Unfortunately, three data points equals a trend. Citi and Bank of America have both confirmed what Jamie Dimon revealed at the Deutsche conference this week – trading revenues are down in Q2 as well. Brian Moynihan is giving guidance for 10% down on Q2 last year, while Mike Corbat isn’t giving figures but saying “we’ll go up and down with the market”. There is still one month to go before the quarter end and Dimon is still saying that “the next month could dramatically change that”, but realistically, when did the month of June ever save anyone’s year?
The trouble was that it looks like Q2 is going to be down on Q1 – perhaps by a smaller amount than the usual quarter-on-quarter drop, but Q1 of 2019 was one of the worst starts to the year in the last decade. And trading revenues are usually very seasonal. The third quarter contains the summer lull, while nothing much gets done in December as people are tidying up for the year end. If things are going badly at this stage of the year, the very great likelihood is that targets and budgets will be missed, badly, and nothing can save the year’s bonus pool. It’s not like a banking or capital markets business where a mega-deal or two can drop in out of a blue sky and save the day.
The biggest issue for the hiring market, though, is that these are the kind of conditions when trading operations get closed down. If there’s a question mark over a desk to begin with, it is incredibly unhelpful for top management to be going into the next year’s planning cycle with a folder full of excuses where a budget should be. The best thing to do is to make money, the second best is to gain market share, and if you’re doing neither, the period from late May to the year end can seem like an awfully long time.
In this sort of situation, heads tend to drop and people from sales to research to trading quite understandably lose a bit of enthusiasm for the game. If you’re all but certain that January will bring the proverbial bulk order of Krispy Kremes, it can be hard enough to get out of bed in the morning, let alone damage your health with 12 hour days or take yet another economy-class marketing trip. We’d expect school sports days and nativity plays to be significantly better attended by the parents of finance than they tend to be in years when the phones are ringing off the hook.
So, if you’re in a trading business line, this is the time to mentally prepare yourself. It’s not exactly possible to go into hibernation for six months, but if you were considering a job move, a sabbatical or a management job away from the floor, you can be pretty sure that you’re not leaving a pot of gold on the table right now.
Elsewhere, over the last ten years it’s often been said that compliance and regulation are the “only growth industries” left in the financial sector. According to Markus Ronner, the group Chief Compliance and Governance Officer at UBS, that period might be coming to an end. But what a run the compliance guys had! It’s been a decade during which the industry paid out a total of $365bn in fines and litigation settlements, and one in which huge volumes of new regulation were implemented, each one requiring its own small army of experts, IT systems guys and lawyers to implement. UBS spent a billion and a half Swiss francs just on changing its group legal structure, for example.
Looking forward, Ronner expects compliance costs to “normalise”. Which is to say, they’ll still be pretty huge, but most of the big special projects occasioned by the regulators are coming to a natural end and (hopefully) won’t need to be repeated (for a few years). So in principle, some of the cost cutting targets across the industry can be made by spending less money on lawyers’ bills rather than cutting jobs and bonuses in revenue creating divisions. We shouldn’t be cheering the end of the Age of Compliance too loudly, though – we always saw the cost, but never the amount of even bigger regulatory fines that they prevented. If you think compliance is expensive, try noncompliance.
Potential terrible news for the road warriors – say, if you’ve just joined a crack team of investment bankers aimed at exploiting opportunities among medium-sized corporate clients in the MidWest. The grounding of 737Max, combined with the likely redeployment of TSA staff to the Mexican border, look likely to create a “summer from hell” of delays, long lines and frequent flier misery. (Bloomberg)
Morningstar has bought Dominion Bond Rating Service, the Canadian credit rating agency. This is not just news for credit analysts – DBRS has a peculiar importance to macro guys too, as its (often very generous) sovereign ratings are used by the ECB and occasionally make the difference when it comes to eligibility for QE and similar programs (Financial News)
Anne Dias, formerly principal of Aragon Capital Management and no longer “Dias-Griffin” is considering getting back into the hedge fund business, opening up her family office to outside capital. (WSJ)
Deutsche gets all the headlines, but there are regulator problems and a sinking share price at Nomura too (Bloomberg)
Horrific stories from the trial of Thomas Gilbert Jr, accused of murdering his father for reducing his allowance. Mr Gilbert Jr is pleading legal insanity after shooting Thomas Gilbert Sr, a well known Wall Street figure who founded Wainscott Capital Partners. (NYT)
If you’re feeling sidelined at work or your responsibilities have been passed on to someone else, learn from the example of Gareth Bale at Real Madrid, who has promised to hang around, playing golf if necessary, for his full three year contract despite not getting picked to play. (FT)
Formerly of Bear Stearns and the NYSE, the founder of Tenttr (the “AirBNB of camping”) got the idea for his new business when his holiday was spoiled by a naked Wiccan ceremony, giving him the dream of setting up a portal for luxury campsites where this would not be allowed (Forbes)
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