Morning Coffee: The final battle for Deutsche's investment bank. And the incompetent rich
It’s all getting a bit “season finale” as Deutsche Bank’s AGM gets nearer. The HBO series “Game of Thrones” probably has it beaten for dragons, special effects and (we hope) nudity, but in terms of drama, the fall of once-mighty rulers and intricate overlapping plots, the news coming out of Frankfurt could make a good substitute for anyone missing their favourite fantasy drama. Unfortunately, there is a distinct possibility that large parts of the investment bank might be cast in the role of an enchanted city with a fire breathing lizard bearing down on it.
The key question is the fate of the current inhabitant of the Iron Throne at the head of the supervisory board, Paul Achleitner. Some large investors (including Cerberus, according to Bloomberg) are demanding a succession plan and have discussed whether Achleitner should remain until the end of his current term in 2022. There might be some expression of discontent at the AGM vote, or there might be a back-room deal, but with suggestions that the ECB supervisors also want him out (the ECB’s public stance is “We have no opinion on this matter”), it looks like the final act may be near.
And if Achleitner goes, the next question has to be what happens to the head of the investment bank, Garth Ritchie? Paul Achleitner has backed Mr Ritchie to the hilt – he was instrumental in giving him a new five-year contract last year, and supported him over Marcus Schenk in taking over sole charge of the investment bank. But it’s known that there are people on the supervisory board who don’t agree with this, and Ritchie has what might be known as the “Tim Throsby problem” – investment bankers have to agree their annual budgets and targets before they know what the market is going to do. In Garth Ritchie’s case, he was left with 20% of his individual objectives unfilled last year, and given his pay rise and “role based allowances”, it’s not hard to see how he could be vulnerable if his main patron on the board left. It’s also still rumoured (like Game of Thrones, Deutsche has subplots) that Sylvie Matherat might be at risk given that there are supervisory board members who still want a scapegoat for Deutsche’s recent compliance scandals.
If Garth Ritchie does go, what does that say about the future for the investment bank? Surely, given that Mr Ritchie’s background and reputation is as an “equities guy in a fixed income house”, getting rid of him would remove a major obstacle to the faction which attributes Deutsche’s share price woes to its money losing equities operation. In light of Ritchie’s popularity and longevity within the investment bank, his sacking would also be likely to result in other departures, potentially damaging even more key franchises. And a new supervisory board chief coming in with a vacancy at the top of the investment bank would be likely to find it tempting to start with a big restructuring charge, selling legacy assets at a loss and shutting down a large part of the problematic US operations.
Basically, it appears that there is a lot going on behind the scenes – a sort of Game of Chairs. It would be much easier to enjoy the entertainment if it didn’t seem that a lot of jobs were potential dragon fodder.
Elsewhere, Professor Nicole Jones Young has some research which is likely to resonate with most investment bankers. Rich people, and those from socially privileged backgrounds, are more likely to feel confident and to speak up and promote themselves. So far, so intuitive. But it turns out that this tendency is more or less completely insensitive to actual ability; those fortunate people who have both the advantages of high social class and superior job-related skills are neither more nor less outgoing that demonstrably incompetent employees of the same background. Even worse, presentation appears to be much more important than ability – not only are rich incompetents overconfident in their own abilities, they are judged by others in the workplace to be significantly more intelligent than they actually are. Anyone compiling a mental list of names while reading this will no doubt be both pleased and dismayed to have it confirmed that this isn’t just a perception of the way the world works – it’s a scientific fact.
For artificial intelligence quants in banking there are plenty of glamorous opportunities. There are also a few … less glamorous opportunities, like building a system to use AI to speed up HSBC’s procurement process. It might not be master-of-the-universe material, but hurray for the paperclip purchasing quants; at least they’re unlikely to need bailouts. (Finextra)
No games of chairs at SocGen – Frédéric Oudéa has been appointed to another four year term with little fuss (Reuters)
Cuts in equities trading and sales trading at Morgan Stanley in London; it’s unclear whether this marks the start of a reduction in force, or the removal of some senior and expensive traders after a bad start to the year (Bloomberg)
UBS has opened a “digital factory” in Zurich, where ties will not be worn and three floors’ worth of Swiss techies will attempt to develop new internal and external applications faster than ever before (Finews)
A consultancy suggests that up to one in five finance jobs will be replaced by “robots” by 2030… (Financial News)
… but will they all still have female names? (Bloomberg)
A Morgan Stanley MD’s divorce case has begun to cause a minor scandal Connecticut, as his wife is a state senator, and it’s emerged that the woman that she left him for (her former campaign manager) may have been paid illegally via a company that the husband owned. (CNBC)
Warnings of a “toxic cocktail” for the asset management industry in a note from hedge fund Seabreeze Partners, which sets out the themes of price competition, economies of scale and potential fintech disruption which could make this a much less attractive industry to work in. (Reuters)
And just to show there’s a world beyond Wall Street, a profile of Erlan Abdikarimov, the sell-side analyst who covers the US tech giants from Kazakhstan (Bloomberg)
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