P&M Notebook: the weather outside is frightful
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People and MarketsCommentP&M Notebook

P&M Notebook: the weather outside is frightful

The politics of the Western world might be uglier and more frightening than ever, especially if you happen to be one of those whiny metropolitan globalising elite types, but, um, investment banks are making money again?

Or, at least, losing less money. Credit Suisse rightly trumpeted a “profitable Q3” in announcing its results. What this actually meant was “a profit as opposed to a loss” in Q3 — by no stretch can Sfr51m of profit on Sfr5bn of revenues using an Sfr806bn balance sheet be considered conventionally “profitable”. But nonetheless, it smashed market expectations, which were for an overall loss. There were also encouraging signs of the bank’s rebalancing towards advisory and capital markets, though the engine of the outperformance was, as with most of the street, good fixed income numbers.

Speaking to another investment bank head, who didn’t want to be named, it’s been a quarter of very distinct months. The market stayed lively and active in July, following on from the Brexit vote and keeping volumes high. August, as ever, was quiet, while September revved back up again.

Either way, the news seems strong. Perhaps it’s the right kind of volatility at last.

It wasn’t enough, however, to help Commerzbank, which is now in the teeth of a new restructuring plan, intending to hive off most of its structured products unit, and close its exotic derivatives and structured rates franchises.

Part of the restructuring has meant goodwill write-offs, and cancelling the dividend for an indefinite period. But the plan itself sounds plausible enough.

Commerz will be, like UniCredit, pushing more of its investment banking products down to smaller companies, with the combination of the Mittelstandbank and Corporates & Markets division. Focusing on strengths, and limiting derivatives activity to client hedging is also solid, on-trend stuff.

Perhaps the bigger question is who comes in for the Commerzbank derivatives back book? GlobalCapital understands there have been plenty of enquiries from investment banks, but who will put their hands up in today’s environment and say, yes, we want to allocate more balance sheet to exotic, structured derivatives, and credit correlation trading. Maybe expect a low key marketing process…

For the structured notes / package equity business, Commerz is keeping its options open. It’s separating the business out into a legal entity, complete with its own service provision and systems, so it can be spun out to buyers outside the banking industry — it’s not just a book of business, but a fully fledged operating company, which could even be separately listed.

In other major turn-around stories, we have RBS back in hiring mode! Chris Agathangelou, head of EMEA FIG syndicate at Nomura, jumped ship from the bank where he started as a grad to join RBS.

He follows a string of other Nomura-RBS moves, including Kieran Higgins, head of trading, Peter Duenas-Brckovich, head of credit trading, and Harsh Shah, head of financial institutions origination, who came over in April this year.

It’s not, however, a case of simply adding talent at RBS. Harman Dhami, a managing director and longstanding FIG syndicate banker who came over as part of the ABN Amro acquisition, left RBS the same week, while Damon Mahon, a syndicate banker focused on FIG and ABS, had been asked to leave last year.

This week sees more bank results, kicking off with HSBC on Monday, and after that, GC is on the road, heading to government bond and trading conferences. The mood is rarely jubilant at such events — there will be dark muttering about market illiquidity and regulation — but a change is as good as a rest.

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