Some parts of the third quarter numbers were predictable — ugly fixed income numbers, costly restructurings, booming M&A and equities — and, with only JP Morgan seeing a sizeable post-results hit to shares, these factors were in the price. Decent underlying growth in the US ought to act as a long term tailwind too.
The big US banks, of course, are going to inherit whatever is left of investment banking in five years’ time, a troubling prospect for Société Générale’s boss, who wants, naturally enough, an end to the regulatory persecution of European banks.
US institutions, however, may feel they’ve had their fair share of persecution, though in a slightly different format — rushed legislation and abundant litigation, rather than long-drawn out zombie projects like the financial transaction tax or bank structural reform. Bank of America’s legal bill of more than $90bn doesn’t look like an unfair advantage.
One banker apparently willing to back the European horse is Jes Staley, the former boss of JP Morgan’s investment bank and an equity capital markets banker by trade, who is supposedly preparing to put his head over the parapet and become chief executive of Barclays.
This has prompted oodles of head-scratching about what this might mean for the future of Barclays — broadly, not just more investment banking but better investment banking, with particular likely encouragement for the ex-Lehman US corporate finance business.
But one particular relief for Staley, once confirmed in post, will be a reform to the UK’s planned responsibility regime for senior bankers.
They’re no less personally responsible, but the burden of proof that they have acted improperly falls on regulators. Under the previous draft, bank executives would have to prove they did not act improperly – a recipe for an exponentially growing paper trail.
Deutsche Bank still has not yet appointed a UK chief executive following Colin Grassie’s departure, but it’s changed just about everything else in the C-suite.
Corporate Banking and Securities, Deutsche’s investment bank, is no more, with the division split into a more conventional banking and markets-type structure — corporate and investment banking will absorb transaction banking and be run by new boy Jeff Urwin, who joined from JP Morgan earlier this year.
Markets will be run by Garth Ritchie, the head of equities — cue commentary about how bond big boy Deutsche is playing down fixed income.
A clutch of executives from the Jain era are out as part of the restructure. Colin Fan, who ran corporate banking and securities has resigned effective Monday, Michele Faissola, the head of Deutsche Asset and Wealth Management (and former head of fixed income) is gone, and so are Stefan Krause and Stephan Leithner, respectively head of non-core and chief executive Europe.
Leithner is heading to private equity, and is the only one of the four to get a regretful farewell from Deutsche chairman Paul Achleitner.
From the troubled big players to the smaller banks, it looks like ING is also intent on making some kind of a splash — it’s started up a high yield and leveraged loan business, hiring UniCredit’s former high yield head Dominique LeMaire to make it happen. On the secondary side, it poached Catherine De Silva from Société Générale as head of high yield sales earlier this year, and took on syndicate veteran Eden Riche joined the firm as London syndicate head .
It’s a useful reminder that for every bulge bracket bank looking to cut staff, there’s a niche player elbowing its way into the juicer parts of investment banking.
On the regulatory side, the UK’s final ring-fence regime, which will be a major feature of Staley-era Barclays, came out less bad than expected – an extra £3.3bn in capital across the six UK banks with deposits above £25bn. It’s still a big number, but the market is now well used to bandying about scary capital estimates.
It is striking that no other country has any desire to build a ring-fence around retail, never mind an “electrified ring-fence”, as recommended by the Parliamentary Committee on Banking Standards.
Just think what HBOS, Northern Rock, Co-op Bank, and Bradford & Bingley would have got up to if they’d be confined to retail banking.
But never mind retail. The question of what will be left of investment banking, specifically the bonds business, was very much on your correspondent’s mind on a trip to Barcelona to attend the “Fixed Income Leaders’ Summit”.
The leaderly nature of the affair wasn’t totally clear at all points, but there was a lot of talk about disrupting existing approaches to bond trading, and strong representation from buyside and sellside traders.
Bond salespeople were also in attendance, though a lot of the initiatives appear, ultimately, to allow banks to get away with having far fewer bond salespeople. It’s either roll with the times or go full Luddite and start smashing the machines.
But the event left GlobalCapital wondering whether bonds would truly go the way of equities — a canonical assumption in the e-trading community.
Is the future of fixed income a flickering stream of algorithmic prices flowing to lit and dark trading venues, with robots arbitraging between them, every trade verified by blockchain and humans involved only at the point of initiation? Will banks step back, content to cull fees by renting out balance sheet and offering execution-only platforms? Erm, maybe.