Christmas is coming, but the closer we get to the end of the year the less bountiful things may seem if you work in a bank. The S&P 500 has put in its worst December performance since 1931 and banks have been making some nervous noises about revenues (and therefore likely profits). Bonus pools are therefore looking more feeble than they did in - say - November. Bonuses may still rise, but not by much.
The Financial Times has spoken to 'people' at Morgan Stanley, Goldman Sachs and J.P. Morgan, who say bonuses are, "likely to increase by low single digit amounts." The FT says Citi's bonuses are likely to be flat or down as it tries to preserve its margins and that Bank of America is going to pay its investment bankers less because they've had such a bad year. There's no mention of Deutsche Bank, which despite repeatedly its intention to pay good bonuses this year must surely be tempted to renege on that assurance as revenues dwindle.
A report last week from Buckingham Research helps explain banks' bonus predicament. As of November, the report says that some of the areas that were previously doing badly (rates derivatives and corporate bonds) have improved compared to November 2017, while some of the areas that were previously doing well (eg, equity capital markets, where Buckingham says fees were down 52% year-on-year in November) are doing very badly. Allocating bonuses for 2018 is not going to be easy.
One business area which is supposed to be outside the confusion is equity derivatives. The Financial Times quotes Mike Karp, chief executive of recruitment firm Options Group, who says equity derivatives desks are the "shining star" of 2018, having made money from volatility. Not all headhunters are convinced though. One, who specializes in equity derivatives in Europe, tells us things were going ok until late summer. "This year was a good year - until August. Then some banks had the worst August and September months in equity derivatives trading that they've had for 10 to 15 years." This will affect bonuses, he says: "The very top performers might be 10% up, but most people are going to be paid flat on 2017."
Separately, if you're tired of banking and looking for an alternative that isn't private equity or hedge funds and you have the right to work in the U.S., there's always Google. The technology company announced yesterday that it plans to invest $1 billion in a new campus that includes an old biscuit factory in New York's Hudson Square. Due to open in 2020 and 2022, the new buildings will house an additional 7,000 staff (in addition to the 7,000 Google already employs in New York). Significantly, if you currently work in banking, they will be dedicated to Google's commercial operations - these are not going to be heavy coding jobs, but jobs that disaffected bankers might be capable of.
Credit Suisse is advising some of its very wealthy clients to move their assets out of the UK because of Brexit. (Financial Times)
“The [Deutsche Bank] retention awards have been as useful as a chocolate teapot.” Payment is triggered at €21-€23; Deutsche's current share price is €7.82. (Financial Times)
Goldman Sachs is being sued by the Malaysian government over the 1MDB affair. Goldman has “fallen far short of any standard,” said the Malaysian attorney general, “they have to be held accountable.” The bank says the charges are "misdirected." (New York Times)
Malaysia wants “well in excess” of $3.3 billion from Goldman Sachs. This would cover the $2.7 billion misappropriated from the bond sales Goldman arranged and the $600 million in fees collected by the bank for facilitating the sales. (Washington Post)
Qatar already controls over 9% of Deutsche Bank stock and might buy more. (Reuters)
Deutsche Bank's problem: As of September, it had just 4 euros in capital for each 100 euros in assets — and poor prospects of raising more, given its low share price, mounting legal issues and uninspiring profit outlook. (Bloomberg)
This time last year, Vanguard expected to spend $5m on investment analysis in the year to come. This year it expects to spend $2m. This is bad news for banks' equity researchers. (Financial News)
Barclays hired Dominic Nash and Peter Crampton from Macquarie for utilities equity research. (Financial News)
A 26 year-old Fidelity fund manager died at a music festival in Croatia. (The Sun)
A Frankfurt banker wants to set up a fund to invest in violins, which he says are appreciating by as much as 8% a year. (Bloomberg)
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