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CommentP&M Notebook

P&M Notebook: What are you going to do about Brexit?

Results season kicks off, and the market is desperate for Brexit wisdom. Meanwhile, UniCredit is just getting on with it.

It was only five working days of the last quarter’s numbers, but Brexit is dominating discussions. JP Morgan and Citi have reported so far, and the analyst calls have featured extensive grilling of senior management about their plans.

All of which is a little unfair, because the details are still in the hands of politicians and their negotiating teams (teams is a little strong for Britain’s side in discussions; it’s reported to have only 10-12 trade negotiators across the whole civil service).

Nonetheless, bank management don’t get paid to sit around blaming someone else for their problems, and Jamie Dimon of JP Morgan had a decent stab at alleviating concerns. The bank would like to carry on in London; will most definitely remain committed to Europe, but, as Dimon previously announced, could easily end up transferring thousands of staff elsewhere. The JPM operation is awesome in its scale, reach, and dominance of investment banking though — see David Rothnie’s Southpaw column for an exploration of how the bank has stayed at the top despite some high profile departures.

In terms of legal entities, JPM and Citi, which have reported so far, are pretty well set up with other European subsidiaries and licences; Bank of America, Goldman and Morgan Stanley, reporting on Monday, Tuesday and Wednesday this week, a little less so. Expect a detailed grilling on each earnings call.

In the short term though, Brexit has meant a boost for FX and rates trading. Volumes were up hugely on the Friday morning of Brexit — ICAP said it saw volumes more than 100% up on usual — with other liquid products like stock indices likely doing lots of volume as well.

That should benefit flow-driven franchises with big macro divisions — Deutsche and Barclays, from the Europeans — while banks that lean a little more on credit, securitization and leveraged finance might turn in weaker numbers.

The flipside of volatility-driven volume products is a delay in big ticket primary market or M&A trades, which is likely to supress corporate finance revenues in Europe for a while. SoftBank’s £24bn bid for ARM Holdings, announced on Monday, looks like it points the other way, but is it the beginning of a proper M&A upswing in the UK, or just sterling-driven bargain-hunting by a desperately acquisitive firm?

Meanwhile, UniCredit’s new chief executive, Jean-Pierre Mustier, has wasted no time at all. He’s given TJ Lim a special mandate to deal with then bank's NPL problem, along with the job title of deputy chief risk officer, while promoting his former deputy, Guy Laffineur, to head of global markets. The bank also sold stakes in Polish and Italian subsidiaries, and began a “strategic review”. There’s probably still a rights issue in the works (TBD after stress test results at the end of July?), but it’s a punchy beginning.

The appearance of activity is almost as important as the financial fruits, though — investors will re-rate the stock if the new management looks like it is willing to take the tough decisions on capital and strategy.

It’s been a busy week in people moves as well. Credit Suisse named a new EMEA M&A head, in the shape of Deutsche’s Cathal Deasy, who joins fellow DB M&A alumnus Henrik Aslaksen at the Swiss bank. The hire gave Credit Suisse the opportunity to trumpet its commitment to capital-light advisory and corporate finance business (and to point out that it was #1 in EMEA announced volume so far). Not exactly an original refrain from a post-crisis investment bank, but there might be something to it. CS also hired for Chinese coverage, and Asian financial sponsors, fitting, once again, with the post-Thiam mood music for the firm — more resources for Asia and investment banking.

Commerzbank also moved with the times, as it combined leveraged loans and high yield bonds. Plenty of banks already cover both with a single team — as a Commerzbank source noted, “it is logical”. At least they didn’t use the words “product agnostic”. The combination of products does, however, leave leveraged loan capital markets head Sean Costello seeking employment elsewhere.

Finally, CaixaBank is worth watching, in the current febrile job market for capital markets bankers. The Spanish bank is on the march with a plan to build up in FIG, SSAs and emerging markets, from its stronghold of domestic lending, project finance and infrastructure. It hired Lorenz Altenburg to head syndicate last year, but has also reorganized DCM, after Maria Castro left to join the funding team. Ainloa Landa takes over as DCM head, but expect some hiring as the bank firms up its plans.

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