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CommentP&M Notebook

P&M Notebook: Shrinking seats

Banks are shrinking, the industry is shrinking, and big splashy hires are a thing of the past. So when a senior FIG banker, in a secure seat, at a solid institution jumps ship, there’s a mystery afoot.

We refer, of course, to Sébastien Domanico, global head of FIG DCM at Société Générale, at least, until recently. He quit last week, to head to bigger and better things, but we don’t know where, and we don’t know when (a reader suggests SG notice periods are not to be trifled with).

There are at least two potentially vacant seats in European FIG DCM right now — Daniel Shore’s head of European FIG DCM role at HSBC, and Mizuho’s shiny new head of FIG DCM role, vacated in short order by AJ Davidson. The trouble is, neither would be a step up, or even sideways move, for Domanico, who had a global role at a bank with a well established, high quality FIG franchise.

It may not be FIG bankers all the way up, like UBS, but it sees its share of complex, interesting, and lucrative mandates. It was SocGen which opened Europe’s AT1 market in 2013, and there’s little doubt the bank can handle the big stuff.

There aren’t too many vacant head of DCM or EMEA DCM slots going either – Vinod Vasan, who had been global head of FIG and co-head of debt origination at Deutsche, recently jumped back to UBS, but who’d join Deutsche when it’s going through its time of turmoil (of which more later).

Santander’s Mark Dodd, who had been global head of credit markets for Europe and US, recently retired, has been replaced by Roberto Fernández-Díaz, until recently global head of DCM. That leaves, potentially, a vacant DCM management role.

A few market participants suggested Natixis, presumably on the back of Philippe Hombert’s departure. Hombert ran FIG and public sector DCM, and has been replaced by Gabriel Levy, who hails from a corporate background. But the Natixis FIG business is narrower than SG’s, and leans more heavily on covered bonds, covering the Groupe BPCE institutions, and insurance.

Any more amusingly wild speculations — drop GC a line.

Turning, then, to Deutsche Bank, where there are yet more cuts in the Financing and Solutions Group (IG DCM and private side derivatives). The bank cut five managing directors in the western European business in March; now it is the turn of CEEMEA, a business where, to be fair, Deutsche was closing offices and cutting staff anyway.

Nizar Al-Bassam, head of FSG for CEEMEA was cut this month as well, and with longtime DB EM bankers Martin Hibbert and Neil Shuttleworth gone, another round of cuts to the team leaves Deutsche looking light.

Jamie Payne, it would seem, can read the writing on the wall. A VP in Deutsche's FIG DCM, he has, we hear, left the bank voluntarily without an apparent destination. But there’s still a strong bid for VPs with good reputations and client relationships looking to step up; it’s MDs that struggle most today.

One area that does seem hot is portfolio financing, with banks including HSBC and BNP Paribas hoping to build up businesses, and this week shows why, with the securitization of Cerberus’s portfolio of ex-Northern Rock purchases. Sole arranger Morgan Stanley has worked with Cerberus for more than a year putting the deal together, structuring the final trade, as well as two structured warehouses, lending into said warehouses on an epic scale, providing bid and acquisition advice, and finding end investors (in seriously impressive size). The economics for the leads are, needless to say, very secret, but even 1% on a £6.2bn portfolio would be a nice payday, and one can doubtless add lending fees, bridge/warehouse margin, advice fees, and assorted other bits and pieces.

MS was joint lead with BAML, Credit Suisse, Lloyds and Natixis, but still, the champagne corks should have been popping in 20 Bank Street when it priced on Friday afternoon. The presence of Lloyds and Natixis on the ticket shows that smaller institutions can mix it up with the global structured finance powerhouses, and, in both cases, shows the benefits of a targeted buildout in securitization.

Perhaps it seems like this is true every week, but once again, regulators are putting some stick about.

In the US, new rules for investment advice; in Europe, the MiFID juggernaut rolls on; globally, the Basel Committee continues its breakneck work programme, trying to wrap up all the new capital rules before year end.

GlobalCapital also played its own part in fixing up Europe’s Capital Markets Union. Belgium has passed laws limiting cross-border securitization, blocking a distressed debt trade by Starwood Capital. Perhaps making life easier for American private equity firms isn’t the whole raison d’etre of capital markets union, but, following enquiries from us, Belgium now says it will review the law, making sure it is compatible with the free movement of capital — and changing it if it isn’t.

While regulation clicks along, the technology of the capital markets is accelerating. Every week, seemingly, brings a new successful blockchain demonstration.

This week, it is single name CDS, with BAML, Citi, Credit Suisse and JP Morgan involved; last week, it was the repo market. The revolution isn’t quite there; one CIB head pointed out that the history of interest swaps, from first idea to proof of concept to fully fledged ISDA-covered marketplace, was quite a long timeline, and why should blockchain be any different? But it’s encouraging nonetheless.

It won’t come in time to save banks from flat yield curves and poor returns on equity, but it holds the promise that, eventually, costs in trading businesses can start to track revenues down.

A bank that doesn’t seem worried about the future of fixed income is JP Morgan. The bank published its annual report, along with letters to shareholders from business heads and from Jamie Dimon, the group chief executive.

The plan there is to “close the few regional and product gaps that exist” — and to carry on being number one. A nice place to be if you can get there, and it cites a 15% return on equity in fixed income. But, nonetheless, it’s seen two consecutive double digit percentage revenue drops in the division.

And, by the way, did you know JP Morgan was actually a technology company? It joins an illustrious club of banks-as-stealth-tech-companies also including Goldman Sachs.

It’s not surprising chief executives and CFO would try this one out for size — Google trades on 26x earnings, while JP Morgan trades on 9x, meaning a JPM valued like Google would be worth $601bn—but, obviously, it’s nonsense.

JP Morgan did spend $9bn on technology last year (of $59bn non-interest expenses), but grew its loan book by a cool $80bn, booking total revenue of $93bn. In other words, the bank continues to make money from… banking.

Google grew revenues last year at 18%. Good luck with that, big banks!

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