Morning Coffee: Deutsche Bank loves its new M&A bankers, even if they haven’t done much yet. 54-year old man in finance is amazed that people still want to hire him
How quickly things change. Really quite recently, Deutsche Bank seemed to be in an irretrievable downward spiral of falling revenues, redundancies, declining franchises and even lower revenues. Plenty of people (including us, at times) thought they would end up having to get out of the investment banking industry altogether.
But here we are in Davos season of 2024, and Berthold Fürst, Deutsche’ co-head of EMEA coverage is able to say that “We have been fortunate that our board has allowed us to invest in senior talent counter cyclically” and “Because of that we have been able to meaningfully build expertise and talent across our franchise”. And it’s not just words; the recruitment of Alison Harding-Jones two weeks ago was only the most recent in a string of senior hires.
Putting resources into European advisory business right now is about as countercyclical as investments get. Deutsche did manage to grow its market share a little last year in M&A, but only to the extent of rising from tenth to ninth in the Dealogic EMEA rankings, in a year in which overall revenues tanked. The hiring that they are doing now is very much a matter of anticipating future performance, rather than rewarding past delivery.
This is partly because Deutsche is optimistic about the prospects for a quick recovery in corporate deals. James von Moltke, the CFO, has described economic conditions as “a bit of a pinch me moment” (as in, we couldn’t have dreamed a better outcome), and Fürst cites all the positive sounding conversations he’s been having with CEOs over the last few weeks.
Lots of other senior bankers have been talking about the same kinds of conversations; they haven’t yet shown up as actual deals, but as the proverb goes, someone who keeps hanging around with barbers will eventually find that they get a haircut. Moltke also notes that there is a “mountain of refinancing” coming due over the next twelve months – while M&A and ECM deals can be delayed indefinitely, debt has a repayment date, which usually means that borrowers have to issue more.
Whether its cyclical assessment is right or wrong, the real basis of Deutsche’s optimism is the fact that Christian Sewing has earned the confidence of the board and the markets to take a few bets of this kind. Although senior dealmakers are well paid, even a couple of dozen of them isn’t really a massive number when compared to the cost base of Deutsche Bank. Particularly when the greatest proportion of their compensation is variable and, as von Moltke makes clear, “pay will reflect performance”.
Elsewhere, they say that the definition of a market cycle is when the last person who remembers how the last crisis happened has retired or died. The Japanese rates market appears to be reaching the end of the negative interest rate policy (NIRP) era, and proving the old wisdom correct, banks are having to look around for anyone who remembers how to trade rates products that don’t have a minus sign in front of them.
Tadashi Masumoto, for example, is 54 years old, which is absolutely Jurassic in rates trader years. Having previously been CEO of Tullett Prebon (Japan) in a long-forgotten time, he’s now been recruited to head up a brand new yen swaps team for BGC Group. He had been expecting to downshift and spend more time with his four children; he says that “It’s really gratifying for someone of my age to receive an offer or be approached for jobs”.
You don’t necessarily need too many of these old heads – the transition from negative to positive rates shouldn’t really be beyond the wit of younger traders if they managed high school arithmetic. And although the Bank of Japan interest rate will be the same as it was in the 1990s, almost everything else in the market has changed. But every trading floor needs somebody who can utter the truest eleven words you’ll ever hear in banking – “we tried that a bunch of times, and it never worked”.
To a certain extent, the banks which are hiring countercyclically are stepping over each other (or to put it more positively, validating each other’s assessments of top talent). James Liddy has gone from Deutsche to Jefferies to be their new head of EMEA gaming, leisure and lodging investment banking. (Bloomberg)
Congratulations to JPMorgan sell-side analysts, who spend a fourth year at the top of the global rankings. It’s noticeable that this is one area in which the bulge bracket don’t have it entirely their own way; although BoA and Morgan Stanley filled out the top three, Barclays and UBS came in at four and five. (Institutional Investor)
Possibly a few well-deserved shivers running down backs in London this week, as the Financial Conduct Authority is carrying out an investigation into harassment and bullying, the use of NDAs and general processes for resolving complaints, partly in the wake of the Odey Asset Management affair. (FT)
It seems that Rothschild’s willingness to endure the pain associated with owning a UK equities business is not without limit – Redburn Atlantic has made 20 people redundant across its research, trading and capital markets businesses. (Financial News)
Once you look past the current wave of mild cyclical optimism, there are some unpleasant questions for bankers to think about. Questions like “Are we, really, going to see anything like 2021 levels of business any time soon?”. Or “Is the industry still staffed up for something closer to the cyclical peak than the cyclical average”? (IFRE)
Norges Bank Investment Management has decided it’s not going to take its losses arising from the collapse of Silicon Valley Bank as just one of those things. It’s launched a lawsuit against Goldman Sachs, Morgan Stanley, Bank of America and Keefe Bruyette & Woods (as well as auditors KPMG) for “utterly failing in their role as gatekeepers” by sponsoring capital markets deals for SVB. Presumably the banks disagree. (WSJ)
Fascinating longread about how it was originally shown that Bitcoin transactions were nothing like as anonymous as a lot of shady people thought they were. (WIRED)
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