Morning Coffee: The peculiar complacency of senior Credit Suisse bankers. Eruption of 50% bonus cuts
It's been a stressful time if you're a senior banker at Credit Suisse. The share price is down 63% this year, there was the October drama about Credit Suisse being the next Lehman Brothers (or not), and there's the demanding business of restructuring the bank and getting rid of 9,000 people in three years.
Maybe this is why senior Credit Suisse bankers seemed peculiarly lackadaisical during the bank's recent rights issue. After months of tribulations, they were a bit strung out.
Bloomberg suggests their approach was rather peculiar. While the very many senior external bankers working on the issue (Credit Suisse had 20 banks in the syndicate, including Goldman Sachs, JPMorgan and Citi) fretted about ensuring it was fully subscribed, Credit Suisse's senior executives seemingly sat back even as the bank's share plummeted on news of account outflows and fears of further withdrawals.
Complacency was evinced by a failure to set a sales meeting with all the banks involved in the rights issue early in the process. And then the external banks wanted Credit Suisse chief executive Ulrich Koerner and chairman Axel Lehmann to press the flesh with potential investors, but they were too busy with the restructuring plan and a parallel bond issue. The external bankers involved noted it was all very different to Deutsche Bank's rights issue a few years earlier, even though Credit Suisse's process was being run by Dixit Joshi, the former Deutsche Bank treasurer. The presumption was that the rights issue would go smoothly no matter what.
It nearly didn't. As Credit Suisse's share price fell, the discount that was supposed to incentivize investors to buy into the rights issue shrunk. It started at 30%; halfway through the offer period it was down to 5%.
Needless to say, it all came right. Credit Suisse senior executives were galvanized into action at the final moment: Axel Lehmann appeared on TV and said he was confident account withdrawals would reverse. More importantly, though, Michael Klein the soon-to-be head of new boutique First Boston seems to have persuaded the Saudi's to invest $500m in the new bank just days before the rights issue closed.
Sentiment changed. The stock soared 10% and the rights issue ended up over-subscribed. The Saudi timing was great, observed the FT. Complacency is fine when you have a secret weapon.
Separately, the news about bonuses is going from very bad to really awful. Last week, bonus cuts of 30%-40% were being bandied about. This week, the go-to number is 50%: Semafor is reporting that Goldman Sachs partners could have their bonuses cut in half this year; Morgan Stanley is reportedly planning to cut Asian bankers' bonuses by 50%. With a month or so to go until the first bonuses are announced, things could still get worse.
EY has told its US staff they won't be getting holiday bonuses this year. “While EY continues to experience strong revenue growth, we have elected at this time not to fund our additional, discretionary mid-year program given the changing economic environment.” (Financial Times)
Credit Suisse in the late '80s and early '90s was a place of 'acrid aggression.' One man was called "Alf” behind his back. This stood for Arrogant Little Fucker. The banker raged that he was not little. (Financial Times)
Commodities hedge fund managers are in huge demand. “The toughest thing for us is continuing to find the right talent. There’s a lot more competition now.” (Bloomberg)
Commodities hedge fund managers are getting seven figure signing bonuses, but funds are also looking at upgrading existing staff. “In the holiday season, desk heads and other hiring managers are figuring to add headcount, high-grade their staff by letting poor performers go and worrying whether their best people will walk off to greener pastures. This year, if anything, that level of concern is higher than in the past.” (Bloomberg)
Relaxing UK ringfencing rules could be good for Goldman Sachs' Marcus bank and JPMorgan's ChaseUK: both will be free to take on more UK deposits. (Bloomberg)
XTX is going into crypto even though its CEO has appeared disapproving in the past. (Bloomberg)
Amanda Stavely says bankers in London are far more sexist than bankers in the Middle East. (Daily Mail)
Sam Bankman Fried wants to start a new business to pay his investors back. (BBC)
Don't imitate high-status people who can afford to seem humble. (Rob Henderson)
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