Morning Coffee: Ominous news for Deutsche Bank's equities business, and UBS may now hire 30 people

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Headlines hitting the tape yesterday might have spoiled breakfast in New York and afternoon tea in London for anyone working in Deutsche Bank’s equities franchise.  A story from Bloomberg news – anonymously sourced but pretty specific – gave some clues about “Plan B”, the post-Commerzbank agenda from Christian Sewing.  And it looks like the work of a manager who has almost run out of options.  The asset management deal with UBS looks like it’s not happening.  There’s no support from Paul Achleitner and the supervisory board for closing down major business lines.  And there’s certainly no scope for doing anything that would require a capital increase.

So there’s a strong element of “same old same old” to it.  More cost cuts. Another look at unprofitable business lines. “More visibility” to the transaction banking franchise, which might be given its separate divisional reporting line back (it was merged into Corporate & Investment Banking in 2016), in the hope of dragging up the group average PE rating.  And an acceleration of the integration of Postbank, which can hardly be described as too hasty since Deutsche bought it almost a decade ago.  It doesn’t appear to have impressed analysts; Deutsche’s share price started falling when the news came out and ended the day down 0.6% despite a late recovery.

What does it mean in employment terms?  Sadly, the likely story is one that’s familiar to anyone who has observed or been involved with Deutsche Bank’s equities franchise over the last twenty years.  The CIB management at Deutsche is always in one of two modes.  When the share price is going up and they’re feeling happy, it’s “Look at our FICC franchise!  With a bit more investment we could get to the same position in equities!  We need to hire some people!”.  When the share price is going down and they’re feeling unhappy, it’s “Look at our FICC franchise!  All this investment we’ve put into equities and they’re still nowhere near as strong!  We need to fire some people!”.  The cycle has repeated three or four times, each time giving equities at Deutsche a reputation as a place where only a few survive, and where people go for a big short term payday rather than a long term career move.

To say the least, we’re currently in the second half of this cycle – the share price is at an all time low and the top management are feeling about as bad as it’s possible to feel.  Deutsche is a fixed income house – that’s its management DNA.  The equities business has never made tens of billions of losses in a quarter, and it didn’t generate the “fatberg” of long-dated capital-hungry derivatives positions, but these things don’t count for much compared to global market share positions and the perception that Deutsche is a dominant player in credit, rates and forex but a marginal franchise in equities.  Equity sales are vulnerable, equity research looks very vulnerable and even equity derivatives could be vulnerable, despite having recently paid up for David Ryan and Eric Bensoussan.  Sorry to be the bearers of bad news, but there it is.

After that pretty bleak assessment, let’s try to accentuate the positive with the latest news from UBS.  So let’s not spend too much time on the fact that more than 150 jobs have been cut over the last few months.  Let’s try and see it as an opportunity for 30 people to be hired, under the informal “five out, one in” guidance provided to wealth management back office managers a couple of weeks ago.

It does seem that the headcount reduction is the result of this strategy of attrition rather than targeted cuts, on the other hand.  The company said in a statement that there’s no specific program to reduce staff numbers, and the headline number has been driven by “slowing down hiring and delaying replacements”, mainly in corporate centre positions in human resources, IT, risk and marketing.  Which, in turn, suggests that there might be more than 30 people coming back in the medium term, particularly if markets turn up.  You can delay hiring, but HR, IT and marketing can’t be kept understaffed forever without knock-on effects on the revenue generating businesses, and starving a risk management department could be the ultimate false economy.  So maybe this is more of a good news story than it looked like after all.


Surprisingly mean pay at UBS’s compliance team; the insider dealing trial in London has thrown up the detail that Fabiana Abdel-Malik, accused of being the information source for Walid Choucair, was considered an “exemplary employee” in 2012, and was given a pay rise to £69,000.  Since 2012 was the year in which the UBS compliance team was working on gathering the information that help them gain full immunity for the yen LIBOR cartel and avoid a €2.5bn fine, this seems a bit cheap. (FT)

It was always likely – the UK CFA Institute has launched a “Certificate in ESG Investing”, so that ethical investors will have a certificate to show they know right from wrong in a number of corporate contexts. (Citywire)

If there’s one guy in the market who really does have a blank cheque from the board to hire whoever he needs to get the job done, it’s Philippe Vollot, the former Deutsche Bank executive who is beginning to staff up in his new job as global head of compliance at Danske Bank (Bloomberg)

As banks start to put numbers about their carbon footprints into annual reports, a look at the big glass skyscrapers the financial sector favours for its headquarters buildings reveals that they’re generally environmental disaster areas that should never have been built (The Conversation)

The Bank of England sets ambitious targets for hiring women and minorities (Bloomberg)

The highest paying job for new graduates this year is, unsurprisingly “data scientist” with an average starting salary of $95,000.  But “investment banking analyst” is only ten thousand dollars behind – it all depends on the bonus potential.  (Bloomberg)

The relationship between Donald Trump’s companies and Deutsche Bank has now reached America’s most famous satire website (The Onion)

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