself known, even if the original messenger was efficiently shot.
Elsewhere, in the search for top-level coding talent straight out of university, some of the world’s biggest hedge funds are finding that the usual problem-solving strategy of “throwing money at it” is not working. Data science and machine learning specialists are in demand from top Silicon Valley firms, where a project lead position can attract a compensation package in the millions of dollars; somewhat more than the average quant. And when the financials are even nearly comparable, top-scoring PhDs tend to go with the brand recognition of the tech giants, or with the potential upside of the start-ups.
Business Insider says that finance is attempting to fight back by pointing to the faster feedback cycle for data science applied to alt-data for trading indicators – the development cycle is much quicker and you find out if a quant signal works or not in more or less real time, which appeals to some problem-solving types. They’re also copying Silicon Valley recruiting practices like “hack-a-thons” and trying to give new recruits a “fintech” image. But they’re basically having to swallow an unpalatable truth – some people just can’t be bought, or at least, not for what Wall Street’s offering.
Meanwhile…
German has overtaken French as the most desirable second business language according to a survey of requirements posted in recruitment ads. (The Times)
Macquarie is staffing up in Europe, hiring Camelia Robu from HSBC to lead leveraged finance and Michael Magliana from Jeffries to develop lending and advisory relationships in the UK. (Financial News)
“Orbit” the proprietary (and apparently quite clunky) app which Goldman Sachs employees had to use to get their work email on their mobile devices, is being retired in favour of third party email solutions. (Business Insider)
Deutsche / Commerz talks progress, with Angela Merkel commenting that “We know the bigger the bank, the more capital requirements it has.” (Bloomberg)
Christian Sewing wants more time to think about the Commerzbank merger. The Deutsche Bank CEO also says he's not sure about paying a takeover premium for Commerz. (Reuters)
U.S. big bank CEO’s have all been giving testimony to the House Committee on Financial Services, in somewhat less dramatic circumstances than ten years ago and with much less interesting results. They all seem to have assured the lawmakers how well capitalised and safe the system was these days, then sat back for wide-ranging and not always obviously relevant questioning about Russia, Brexit, social justice and money laundering. (FT, Bloomberg, Reuters)
Lloyd Blankfein, meanwhile, sat at home and teased his former colleagues and competitors over Twitter. (Bloomberg)
Hedge funds are a little more worried about the legal risks of using private polling to make Brexit trades if it comes to a second referendum. (Financial News)
People who had worried about Deutsche Bank’s share price slide are beginning to notice Nomura. (Bloomberg)
“Financial therapy” – for people with money problems, either being unable to budget or holding on to losing stocks. Finance professor Victor Ricciardi thinks that sometimes what’s needed is an approach that starts with the underlying neuroses and issues that cause these problems, not just a book of coaching maxims. (Yahoo)
Your guide to giving a bullsh*t business presentation. (Daily Mash)
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