Morning Coffee: The JPMorgan bankers trying to stop big cuts at Credit Suisse. Terror on the trading floor as Bloombergs are at risk
The official line is still that until the business plan is revealed to investors with the third quarter results, all reporting is “entirely speculative”. But October 27 is now only eight weeks away, and since the board has to agree on what is to be done, the time for decision making is running out. According to “people familiar with the matter”, showdown time is basically this week, at the scheduled board meeting in Singapore.
And apparently it’s going to be a real debate. As one might expect given the last few months of publicity (and the fact that “cut back the investment bank” is a default solution reached for by anyone who wants to sound wise and cost-conscious), there is a strong faction on the board in favour of big redundancies and of getting rid of whole divisions like the securitized products team. But there is also apparently a strong faction, led by former JPMorgan star Blythe Masters, prepared to make the case that it’s a bit more complicated than that.
Banks are complicated things – they have lots of parts and lots of connections between the parts. It’s all too easy to cut a business line which looks like it’s unprofitable and capital-consuming, and to then find that you’ve destroyed a service centre to your highest-margin business and you still need the capital. A vision of “advisory-led, capital light, wealth focused” sounds great in a slide deck, but when you consider that the securitization team has been a reliable money-maker while the ultra-high net worth clients have included Bill Hwang and Lex Greensill, you start wondering whether there must have been a flaw in the argument if these are the conclusions.
The ad-hoc board committee looking at the plan, thankfully, includes a number of people who know what they’re doing. It’s interesting to look at their background and to guess where they might line up. Mirko Bianchi, for example, was the CFO at Unicredit during the Jean-Pierre Mustier years, a period which was all about cutting costs and getting rid of underperforming franchises. Richard Meddings, by contrast, made his reputation at Standard Chartered between 2002 and 2014; he’s experienced both boom and bust, and should be more aware than most that cost-cutting drives tend to go on forever and never seem to please the investors as much as you hope they will.
Blythe Masters is on the committee too, and as the inventor of the much maligned and greatly misunderstood Collateralised Debt Obligation, she is well-placed to understand how fundamentally strong businesses can get scapegoated for operational and compliance problems. And the ad hoc committee is chaired by Michael Klein, who left Citi for McKinsey in 2008.
The Chicago gangster Al Capone apocryphally said that you get a lot further in the world with a kind word and a gun, than with just a kind word. The dilemma for the CS board in Singapore this week is how confident they really feel that the core Swiss franchise can stand apart from the rest of the business. If they get it wrong, they might find out that you can win a lot more wealth management clients with a global investment banking network and a nice suit, than with the suit alone.
Elsewhere, it seems that the inflationary pressures affecting gasoline, potatoes and semiconductors are also beginning to bite on that equally vital commodity, Bloomberg terminals. Depending on how many terminals you have, the monthly price could be going up by more than 9%. The pricing is updated every two years, so the annualized rate is not so much, but even so, it’s going to be a noticeable bump at a time when banks are looking at overhead costs in general.
If you’re a trader, it’s quite likely that there’s nothing anyone can do; client chat and order management systems are so deeply integrated into the Bloomberg infrastructure that it’s almost impossible to take them away. If you’re in any other role, though – particularly in management - the terminal is somewhere between a luxury and a status symbol. As one head of investment banking said, "We’re pretty strict on who gets access, but we would definitely review it again if it became too expensive”. Expect a few howls, particularly at smaller banks, as the reviews come in. If you listen carefully enough, you might hear a disturbance in the Force, as if a thousand green dots suddenly went red, and then forever silent.
Meanwhile …
Morgan Stanley will now also be dropping covid testing and notification emails. If you test positive, they say isolate for five days, wear a mask for another five, but basically come back to the office. (Bloomberg)
The dystopian comic book writer Emily Laochua isn’t the only ESG professional heading for Bank of America. Their ESG team has also hired Alexandra Basirov from BNPP and Suley Saleem from Calvery Research and Management, and they’re shifting Andrew Stinson internally from the global corporate banking group. (Reuters)
“You want a bank that is going to have employees who eat nails for breakfast... you don't want an investment bank with employees who need emotional support dogs.” More discussion of the back to office season, although arguably the associates perform a similar role to emotional support dogs for the senior bankers. (CNBC)
UBS has made six job cuts in Hong Kong, with bankers in DCM, investment banking and real estate all being let go from mainland-China focused teams. The individuals seem to have been at Director and Executive Director level. (Bloomberg)
A detailed consumer guide to getting and using a burner phone. Although it does say that you shouldn’t rely on the unregistered status to protect you from investigation into serious crime, it also provides a number of legitimate reasons why someone would need a burner phone, which might helpfully serve as a list of excuses for owning a burner phone if you happen to be caught with one. (WIRED)
An analyst fundamentally misunderstands the relationship between how good you are at Excel and status as a top MD. (Wall Street Confessions)
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