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Morning Coffee: Some mixed signals on third quarter bank layoffs. Hedge funds in WeWorks

If you're apprehensive that you might yet lose your banking job in the third quarter of 2024, then yesterday's third quarter results from Royal Bank of Canada could be a calming influence. 

Bank of America's capital markets division performed better than expected in the three months ending in July. Revenues in the corporate and investment bank were up 74% year-on-year, thanks to what the bank described as "higher debt originations across all regions, share gains in M&A and improved equity originations." This was combined with, "an increase in fixed income trading revenue on the back of good client flow and improvement in the credit trading environment."

The rousing performance came after RBC added 667 people to its capital markets business (AKA its investment bank) in the third quarter. CEO Dave McKay said the bank's "strategic investments" in talent helped pave the way for the good times. 

Given that RBC is the first bank to report and a leading indicator of results elsewhere, this all looks promising. "Going forward, we are seeing increased client conversations and the build-up of a healthy pipeline," declared McKay. Higher compensation is already being accrued on the back of the strong results.

While this all looks positive, RBC is still cutting jobs. The bank said yesterday that it plans to cut a further 2% of staff before the end of the year as it 'executes its cost reduction strategy.' Recent history suggests RBC's cuts might come from wealth management rather than its investment bank, but it's a reminder that being a mediocre performer is still a risk. 

Some headhunters, meanwhile, continue to predict more cuts in Q3, particularly at European banks. And there are fears that Goldman's back to the office request heralds more layoffs, even though the firm said this probably wouldn't be the case back in July. 

Things are probably getting better, but it's also probably too soon to presume the layoffs are all done.

Separately, the Financial Times suggests that times might be changing for the big multistrategy hedge funds that have been hiring heavily for at least two years. 

Now that investors can earn risk-free rates of 5% instead of zero, the FT says investors are expecting multistrategy funds to generate higher returns. This is difficult with more money pouring into the sector.  At the same time, multistrategy funds' costs are rising as competition for portfolio managers drives pay through the roof (sign-ons of $10m-$15m are a thing). Under the pass-through model used by most multistrategy firms, those costs are paid by investors. As a result, investors expect even higher returns, which leads to more competition for top talent, which drives pay higher, and so the cycle continues. 

The consequence is both that mediocre people are - for the moment - being overpaid (mid-level analysts are reportedly being lured to run portfolios on huge amounts of money) and that funds will need to squeeze costs elsewhere.  Odey Asset Management was never a multistrategy hedge fund, but it has reportedly vacated its fancy Mayfair office and moved into something resembling a luxury WeWork after its founder's fall from grace. This could catch on.

Meanwhile...

BlueCrest is opening an office on Park Avenue. (Bloomberg) 

Deutsche Bank is creating new financing roles in Asia under Rahul Chawla, the co-head of the investment banking coverage in India, who's moving to Singapore. (Bloomberg) 

HSBC hired Alex Hong from Evercore to lead dealmaking in Singapore. (Bloomberg) 

A Lazard banker in Stockholm is accused of paying a board member to obtain information about a company. (Bloomberg) 

Hedge fund Eliot Management paid its UK staff £1.3m in 2022, after the firm increased its headcount from 106 to 124 last year. (Guardian)

The share of remote workers who said they felt a connection to the purpose of their organizations fell to 28% from 32% in 2022. But 38% of people who work remotely full- or part-time are engaged, or enthused about their work, compared with 34% of in-office workers. (WSJ) 

I spent my '20s spending all my money and racking up credit card debt and in my '30s I have no money for socializing and cannot go out. (The Cut) 

A lawsuit says Sotheby's duped investors by giving the Bored Ape NFTs "an air of legitimacy... to generate investors' interest and hype around the Bored Ape brand." Specifically, the auction house is accused of saying that an undisclosed buyer was a 'traditional' collector when it was in fact FTX. (Arstechica) 

25% of Millennials said that when they’re dating someone, they research that person’s job to estimate how much money they make. (Bloomberg) 

A rich couple bankrolled gifts of $10,000 each to 200 people around the world and distributed the money through TED. You had to spend it all in three months, and you had to use an anonymous questionnaire to keep track of how you spent it. The experimenters told half the people that they should also describe their spending on Twitter, half didn't. People consistently gave away 28%. (WSJ) 

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AUTHORSarah Butcher Global Editor

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