While many of the research notes and monetary analysts have pored over whether the ECB’s plans will achieve anything (or simply mean more false liquidity-induced stagnation), parts of the GlobalCapital newsroom have been occupied in trying to comprehend just how large €80bn a month really is.
The ECB, were it so minded, could buy more than three Deutsche Banks every single month with brand new money. Or one BNP Paribas, with enough change for a Standard Chartered. They’d have to wait more than a month for a really big, planet straddler like HSBC, JP Morgan or Bank of America. But generally less than two.
Every working day, it prints enough money to account for about 50 years of profits at Wetherspoons. Or enough to buy London skyscraper, the Gherkin five times over.
Should it wish to purchase investment bank offices, it could do so at a rate of nearly seven BAML buildings (King Edward St in London) per day. Sadly, a single day’s new money printing would only be sufficient for three of HSBC’s 42 storey headquarters buildings, but there’d be some small change left at the end — enough to build a new Shard from scratch, if space could be found.
If the ECB decided to simply hand the money out in €100 notes, more than 1,000 people would be needed to work full time simply on passing out notes, as long as they worked a full working week (one note per second, no breaks — which would probably break all kinds of EU directives, but needs must. Printing, logistics and crowd control can be considered separately).
BAML starts to cut
But it isn’t all euphoria. GlobalCapital understands that despite the easy money, investment banks are still cutting staff, with BAML slicing deep into its front office business in Europe. Like Deutsche, this is said to be hitting DCM, though unlike Deutsche, it’s happening slowly.
Olcay Yagci, a managing director in emerging markets DCM, is at risk; so are big names in electronic fixed income trading, with another raft of cuts in Asian DCM and ECM. We’re also hearing a couple of cuts in structured finance. BAML has looked markedly stronger than Deutsche in recent months, but it’s not immune to the pall of misery hanging over the industry.
One senior banker, headed cheerfully out of the market, described his institution’s org chart as looking like a portly gentleman that’s enjoyed a few too many good lunches – rather than a sharp pointed pyramid.
In other bank efficiency news, GlobalCapital had another go at figuring out the economics of the primary dealer business. Credit Suisse has ditched out, with others likely to scale back, even if they do not formally resign their status.
But part of what is driving those decisions is how banks share the costs internally. One bank carefully tries to figure out any ancillary business, any extra benefits that other desks receive from being in the rates flow, and then shares the cost of the business around.
Another bank we contacted doesn’t do any of that — what goes around comes around, in their view. One man’s cross-subsidy is another man’s business synergy. Every part of the business needs every other part, so just get on with it.
A third, perhaps least happily, maintains some of its dealerships because it has been told to, not because it necessarily makes business sense. Cross subsidy by fiat, if you like, rather than by mutual consent, or by negotiation.
Meanwhile, Barclays is doing a team hire — a rare act in these austere times. The team in question consists of nine advisory bankers from CMC Capital, led by Carlo Calabria, who will become chairman of EMEA M&A.
Perhaps it is easier doing team hires from small boutiques (Calabria had extensive big bank experience at BAML and Credit Suisse before co-founding CMC in 2012) but it’s still a powerful statement about Barclays’ commitment to its advisory business at a time when Tom King, who led the big Barclays push in corporate finance from 2009, is on the way out.
One source noted the preponderance of senior Italians in the business — Barclays promoted Pier Luigi Colizzi to head of EMEA M&A last year, where he will work closely with Calabria. The other senior bankers coming over from CMC are Enrico Chiapparoli and Stefano Soldi, who will be heading autos coverage and joining the power and utilities team respectively.
It was a big week for regulation too, and certainly not for the last time (the Basel Committee is trying to “finish” its work programme this year, so expect a flood of new papers, consultations and commentaries).
The Committee insists there are no new “Basel IV” capital requirements coming, but then… keep adding new requirements. Even according to their own study, Interest Rate Risk in the Banking Book, which is supposed to capture the mismatch between interest rates on assets and liabilities, could slash big bank capital levels by 200bp. It’s certainly going to feel like a new round of capital rules.
Also last week, the joint European agencies rolled out their rules for margin on uncleared derivatives, a shoe which the industry had been expecting to drop for some time. Some aspects of it have got easier, with slower phase-in for FX and equity options, but overall, the rules could still prove tricky for corporate treasurers looking to put on strategic equity trades using derivatives.