“You will get paid more by making $10m in a seat that is worth $20m than you will by making $5m in a seat that’s worth $1m”. If you genuinely understand this line from Brent Donnelly’s article at Epsilon Theory, you understand the world of sales & trading.
Brent is a real industry veteran; he got into the FX markets at Citi in 1995 (before the Euro existed). Since then, he’s traded the dot com boom with his own money, managed a portfolio at a hedge fund, been around at Lehman Brothers when it all fell apart and most recently been Chief Dealer at Citi and a G10 FX trader at HSBC. He’s also written two books, and is now President of Spectra Markets.
In that piece of advice, he’s making two related points. First, that sell side trading is a service business and that there’s considerable “franchise value” in being located at a bank with customer order flow. The reliable P&L made from client orders supports your own risk-taking and means that “you’re still valuable to the bank even when you’re not making money”. As a sell side trader, your number one priority is always to preserve and grow that franchise value. Making money by being right about the market is nice, but it’s incidental to serving the clients.
And second, “banks generally do a poor job of normalising P&L” – they tend to be impressed by the traders who generate the largest absolute sums of money, not the ones with the best value added. This is actually a valid point to make about nearly all investment banking business lines; it’s very difficult to identify who’s a genius and who was just lucky to get a lot of plum clients by being in the right place at the right time. Everyone who’s been in the industry for more than a few years has experienced a colleague who was hired with great fanfare from the market leader, but who proved curiously unable to replicate that success when taken away from their support network.
Building a support network for yourself is the other key piece of advice Brent gives. As he says, “The trader with a good P&L and a bad attitude is the first one tossed when things go south. If you are a positive force on the desk and you have a tough year or two, you’ll get a pass”. And things always go south; it’s the nature of the game. He reckons that if you work hard, it takes no more than two years to become the “go to” expert in the market you trade. If you can master the macro drivers, the strategies that work and build relationships with the key players, you can “earn your seat” and treat it like you own a business. Basically, “know your market, know yourself” and be ready to do it all again tomorrow.
Elsewhere, it seems that quite a few EMEA fixed income traders will have a chance to ponder Brent Donnelly’s words of wisdom as they take gardening leave this summer before joining Bank of America. The company has confirmed that it’s planning a “meaningful” investment in its European sales & trading franchise, which is understood to potentially imply a 25-30% increase in headcount.
Although “Brexit was an impetus for us to review our profile”, according to James DeMare, the head of global markets at BoA, it seems that it’s not just the Paris office that’s going to be gaining, apparently. There will be “several senior traders and salespeople” in London, trading FX, sterling credit and low-carbon products. They also plan to staff up in Frankfurt, Madrid and Milan and to increase the number of primary dealerships across Europe.
Bank of America is expanding across the board. Alongside the 60 people it's hired externally in FICC sales and trading, it's added more than 30 trading professionals to its Global FX and Emerging Markets desks since 2020. An expansion like this is likely to affect the whole market, and to be one of the key considerations for compensation committees in the second half of the year. If you’re in fixed income trading and have any former colleagues who went to BAML, now might be a good time to ping them a message.
Andrew Formica will be retiring from Jupiter Asset Management to return to Australia with his family and “go sit at the beach and do nothing”. After four years spent on the thankless task of trying to stop outflows from active fund management to passive funds, with former board directors writing open letters saying his appointment was a “mistake”, it might be curiously relaxing to live in an environment where the biggest daily danger is a funnel web spider in your shoes. The CIO, Matthew Beesley, has picked up the chalice. (Business Insider)
The Credit Suisse Rebuild Watch contninues, as David Wildermuth, the chief risk officer, gave an upbeat presentation at an investor day. The word “swagger” wasn’t used this time, but he suggested that the pendulum might begin to swing back in the direction of bigger risk budgets after the Archegos and Greensill episodes. (Bloomberg)
More evidence that you shouldn’t underestimate Dallas as a financial centre – SouthWest Airlines runs an oil derivatives trading desk there to hedge its fuel costs, and they’ve had a very strong year trading against the Street. (FT)
One to print out and hand around at bonus time – the Wall Street Journal guide to the correct way to cry in the office. (WSJ)
JPMorgan have drawn up plans to restore a 1780s mansion called Littledown House back to its former significance (Bournemouth Daily Echo)
Whistleblowing is similar to other areas of banking in terms of a significant gap between US and European compensation. Stephanie Gibaud, who supplied information to tax authorities about UBS, was awarded just 4500 euros in 2018. She’s now in court asking for €3.5m under a different payout program. (Bloomberg)
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