With most of the European bank reporting season at an end, things look less abjectly awful than the they do for the US banks. Having more retail in the mix, more trade finance, securities services, asset management, insurance seems to have stabilised earnings. Or perhaps expectations had sunk so low that beating them was straightforward.
But nonetheless, cuts are coming. Sociéte Générale was the latest bank to announce a harder, deeper restructuring programme — an additional €220m of cost cuts on top of a planned €870m-sized slash at the expenditure column. Actually, the bank had pre-announced lots of the “savings”. It closed its UK primary dealership at the beginning of February, and has been in negotiations with French unions and employees for 90 redundancies in markets. This is supposed to mainly focus on agency brokerage, but seems to touch DCM as well, with Paris-based public sector origination supposed to be particularly at risk. Agency MBS trading in the US is also set to close, as it is at Deutsche Bank.
If that’s correct, it seems an odd choice. Like French rival BNP Paribas, the one primary dealership that SG will never stop investing in is the Agence France Trésor — so making sure it gets its share of syndication on the back of it seems sensible.
Credit Suisse’s cuts also took another step forward this week, with rumours of 130 cuts across equities and fixed income markets. It does not seem to be a bonfire of the managing directors; instead, it is a set of cuts up and down the hierarchy. Less will be done with less. The cuts, however, leave capital markets origination, and its related businesses untouched. Origination-led business is perhaps how the bank wants to make its money… but how far can you unpick an investment bank?
The bank reports its first quarter numbers on Tuesday so we’ll see. Eyes front for further restructuring announcements.
Portals in a storm
For bankers in this kind of tight spot, the great hopes are that the buy-side, or even 'fintech' will provide a haven. JP Morgan’s head of loan trading has left voluntarily, and is said to be starting a fund, while lots of other bankers are reinventing themselves as solutions to the problems at their old firms.
For the primary MTN market, two companies are going head to head — Origin Markets, which is still in proof of concept phase, talking to dealers, soliciting investments and building a products, and CMDPortal, which has already launched — but whose product is an outgrowth of an existing database of ISIN and legal entity Identifiers than a new, bespoke MTN platform.
Origin was started by a couple of Nomura credit traders, who have attracted backing from, among others, former Nomura head of EMEA DCM origination and syndicate Benedict Nielsen, and are hoping for institutional backing from the firm itself.
CMDPortal, meanwhile, is backed by Pieter Van Dyck, who worked in MTN documentation at UBS and ABN Amro during the '90s, and who started a news and data service after that.
If it’s not going to be fintech or the buy-side saving the industry, perhaps it will be the Chinese? Capital from ICBC, the largest bank in the world, has meant that its joint venture ICBC Standard has a spring in its step and aspirations of a larger investment banking role.
It hired a London-based head of corporate and sales, Stephen Gargiulo, last week, coming after a head of coverage in April and a head of primary debt at the beginning of the year. The bank is cannily taking advantage of the thin job market to pick up talent — but will the business follow? It wouldn’t be the first big commercial bank to try its hand at investment banking and stay stuck on the bottom rungs.
Regulatory news this week was mainly about trading, not about capital. The Fed offered its version of international too-big-to-fail rules which are supposed to stop counterparties closing out their trades with G-SIFIs at the first sign of trouble (triggering a downward spiral, and creating senior claims on the resolution of the bank).
The problem, as always, is a collective action issue – if only G-SIFIs use the special contracts which create this extra credit risk, will they be at a disadvantage in the market? Will the buyside ever adopted contractual stays of their own accord? The answer appears to be…if everyone else does. To that end, ISDA is doing its best to keep up with the new laws, pumping out a steady stream of contract templates and trying to broker agreement on the new market standards.
Europe’s big trading overhaul, MiFID II, is at the centre of an unseemly political fight. The European Parliament is trying to unpick the rush job that its predecessor Parliament did in finalising MiFID, as is the Commission, while ESMA, the regulator in charge, is dragging its feet. There is, however, not much time to drag its feet further – even with the one year delay, it’s still a tough timetable.