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Morning Coffee: The client Morgan Stanley bankers love to hate. When you leave Deutsche Bank and are happy on $24k

The most dreaded client in banking

Investment banking is a service industry, and like waiters and bartenders, bankers often have opinions about their clients which they prefer to keep to themselves out of professionalism and commercial common sense.  And as in the hospitality industry, one of the good things about rising to the position of manager is that you get to make decisions about who to kick out.  You’ve made it in investment banking when you land your first big client, but you’ve really made it when you’ve fired a client.

Simon Smith, the joint global head of investment banking at Morgan Stanley, reached that level a while ago, and some current litigation is giving us a bit of an insight into how this prerogative is used.  Basically, Mike Ashley, a colourful entrepreneur who owns the majority of retail group Frasers, wanted to open a prime brokerage account.  Smith had a “visceral” reaction to this prospect and said “It will take an awful lot to convince me” in internal emails.

Why the reaction?  Potentially quite a few reasons.  Ashley has a track record of launching bids for other retail companies, which might have strained relationships with other MS corporate clients.  He’s had a somewhat combative relationship with his own shareholders.  He’s something of a bad publicity generation machine; the British press regulator has officially certified that it’s OK to compare him to Kim Jong-Un.  He has a somewhat weird way of dealing with bankers, including playing “spoof” for a £20k legal bill.  He vomits into fireplaces more than most.  Considered in the round, it’s somewhat comprehensible that Smith and his colleagues felt that the juice wasn’t worth the squeeze.

The litigation turns on some complicated looking questions of what happened afterward, when MS decided that they didn’t want Mr Ashley’s business even if it came through a third party, but the interesting question is whether this was strictly a business decision based on an estimate of the “franchise risk” associated with having such a client, or at least partly a personal one that, in the words of another MS banker “we just don’t like him”.  Could Mike Ashley have saved the deal just by being a bit more pleasant to deal with?

Or possibly, there’s no such fine distinction to be made.  As well as financial capital and processing cost overhead, one of the most important resources that a prime brokerage needs to commit to a new client is headspace on the part of the bankers themselves.  A client that’s a constant source of worry and stress is demanding a disproportionate share of that often highly scarce commodity.  Sometimes bankers need to follow the example of their counterparts in the hospitality trade and, metaphorically or otherwise, stick up a sign saying “We reserve the right to refuse service to anyone at any time; no dialogue will be entered into and no reason will be given”

Elsewhere, Raymond Ko was one of the casualties of Deutsche Bank’s decision to exit global equities in 2019.  He was a sales trader based in Taiwan, who had been taking the rough and smooth of Asian markets for the previous ten years, and who had recently been rehired after the 2017 layoffs with an indication that he was on the way to being made head of equities locally if things went well.

They didn’t, of course, but Taiwan has quite generous severance laws, and it seems to have been the catalyst for some serious thinking, at the age of 50, about whether he wanted to stay in the market at all.  A few years earlier, Raymond had discovered that free-diving was one of the best things to alleviate the pain of his fibromyalgia, and had got so far into the sport that even on the Deutsche trading floor, he had one of his screens dedicated to ocean videos.

Now, after a training course and a bit of word of mouth marketing, he’s a free-diving instructor, making $2k a month.  That’s somewhat less than a tenth of what Deutsche was paying, but you can’t put a price on being free of pain and panic attacks.

Meanwhile …

It seems that the new Bobby Jain operation is going to be called “Jain Global”.  He’s now hired Jaime Hobbeheydar to run investor relations and marketing, and the target is that next year, when the Millennium non-compete expires, he’s planning to break the record for the largest ever hedge fund launch. (Bloomberg)

Fewer people are doing accounting degrees, fewer people are joining the profession, and now qualified accounting staff are so rare that companies are having to disclose material control weaknesses arising from the fact that their finance functions are understaffed.  The profession has so far tried everything except paying more, and they’re seemingly all out of ideas. (WSJ)

After cycling through Stu Staley and Leo Arduini, Citi has gone for a veteran to run its globally top-ranked FX trading business.  Flavio Figueiredo has been working there for 34 years. (Bloomberg)

This probably won’t come as news to bankers – foreign firms operating in the USA tend to put expats from the head office country into the most senior positions.  This is particularly true of Asian companies, but also significant for Europeans, and results in considerably lower levels of satisfaction among the American executives crowded out. (Revelio Labs)

Few will ever know precisely what went on in the background, but Nacho Gutierrez-Orrantia is going to be staying at Citigroup (as co-head of the EMEA investment bank) for the meantime, despite reporting last week that he was going to leave to be CEO of a Spanish gas distribution firm. (Bloomberg)

Soumya Sambasivan used to be an investment banker at HSBC – now she’s a police detective with a gift for solving impossible murders by noticing things like “the victim had recently had her eyebrows plucked”. (Zee TV)

An astonishing inventory of all the stuff left behind when you take over a desk from somebody who has retired after 40 years. (Twitter)

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AUTHORDaniel Davies Insider Comment

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