Morning Coffee: Deutsche Bank seems to think things are great even if nobody else does. Junior bankers incapable of private equity interviews
One of the best, and the worst things about trading as a business is that every morning brings a new day. Timescales are measured in milliseconds rather than months, and past decisions can be reversed in the blink of an eye. That does mean that when things go wrong, they tend to go very wrong, very quickly. But it also means that when they get better, unlike their colleagues on the advisory side, traders can enjoy the good news immediately, rather than waiting to reopen the pipeline.
That seems to be what Deutsche Bank CEO Christian Sewing is currently seeing in Deutsche’s fixed income trading franchise. At the beginning of the month, things looked about as bad for traders as they did for bankers; John Waldron of Goldman Sachs was talking about 25% declines in revenue and predicting more job cuts across the industry. A week ago, however, Deutsche’s CFO James von Moltke was talking about a decline of only 15-20%. That guidance range doesn’t seem to have changed, but Sewing now says that “there is momentum in the business” and that he is even looking for “a slight recovery” for the second half of the year. The mood music is getting more jiggy.
This is partly because it seems that the last month of the quarter has been the best; Sewing particularly identified the US debt ceiling deal agreed at the start of June as the turning point for clients’ risk appetite. Goldman’s guidance comes from the day before this agreement was concluded, and of course, every week is roughly one-twelfth of the quarter. So it’s possible that other banks on the Street have also seen evidence that their previous assessments were too pessimistic, but just haven’t made public statements to that effect yet.
It's also possible, however, that Deutsche is just having a better 2023 than the Wall Street bulge bracket. Its trading business mix is more favourable than the US peers, because it only has fixed income, and within that it’s historically more weighted toward macro and rates business. It also has a slightly easier base for comparison in the capital markets and advisory business, which was previously guided to be “probably flat to up” for Q2.
But most importantly, Deutsche benefits a lot from rising rates. It has a big corporate lending book, and a lot of transaction banking deposits to fund it with. Analysts expect that this division will actually out-earn the investment bank this year. And that provides a degree of stability to the platform, which helps the share price; Deutsche has outperformed all US peers this quarter, except Citi.
And a strong share price and good performance against peers is good for morale, which in turn helps the business. Every morning brings a brand new trading day, and it seems that Deutsche’s bankers might be feeling a little bit better about getting up to meet it.
Elsewhere, the private equity recruitment round has finally reached the point of maximum ridiculousness which has been predicted for a long time. Every year, the interviews have been getting earlier and earlier for poaching the best first-year analysts from investment banks. For the private equity class of 2024, “on-cycle” recruiting began earlier than ever, barely a month into the 2022 investment bank intake’s training program.
Combined with the somewhat slow deals market last year, this meant that a significant proportion of candidates had done literally nothing by the time the interviews began. According to Odyssey Partners (and to the junior analysts’ credit), many of them consequently “held off”, out of a sense that it would be kind of ridiculous to go through an interview in which you had absolutely no achievements to talk about. This left many PE firms with unfilled vacancies, and needing to go through a second round of recruiting later in the year (roughly at the point when common sense might have suggested they should have been doing the first round).
Will anyone learn from this mistake? The historical evidence suggests otherwise, and the problem that every firm wants to jump the gun to get a chance at the most desirable recruits isn’t going to change. About all one can say is that the “on cycle” can’t start much earlier in the future, if only because the candidates won’t have work phones or email addresses to send the invitations to.
Meanwhile …
You have to be a robust personality to work in the world of shipping finance, and even more so to be in an advisory boutique in that niche. But Larry Glassberg of Maxim Group might not have anticipated things would get quite so personal when he attended an industry conference last week, and found himself roundly criticised by two other panelists for “listing a lot of s**t” and being “not a help for our industry that has struggled for a long time to make a better name for itself.” (Trade Winds News)
Bluecrest paid a number of fines a few years ago relating to its treatment of outside investors when it still had some. However, the FCA penalty notice was “not an impressive document” and “demonstrates a considerable amount of muddled thinking”, according to the judge who struck out its case to require much larger compensation payments. (Bloomberg)
Competition for good traders to work at multi-strategy hedge funds is now so hot that the funds themselves can’t afford to pay up, so they are increasingly resorting to levying special extra charges to their investors. And the investors seem to be accepting them in a way that they weren’t willing to just pay 2-and-20 fees. (Financial News)
Vincent D’Onofrio is Steve Cohen! Seth Rogen is Gabe Plotkin! The guy from “Parks and Recreation” is Ken Griffin! Details are beginning to come out about “Dumb Money”, the film about Gamestop and r/WallStreetBets and it appears that the idea is to make “The Big Short” but with more of a slapstick element. (Bloomberg)
JP Morgan is creating a new “Data & Analytics Unit”, to be led by Teresa Heitsenrether and responsible for bringing together all of its AI projects from around the bank. (Business Insider)
Steve Cohen wants to legalise MDMA. Although that sounds like the plot of a potential sequel to “Dumb Money”, what’s actually happened is that his philanthropic foundation has made a $5m donation to the Multidisciplinary Association for Psychedelics Studies. This in turn also sounds more amusing than it is; it’s going to use the money for a lobbying effort to persuade the FDA to license the drug for therapeutic uses in PTSD sufferers. (Bloomberg)
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