Morning Coffee: Citigroup's job cuts are an exercise in ending pointless meetings. Bank CEOs not sure the future is shiny yet
In its way, Citigroup is lucky. When JPMorgan CFO Jeremy Barnum presented the bank's third quarter results last week, he said repeatedly that "costless optimizations", or technical fixes that don't affect revenue and that don't mean exiting businesses, have become very hard to achieve JPMorgan. Not so at Citi. Citi's optimization isn't exactly costless given that it's paying $650m in severance charges, and nor is it technical. Yet Citi isn't exiting businesses and isn't predicting that revenues will fall as a result, but is making some big changes all the same.
How is Citi cutting costs then? Explaining the process last week, Citi CEO Jane Fraser gave the distinct impression that it's all about eliminating the kinds of pointless activities and meetings that consume people's time but achieve almost nothing at all. By reducing its management layers from 13 to eight, Citi will eliminate 60 committees and free up "over tens of thousands of people hours annually," announced Fraser.
Fraser said the bank will also eliminate 50% of its internal financial reports and do away with the kinds of co-heads and dual reporting lines that suck time for no reason. "Let me give you an example," Fraser declared. "We had HR in a region. The region head, you have the institutional client group head. You had the banking head. In addition, you had a North Asia head and a South Asia head. We're just going to have the North Asia head and the South Asia head....all of those roles collapsed into those two." Similarly, by halving the internal financial reports, Fraser said the bank will do away with 1,000 management reports and with them all the shadow P&Ls by country, the quarterly outlooks, the monthly performance updates and all the associated tracking and reconciliations that shareholders don't really care about.
If you're a person that loves bureaucracy, meetings about bureaucracy, and being busy for the sake of it, Fraser's reorganisation sounds like your vision of a nightmare. However, if you're someone that finds meetings to discuss irrelevant initiatives inimical to worthwhile existence, it sounds great. Similar optimizations should be espoused everywhere, even at JPMorgan.
Separately, if you've been hoping that banks might bounce back and resume hiring soon in the front office, Jamie Dimon's announcement that, “This may be the most dangerous time the world has seen in decades,” doesn't seem to augur well. Neither JPMorgan nor Citi gave much indication that the investment banking revenue recovery is forthcoming.
Barnum said current levels of activity in investment banking "remain quite depressed...even relative to 2019" and that the current environment is "a little bit complicated" with "some headwinds." Fraser said that while Q3 2023 is the seventh quarter of a downturn in investment banking revenues and that while investment banking downturns usually only last for seven quarters, the market remains "fragile." Yes, equity and debt capital markets activity is picking up, but any recovery now seems more likely in Q1 than Q4, said Fraser. "We're watching it closely."
If banks are hiring anywhere, they're hiring in technology. JPMorgan said it has to keep spending on tech and Citi's tech spending is up 8%. "The technology investment, the automation that we're putting in place … all of those things will also work to reduce headcount as well. (Business Insider)
Schonfeld has been trying to reassure its people that the Millennium tie-up isn't a done deal and that any agreement would be contingent on Schonfeld remaining independent. Its also contemplating taking money from Abu Dhabi Investment Authority, Blackstone, GIC, and Future Fund. (Business Insider)
Citi's rates and currencies traders had their best third quarter for eight years. (Bloomberg)
The banks that have fared best in trading in recent years have either been market leaders in prime brokerage or have been investing heavily. This business is booming thanks to the breakneck growth of highly leveraged, multi-strategy and macro hedge funds that need financing for their positions. (IFRE)
Barclays bankers in Canada keep leaving for Jefferies. (Bloomberg)
Deutsche Bank completed its acquisition of Numis and now has 155 dealmakers focused on the UK, compared to 35 previously. Alex Ham and Ross Mitchinson, co-CEOs of Numis, will retain the same roles at 'Deutsche Numis'. James Taylor, who leads Numis's investment banking business, and Daniel Ross, head of UK investment banking at Deutsche Bank, will co-head the Deutsche Numis dealmaking team. (Financial News)
Credit Suisse cut 254 jobs in New York, 9% of its total. (Financial News)
Santander has hired more than 100 mostly US-based bankers this year, with about half coming from Credit Suisse. “The business we run is very different from other investment banks. It’s mostly a corporate bank and we are now adding the fee business, focusing on areas where we are strong like renewables and infrastructure.” (Financial Times)
Bankman-Fried was willing to take huge gambles on the slightest advantage of probability, said Caroline Ellison. “He would be happy to flip a coin, if it came up tails and the world was destroyed” as long as the world would be twice as good if the coin came up heads. (Financial Times)
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