Morning Coffee: Deutsche Bank's boomerang hire turns out to be sensational. Noisy finance bros are the latest risk indicator

The third quarter was a great period for bragging rights among credit traders – the general market climate was favourable, but there were plenty of rakes to step on (like First Brands and Tricolor) to make sure that the gap between bad, so-so and great performance was really noticeable.  And Deutsche Bank’s distressed desk seems to have been right at the top end of that scale; thanks to some clever deals around major restructurings, they made as much as $200m in the quarter and got a special shout-out on the earnings call from CFO James von Moltke.

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It looks like a real vindication of the decision, two years ago, to bring back an old face.  CJ Lanktree had been head of distressed debt trading for Deutsche between 2003 and 2012 (a period which spanned some of the bank’s very best and very worst times).  He then went off to be a Partner at hedge fund Solus Alternative Asset Management for 11 years. And in 2023, Deutsche brought him back as a “boomerang hire”, albeit one with a very long trajectory.

This doesn’t seem to have been a straightforward case of “putting the band back together”; when he came back, Lanktree’s direct reports were Dan Crowley as head of trading and Brad Sweeney as head of research.  Neither of these two had been working for Deutsche during Lanktree’s first stint there, and indeed, they both seem to have left for hedge funds since he arrived.  It’s possible that this may have been an intentional move on Deutsche’s part to shake things up, as star distressed trader Mark Spehn also left the bank as did Gavin Colquhoun, although the company didn’t comment on any of this at the time.

In any case, it seems to have worked sensationally.  Assuming that Lanktree wasn’t the mystery highly-paid person identified in the 2024 accounts, he will probably be putting together a pretty strong looking case for this year’s compensation committee.  But will Deutsche want to pay?

Banks are usually highly reluctant to pay big bonuses to distressed debt traders based on short-term performance, and for fairly good reasons.  The nature of the game is that performance tends to be revealed over multiple quarters if not multiple years.  It’s quite likely that the trades which generated last quarter’s profits were the result of decisions taken quite a bit further back.  And although Lanktree and his team seem to have avoided all the big problems so far, management might be forgiven for wanting to be absolutely sure that they were out of the woods before paying up.

On the other hand, the labour market for credit traders is pretty hot, multistrategy firms are still hiring and Lanktree now has a proven track record on both buy and sell side. So there’s not much scope for paying the team that made $200m in a quarter much less than their self-evaluated worth.  Having a distressed credit desk which has made more money than you expected is a bit of a champagne problem, but it’s one that Deutsche Bank are going to have to negotiate.

Elsewhere, they don’t ring a bell at market tops, but sometimes they shout quite a lot.  The ABS East Conference is always a busy few days of dealmaking and partying for the structured finance community, but apparently, this year the noise was reaching health-and-safety levels.  With 7,200 attendees this year, even people who were used to the spectacle of large numbers of finance bros in a confined space were surprised at the amount of activity.

Since the success of the film “The Big Short”, any successful conference in a fast growing corner of finance is likely to have people wondering who is going to be the Steve Carrell character, and who is going to be the hapless CLO manager.  There isn’t necessarily any statistically valid correlation between noise and market tops – and if there was, it would be hard to say that things couldn’t get still noisier, particularly as the deregulation of the market has hardly started.  But if the ABS bankers want to keep investor confidence, maybe they should learn to use their inside voices.

Meanwhile …

Citi is joining JPMorgan in the trend of allowing AI chatbots to write (or at least, to fill in a first draft of) performance reviews.  Jane Fraser apparently “heard the cheer go up globally” when the announcement was made that this would be possible, which is apparently a good thing about LLMs rather than a bad thing about performance reviews. (Bloomberg)

Although banking has its fair share of stories of brutal behaviour, no bank has sent out text-message blasts to tell employees to check their email before coming in to work to see if they’ve been fired, like Amazon did this week.  There was a second text to tell you to call a helpdesk if you hadn’t received an email. (NY Post)

It’s not just Amazon – AI is getting the credit/blame for “tens of thousands” of white collar jobs across US companies.  Perhaps people will be nostalgic for the days when they filled in their own annual performance review forms. (WSJ)

The Q3 results season has seen a big Atlantic divide for investment banks.  Because it was only really the US market that saw a summer deals boom, the European players have really gone downward in the global league tables. (Financial News)

Apparently, “hundreds of thousands” of ChatGPT users show signs of severe mental health crisis every week.  (WIRED)

It is not exactly a year-round job, but if you’re thinking of getting a side hustle to supplement your banking income, “pumpkin stylists” can earn as much as $1350 for half an hour’s work (minus the cost of the pumpkins).  Junior bankers may want to know that this is another career in which you’re probably going to be working on Thanksgiving. (WSJ)

An absolutely terrifying story for Halloween, if you’re a rich New Yorker thinking of hiring a live-in nanny at your place in the Hamptons. (The Cut)

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