Morning Coffee: Deutsche Bank's 'danger money'? And how to get Andrea Orcel to go away

Deutsche Bank may be cutting back in investment banking, but it was always part of its plan to expand its offering in wealth management.  Within that business line, Deutsche wants to improve its private banking and ultra-high net worth franchise, and Italy has, for a while now, been one of its key target markets outside Germany. 

In this context, it makes a certain degree of sense to read that Deutsche has hired a team of 13 ultra-high net worth bankers (that is to say, bankers to the ultra-rich, although they are probably doing all right themselves).  When you recall that Claudio de Sanctis moved over from Credit Suisse to become Deutsche’s head of wealth management in Europe and effectively announced in March that he would be aggressively hiring, it’s hardly any surprise at all that one of his first approaches was to CS’s Roberto Colleta to get the (big) band back together again.

Except … the thing that doesn’t make sense is, why would you go to Deutsche right now? Competitors quoted in the FT suggest that the Colleta team are being paid “danger money” to move. 40% pay rises and commitments to match 2018 bonuses are rumoured.  For his part, Mr de Sanctis has recently said (Deutsche is not commenting on this specific job move) that, “We have a great story to tell, and when you have a great story to tell you don’t need to pay over market price”.  The “great story” seems to relate to the newly minted “Institutional Wealth Partners”  team who aim to link the investment bank with the private bank at Deutsche, potentially introducing new IPO millionaires to the wealth managers.  And, as we noted back in May, that is a solid story.  - But it’s not exactly a point of differentiation compared to, say, Credit Suisse.  So is the “great story” just a story about “once upon a time, we paid a lot of money”?

There is way that all the statements quoted can be true, and it relates to de Sanctis' use of that ambiguous phrase, “market price”, because compensation for ultra-high net worth bankers is a tricky business. You can express it in terms of either “salary plus bonus” or “percentage of revenues”.  Employers like to keep things on a salary-bonus basis, but bankers tend to regard their franchise as their own and are very keen on what they regard as an equitable split of fees between capital and labour.  And, as you’d expect, the whole bargaining game is very much driven by perceptions of the relative strength of the individual banker’s relationship compared to the bank’s brand....

All of which means that highly established UHNW bankers often like to move from strong, well-established names (where they’re stuck on salary/bonus and have comparatively little bargaining power) to somewhat riskier situations where their personal performance has more visibility.  That was how EFG International always used to recruit and it’s quite likely to be at least part of the “great story” that Claudio de Sanctis told to Roberto Colleta.  So it’s not exactly “danger money”, but nor is it wholly unrelated to the current state of Deutsche Bank.  It’s also possible that, if the new team are even a little bit bought into Christian Sewing’s vision for the share price, the chance to get a bunch of stock options priced at around €7 might have been attractive too.

Speaking of “personal franchises”, the official Santander line that they cancelled Andrea Orcel’s CEO job offer when they were surprised at the cost of his UBS compensation buyout is getting harder to sustain now that we have confirmed evidence of an offer letter seen by the FT containing the full figures and adding up to the controversial €52m sum.  Furthermore, it’s been reported in the Spanish press that Santander offered to help Mr Orcel set up a boutique advisory bank and even to put business his way, as a sort of commiseration prize (and given that at the peak of his powers, Orcel was generating €50m a year from Santander deals for UBS, that’s potentially quite a prize). 

The media battle between Mr Orcel and Ms Botín is now beginning in earnest, and it’s hard to escape the feeling that if an agreement over his €100m claim isn’t reached soon, there is a danger that this will end up in a court, where both sides are in danger of losing control of both the outcome and the narrative.

Meanwhile…

The return to the Saudi investment banking party continues as Credit Suisse hires Hazem Shawki from Goldman Sachs to be its head of investment banking for Middle East, Turkey and Africa (Financial News)

Although investment banking specialisms are not listed (and would rank quite highly if they were), the Bloomberg survey of the best paid jobs in America is very noticeable in being full of different kinds of doctor (Bloomberg)

If you leave Point72 for Citadel, apparently you don’t get a handshake from Steven Cohen on the way out.  At least five portfolio managers have done so in the last year, leaving Mr Cohen surprised that, unlike his old firm SAC, Point72 is no longer a particularly high-paying name (WSJ)

Live by the sword … One of the inconveniences of having a listed permanent capital vehicle for your hedge fund is that it has shareholders, and therefore there is a risk of shareholder activism.  Bill Ackman, no stranger to activist missions himself, is now being admonished to do more to reduce Pershing Square Holdings Ltd’s discount to net asset value (Bloomberg)

Meredith Whittaker, who organised walkouts at Google last year over its handling of #MeToo issues, has left the company and plans to be a full time AI ethics activist and researcher (FT)

Deutsche staff might not be getting bigger desks after all; the bank is trying to reduce the amount of space it is leasing at the Time Warner Centre for its planned 2021 office move (New York Post)

Bill Winters calls Standard Chartered shareholders “immature” for objecting to his pay package (specifically, the pension element); the proxy advisory firm which backed the vote stands its ground (Bloomberg)

Some more, albeit tenuous and decade-old, links between the hedge fund community and Jeffrey Epstein; the founder of Highbridge Capital  was friends with him (apparently without knowing the scale of his crimes, although after his first conviction). The documents seem to suggest that Epstein was an investor in Highbridge rather than vice versa, though, so we’re no closer to finding out anything about Epstein’s own money management credentials (Business Insider)

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