P&M Notebook: It is about the money
US bank reporting season is over; the Europeans have yet to start. Just how bad was Q1 really?
The short answer is, pretty damn ugly. Market volatility hit the products most geared to valuation and market condition — so IPOs, the juiciest end of ECM, suffered most. Global ECM volumes were down 47%, while the US banks reported revenues down between 46% and 66%.
DCM also endured double digit declines for most firms, against volumes down 9%, while in advisory the big US banks were roughly “market perform”, with most down between 19% and 23% against a 20% volume drop.
In DCM, Goldman bucked the trend and was up 24%, while in advisory, Morgan Stanley and JP Morgan both managed increases, Morgan Stanley by 25%.
European firms will likely see a slightly different pattern — perhaps the ugliness of January and February was worse, but the Draghi-inspired March rebound had greatest effect closest to home.
They are also likely less exposed to continued concerns about the US energy sector, which may have weakened the levfin and high yield numbers for the American banks. But, set against that is the restructuring of the sector, low morale, retrenchment and more potential slumps in market share.
Take a look at fixed income — Morgan Stanley won plaudits for shrinking the business early and aggressively, but perhaps its franchise is now more vulnerable to weak markets — it was down 56% in the first quarter, while the flow titans Citi and JP Morgan were down 13% and 11% respectively.
David Rothnie’s Southpaw column this week takes a more detailed look at the Goldman franchise, and argues that despite a lousy first quarter (even in comparison to other firms), the bank retains the confidence of investors, and therefore, still has strategic options. It’s been successful enough often enough in the past that it doesn’t have to start slashing at the first signs of trouble.
Credit Suisse, perhaps, has less strategic flexibility. It did, after all, start cutting harder than planned, in response to surprisingly large losses in distressed debt and levfin.
But it is still keen to talk a good game in coverage, advisory and capital markets, and this week it announced it was hiring former Deutsche Bank M&A head Henrik Aslaksen, into a new job, head of strategic client coverage. It’s a hands-on job, not a chairman-style schmoozing role.
The memo announcing the appointment did include the now obligatory reference to UHNWI (ultra high net worth individuals), and the overall Credit Suisse strategy, but it doesn’t have to be that complicated – Credit Suisse has cut a cheque for one of the top M&A bankers in EMEA, adding strength especially in the Nordics, and strengthening the firm’s advisory business.
But it’s also worth noting that Aslaksen was out of the market – he left Deutsche voluntarily in June 2015, just as Jeff Urwin joined the firm. Even banks with the budget for big hires prefer to not to buy someone that senior out.
Other moves we think merit attention include David Basra’s planned departure from Citi. Basra was head of European debt financing, and an architect of Citi’s top notch European structured finance franchise in the 2000s, but the business has been through a few changes, with CLO chief Peter Keller carving mortgage financing out of the ABS group, while levfin, part of which also had a line to Basra, has had some changes of its own, following the hire of Anthony Diamandakis to head European alternative assets.
Changes afoot in SG’s trading businesses too, with Daniel Fields and David Escoffier, respectively deputy head of markets and head of sales, leaving the firm. Both men are long time SG veterans, ascending to management through equity derivatives trading.
Fields went last week, while Escoffier was on Monday morning, but it’s all change. Frank Drouet, who headed global markets for Asia Pacific, has become the new global head, while Yann Garnier takes over Asia Pac, and Marc El Asmar takes over as head of sales.
Meanwhile, Natixis is sending staff the other way, with Alain Gallois, the Paris-based global head of fixed income, set to take over as CIB boss for Asia-Pacific. The French bank has recently set up a structured credit business in the region, and has high hopes for some of its other key strengths, such as covered bonds, in Asia.
FIG at Barclays is in motion, with Dan Fairclough, head of UK and Ireland FIG, switching to run treasury for Barclays Corporate and International, the likely non-ring fenced part of the firm.
That gives space for Mark Geller to switch from syndicate to become deputy head of FIG DCM, reporting to Pete Mason. Treasury at Barclays already seemed well populated with FIG bankers, with former syndicate official Miray Muminoglu transferring in March last year.
At group level, chief strategy officer Ben Davey, who is driving the firm’s ring-fence planning, was the former head of the FIG group, though his background FIG investment banking, not DCM.
On the regulatory side, Basel keeps pumping out the papers, with the latest effort its thoughts on Interest Rate Risk in the Banking Book. The conceptual basis for this is…shaky, to say the least – interest rate risk being the risk that the bank doesn’t make as much money as it used to, rather being a risk that it loses money.
But it’s on the agenda, and so the best banks can hope for is what they got – IRRBB, as it’s known in the trade, will be dealt with via Pillar 2 not Pillar 1, so supervisors will get discretion over the stranger aspects of the proposal.