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CommentP&M Notebook

P&M Notebook: big name, small deal

Bob Diamond PA 230x150

Even a publishing house could, at a push, bid for a broker the size of Panmure Gordon, whose profits, at around £400,000 a year, certainly aren’t setting the City alight. But it’s the return of Bob Diamond, the former Barclays boss, which has set the broadsheets buzzing.

Sadly, much of the attention has focused on Diamond’s history at Barclays, rather than his plans for Panmure, which admittedly are hidden in the small print of the deal’s Rule 2.7 announcement. There, Atlas Merchant Capital, the investment vehicle Diamond controls, said that it wants to expand Panmure’s product suite and hire senior M&A bankers.

Since the firm makes most of its money advising AIM firms on IPOs (£10m of revenue from corporate finance in H1 2016 vs £5.6m in brokerage) this is a major departure, but there’s no sign that the firm will be looking to break into Diamond-era Bar Cap’s heartland of DCM and bonds. It’s also surely a benefit for an aspiring M&A firm to have an acquisitive investment firm behind it — there ought to be plenty of mandates from Atlas Merchant’s future acquisitions.

While Panmure grabbed headlines on Friday, the next big bank to lay out its strategy will be BNP Paribas, which is running a capital markets day on Monday. CIB boss Yann Gérardin is presenting the investment banking section from 2pm, though from the presentation it doesn’t look too special — a mix of digital aspirations, suspiciously flattering league table results, and commitments to more cross-selling.

But perhaps this is because BNPP’s franchise, essentially, is doing fine. It’s never been the glitziest bank on the Street, but it has stability, adequate capital, and steady growth in market share to make up for it, and it has well-defined plans to build up specific product lines (most recently ECM, but it’s made strides in asset finance and structured credit and advisory as well).

There’s also, in the plan, a tighter geographic focus, with targeted growth in Germany, the UK, the Netherlands and Scandinavia. The target, overall, is to “be the leading European bank in EMEA for CIB businesses”, meaning top of transaction banking, top of bond and loan underwriting, top three for investment banking with 750 of its top clients, top two in markets for the eurozone, and top five in Europe. Markets, in this context, includes DCM and excludes cash equities, presumably making it more achievable for BNPP.

Crucial for the bank’s plan is the strength of the revived and capital-infused Deutsche Bank, which set the price and proceeds for its latest capital raising on March 19, with, as expected, €8bn of proceeds coming in at €11.65 per share. Deutsche is targeting a similar product set and similar geographies to BNPP, and has a formidable franchise, if the capital and morale transfusion announced two weeks ago does the job.

Deutsche also published its annual report on Monday, which contains no new earnings info (Deutsche reported on February 2), but does have extensive and lurid sections on the litigation the bank is facing, including its disclosure that it has been drawn into the SSA bond trading manipulation probe.

A particular favourite, for sheer chutzpah, is a suit in the Cologne appeals court from a former Postbank shareholder, alleging Deutsche underpaid for the German retail lender. Given that inability to sell Postbank at any kind of attractive level has forced Deutsche into the new capital raising and strategic turnaround, it takes some nerve to keep the case going.

Both banks, in their strategic plans, largely ignore the possible “Basel IV” risk weight increases, based on the increasing likelihood that this will be delayed or watered down. Ahead of the G20 meetings in Baden-Baden last week, German policymakers made it clear that they were simply waiting for the Trump administration to sort out its position and name a lead negotiator.

Jens Weidmann and Andreas Dombret nudged the US in the gentlest possible terms, but there’s a strain of Republican thought — demonstrated by representative McHenry, chair of the House Financial Services Committee — that distrusts any sort of international policymaking, especially if conducted behind closed doors in Switzerland.

The irony, of course, is that a tough Basel IV would tilt the international playing field substantially in favour of the US banks, who sell their low-risk weight mortgages to Fannie and Freddie, and against the northern Europeans, who keep them but model their capital intensity down as far as possible (15% is not uncommon, meaning €1.5 of equity for every €100 of mortgage in a 10% CET1 bank).

At any rate, US Treasury secretary Steven Mnuchin seems to have focused more on trade policy than financial regulation at the G20 meetings, with a line condemning “protectionism” the main sticking point.

What’s left in the G20 communique is a fairly boilerplate line saying that we “confirm our support for the Basel Committee on Banking Supervision's (BCBS) work to finalise the Basel III framework without further significantly increasing overall capital requirements across the banking sector, while promoting a level playing field”.

It’s probably a bit early to say that Trump is therefore on board with Basel — the financial and regulatory world anxiously await his first 140 character pronouncements on output floors.

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