Morning Coffee: UBS finds a surfeit of managers who don’t do much. Citi's alternative bonus
It must be an uneasy feeling, if you are a middle manager at UBS, to see a “senior source” quoted as saying “we could eliminate three layers of management and no one would even notice”. The quote related to Iqbal Khan’s plan to streamline the wealth management business, and it reflects a new found seriousness about costs across the “ultra high net worth” industry.
The base of the plan (which is strikingly similar to one executed by Mr Khan at Credit Suisse a year ago) is that not all billionaires are created the same. When UBS set up its special UHNW team in 2010, the idea was that it would be able to cross-sell services from the investment bank to the new super-rich, particularly those being created in Asia. This is still going to happen – Joseph Stadler, current head of the UHNW banking, is going to run a “Global family office unit” which will combine all the most complicated and profitable relationships.
It turned out over time, though, that there are plenty of ultra high net worth accounts who are not sophisticated global investors with an appetite for institutional trading relationships or private equity-style coverage; they’re just really rich people. Trying to sell them investment banking services is an expensive waste of everybody’s time. They just need a normal wealth manager, with possibly an extra touch of attentiveness to the service to reflect the fact that their annual fee has one more zero in it than the rest. So it’s more efficient to move them out of the special unit, and into the normal bank, while taking as much care as possible to reassure them that UBS still loves them and thinks they’re ultra-special. Obviously this is going to be a controversial strategy, and Ravi Raju, the head of Asian UHNW, doesn’t seem to be able to live with it; he’s resigned, apparently without another role to go to.
Whether or not this strategic rationale works, it does seem to be a recurring theme at UBS that people believe there are layers and layers of dead wood. The Piero Novelli / Rob Karofsky “merger without a merger” plan was also premised on taking out duplication and reducing the number of UBS co-heads. It’s quite extraordinary, when one thinks about it, that a bank which has been through so much - from the financial crisis to the US tax case to the exit from fixed income – still has so much excess headcount.
But … does it? In actual fact, when the investment banking duplication removal plan was last discussed in specific terms, it looked much more modest - $90m of cost savings with fewer than 200 redundancies. It could possibly be the case that “UBS has loads of useless middle managers” is a piece of corporate folklore – something that may once have been true and which everyone believes without really being aware of the evidence. Looking at the Q3 accounts, UBS has 1,068 bankers in the ultra-high net worth unit, with just under $1.3trn of invested assets. Somewhat more than a billion dollars of assets under management per head doesn’t feel like a particularly bloated operation. It may simply be that Khan, who is reportedy “asking the tough questions” is eliciting unusually disparaging answers as UBS insiders try to ingratiate themselves with the new boss.
Elsewhere, what would you say if your boss offered you an extra day off? Most bankers would probably treat it as a trick question and say “I’d rather have the money”, in order to look hungry. But at Citigroup Hong Kong, the offer is apparently genuine. It’s a reward to the loyal staff for making revenue targets, and for doing so in what has been an extremely stressful year, with democracy protests going on outside their offices (and indeed, in some cases into the building). HSBC is also giving staff a day off next year, to reflect similar gratitude on the part of the employers for the willingness of their staff to brave the chaos and carry on banking.
It might at one time have been considered a courageous career move to have declared yourself to be “exclusively focused on cannabis”. We all knew someone like that at university, and not very many of them did as well out of it as David Kelman, who has just joined MidWestern boutique Stifel as an MD on the consumer and retail team and “Head of the Cannabis Investment Banking Group”. Stifel recently took over a Canadian brokerage and intends to get big in this industry. (St Louis Business Journal)
Wild tales of FINRA arbitration panels – UBS clearly got angry with some of its financial advisors’ habit of trading options for their own account and going broke, and fired one of the compliance officers who was overseeing them. Things might not have been handled perfectly well, as the arbitration court has awarded the employee, Mark Munizzi, $11m in compensation and punitive damages for defaming him in dismissal papers. UBS “cannot understand how the panel came to this conclusion”. (Advisor Hub)
Making the case that “Working Girl”, not “Trading Places” is the best investment banking comedy of the 1980s. This would make a good subject for debate in the quiet week to come, for anyone working between Christmas and New Year, particularly if your network doesn’t block Netflix (Financial News)
Goldman Sachs is forming a new “alternative capital markets and strategy group” within its merchant banking division (which is itself part of the Principal and Strategic Investments team). It’s not clear whether this is a new role for Chris Kojima and Michael Koester or just a new cool title to add to the ones they already have. (Reuters)
A prominent London hedge fund lawyer is accused of having got into a fight at the Royal Opera House (Daily Mail)
Masayoshi Son’s Softbank has paid nearly $2bn of fees to bankers since 2015, and now has “at least $15bn” of loans outstanding to Japan’s biggest banks, which is making them nervous about the recent high profile failures (Japan Times)
Tips for making sure your job application makes it past the machine learning “black boxes” that filter resumes. (WSJ)
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