Morning Coffee: JPMorgan, Deutsche Bank get ruthless. The new place to work at Goldman Sachs
Six months into 2019 and the gloves are coming off. At least, they are at JPMorgan and at Deutsche Bank, both of which are said to be cutting costs and heads with the zeal of places where revenues are stagnating or worse.
JPMorgan's cuts are more of a flesh wound, but nonetheless painful for those beneath the blade. Business Insider reports that the U.S. bank has cut 24 people in its model risk governance and review group already this month, of whom 20 were executive directors. It's not clear whether others are being cut too, and those 24 are only 5% of the group as a whole, but it looks a bit like JPMorgan is clearing out the upper-mid ranks.
Deutsche Bank, meanwhile, seems to be edging towards some wholesale bloodletting. Under pressure to "be decisive" and "radical", it seems that CEO Christian Sewing is preparing the closure of entire businesses. The Financial Times has spoken to four people at Deutsche Bank who say a plan is afoot to either close or to "severely shrink" Deutsche's equities and rates trading businesses outside of continental Europe. In other words, not just in the U.S., but in London too. All will seemingly become clear when Sewing presents Deutsche's second quarter results in late July.
After a first half to the year in which HSBC, Nomura, Morgan Stanley, Barclays and others have all made cuts to a greater or lesser degree, JPMorgan and Deutsche's latest moves seem to up the tempo.
Business Insider suggests that JPMorgan might be cutting its model risk governance and review group in response to the lifting of sanctions imposed by the Federal Reserve in the wake of the 2012 London whale trading loss, which stemmed partly from an error in a model in an Excel spreadsheet. After the London whale, the bank's governance group reportedly ballooned in size. Now that the whale is a distant memory, it's being deflated again. However, most banks have built up their model risk groups in response to the Fundamental Review of the Trading Book (FRTB) rules, which come into effect at the end of 2022, and JPMorgan may not be the last to cut back.
At Deutsche Bank, the news that London as well as the U.S. could find itself beneath Sewing's knife is likely to be greeted with trepidation. A spokesperson for Deutsche Bank said the bank is, "working on measures to accelerate its transformation so as to improve its sustainable profitability." DB is reportedly planning to house assets from its unwanted businesses in a bad bank, so unwanted rates traders could presumably find work there. However, a story from the FT last week indicated that only 22% of current trading staff would be needed to manage the run-off.
Separately, Goldman Sachs is reportedly starting its own private investing arm under new CEO David Solomon. The Wall Street Journal reports that the new division will have around $140bn in assets, making it nearly as big as KKR& Co. The intention is reportedly to create a business that will steadily generate income and boost Goldman's share price.
Meanwhile:
UBS’s global chief economist, Paul Donovan, wrote about the Chinese swine flu epidemic. “It matters if you are a Chinese pig,” said Donovan. “It matters if you like eating pork in China. It does not really matter to the rest of the world.” The Chinese have intepreted this as Donovan calling them pigs and Donovan has been suspended. It would have been ok if he'd written "swine" or "hogs." (Financial Times)
Nigel Farage has written fondly of the long drinking sessions at the London Metals Exchange, where he used to trade metals, but day time drinking at the LME is now being banned. (Financial Times)
A typical McKinsey & Co. recruit is not born with a silver spoon but is lower middle class, someone fortunate enough to have had good education with a desire to better themselves. (The Times)
Bonuses are taxed at 89% in Ireland and there is no intention of changing this. (The Times)
Credit Suisse is trying to recoup at least £239m, which it paid to HM Revenue & Customs for the temporary levy on bonuses in 2010. It says the tax was “unfair” and punished banks whose bonus payouts fell between December 2009 and April 2010. (The Times)
Hedge funds like Third Point Management, Tiger Global Management, and Coatue Management are becoming more like private equity funds and investing in private companies. This means they want junior banking talent just like PE funds do. (Business Insider)
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