Morning Coffee: Finally a good reason for $100m traders to come back to the office. Old-school approach of the biggest hirers in investment banking
It seems that the era of banking WhatsApp groups might be coming to an end. Partly because the SEC wants to make sure the fine revenue is booked in the current budget year, it’s being reported that the industry is close to reaching a final settlement to wrap up all of the individual cases (most recently, Citigroup in the UK) in which they have been penalised for failing to monitor and archive the messages that their employees send via personal mobile phones.
Big regulatory settlements like this often have far-reaching implications for the whole structure of the industry. Within living memory, a large part of the job of equity research was to maintain contacts and relationships with company executives, in order to get hints and tips about the next period’s earnings. After that was made illegal with Regulation FD, not only did the analysts have to completely change their methods, but an entire new role was born – the corporate access professionals, responsible for making sure that investors could still get information from executives, but in a compliant way.
As well as a big monetary penalty – reports are talking about $1bn across the industry – the messaging settlement is likely to include an agreement on exactly where the line is drawn between personal and business communications, and what the banks have to do in terms of restricting access to messaging services. It’s unlikely that this will mean a total ban, as the quest to banish personal mobile phones from trading floors has been about as unsuccessful as the effort to keep them out of schools. But bankers might find that they have to install special versions of the messaging apps which facilitate snooping by compliance departments.
And that could change things a lot. One of the things which we’ve learned over the course of the last few years of messaging scandals is that it’s been surprisingly rare for anyone to come up with any evidence at all that improper market information has been exchanged, or that any traders have gained material advantage. In fact, the last couple of years have been some of the most profitable on record (Goldman Sachs has recorded its highest proportion of $100m P&L days since 2010), even as tougher controls on messaging system use have most likely meant that there’s almost no business relevant information being sent.
What traders have been using messaging services for has been exchanging information that’s not related to markets, but which they might nonetheless not want their bosses to be scrutinising. Gossip about who’s a decent person to work for and who isn’t. Rumours about job openings or impending cuts. Exact details of what happened on the skiing trip, or why the head of derivatives suddenly resigned. These were the staples of conversation in the pubs and wine bars before the pandemic, and this is the sort of information that’s migrated to the group chats. If the new settlement makes it difficult to have unmonitored contacts over virtual channels, that might be the thing to bring people back into the office. In fact, given their notorious addiction to gossiping over drinks, traders might be the only group of employees more likely to come in on Fridays than any other day.
Elsewhere, it’s been noticed over the last two years that Jefferies was adding Managing Directors at an extraordinary pace. An interview with Alejandro Przygoda, who left Credit Suisse to become global head of FIG last year, gives some idea of how fast it’s been. In 2020, the Jefferies financial institutions group consisted of twenty bankers with five MDs – now it’s up to “approximately” 120, with 21 MDs. They’ve attracted staff by promising an “old style Wall Street” approach based on client contact and personal relationships.
Przygoda says that “I’m spending 100% of my day building. Whether it’s doing a deal or adding a senior banker to our team. It’s just building. I don’t spend my day solving fire drills. I’m not a fireman. I’m a builder. And that actually makes a huge difference. If you only have a quarter of that time, because the rest is spent firefighting, you can’t build a business.” Which is great, but obviously depends on things not actually being on fire. But so far, Jefferies seems to have avoided many industry scandals and kept its revenues afloat in the bear market.
Litquidity continues to be profitable, even though its cryptobro sponsors like “Coinflex” have a tendency to blow up. You can now join a “Litquidity Student-Athlete Mentorship Program”, which is advertised as “the best preparation for future Patrick and Patricia (sic) Batemans out there”. Its anonymous founder reckons that the ROI on memes as an advertising channel is good enough that he’s got a better change than most in a bear market. (Fast Company)
Bill Ackman has a way with words. It’s always a tricky tightrope to walk, reassuring investors both that there is good succession planning in place, but that the founder doesn’t have an eye on the exit. As a result, Ryan Israel has been named the next CIO-designate, but only in the context of “pie truck risk” to Bill. (Bloomberg)
Somebody got a bargain – a 1955 cherry-red racing model that was allegedly the best car Enzo Ferrari ever built has sold for $22m, versus an auctioneer’s estimate of $25m. (WSJ)
“Lots of companies have done it …The truth is, nobody cares.”. A fairly brutal assessment from Janine Yorio of Everyrealm. As CEO of a metaverse developer and investment fund, she’s been responsible for providing some of the virtual reality offices for banks like JP Morgan, but sees the future of the metaverse as much more built around recreation and gambling. (Financial News)
Who’s the “unnamed billionaire” who has apparently made an investment which might save a New York architectural landmark? Hard to tell, although the fact it’s called the “Loeb Boathouse” might get people speculating about the founder of Third Point. (Architectural Digest)
A deep dive into the past of former UBS banker Calvin Choi, whose company was briefly worth more than Goldman Sachs. (Finews)