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Morning Coffee: Bank CEOs optimistic about deals, pessimistic about revenues. The latest hot hires are geopolitical experts with connections

Every rule has an exception, even the really good ones.  In the banking industry, proverbs don’t get much more reliable or better tested than “Money talks and BS walks”.  But even that isn’t true in every single case, as we might be seeing right now.

As the third quarter comes to an end and the sell-side conference season sees the banks update investors on current trading, the guidance on deal volumes is optimistic.  Dan Simkowitz of Morgan Stanley, Alastair Borthwick of BoA and Venkat from Barclays have all said that they expect activity to pick up in the near future.  But they’re not signing up to any ambitious revenue targets for the quarter – BoA are also saying that industry fee pools will be down 30-35% and none of the other banks to comment so far have really demurred.  So … there is something of a gap between talking and walking, isn’t there?

Not really.  If the optimism was being expressed about trading revenues, scepticism would be more than justified.  But banking isn’t like trading – revenues have a long lead time.  A capital markets transaction which takes only ninety days from origination, through execution to revenue-close is a very speedy deal indeed.  A merger or acquisition could easily take double that time without anyone feeling that they were dragging their heels.  So if the entire capital markets and advisory business came in on the Monday morning after Labor Day and found a full slate of new deals to work on, the revenue impact on Q3 would be literally nothing, and on Q4 would be surprisingly little.

Which will suit a lot of bankers just fine; it means that the results of their effort will bear fruit in 2024, rather than being wasted on the all but dead bonus year of 2023.  If the deal momentum continues into the first half of next year, the future could look considerably rosier and they might actually get paid.

But what about the people who were laid off in those rounds?  Will they be coming back?  It seems that quite a lot of Goldman and MS bankers have been playing “unemployment chicken”, turning down opportunities at second-tier and European firms in the expectation that if they waited a bit, they could get hired back into the US bulge bracket.  This is a bold strategy, which might still work, but the current level of optimism doesn’t necessarily suggest that things will return to 2021/22 levels. Self-styled rainmakers who are insisting that they’re too good to work for Santander or BNP might be encouraged to consider that, nine times out of ten, money talks and the other stuff walks.

Elsewhere, investment banks have always liked to employ a few senior bankers with a background in politics – it adds a bit of tone to the place, helps win privatisations and similar big government deals, and the “revolving door” effect holds out the possibility of a lucrative reward to policymakers who don’t go to hard on the industry.  But they tend not to be from the foreign policy community – as well as being less directly commercially relevant, it’s not much fun for a CEO to go along to Davos with someone who is better at pontificating about the future of China than you are.

That's changing. Right now, understanding a thing or two about the future of China/US relations is unusually commercially important.  And so the geopolitical experts are showing up at the highest ranks of the biggest banks; Stephen Lovegrove at Lazard and now Richard Haass at Centerview are both highly connected advisors to UK and US governments, setting up practices to advise clients on the big picture.  It’s probably too late for an ambitious Associate to reinvent themselves as a national security type or to join the Trilateral Commission, but this seems to have become a profitable niche.

Meanwhile…

Back in the days when bank CEOs were effectively an arm of the State Department, former Citi CEO Walter Wriston did more than almost anyone to establish the dominance of the US dollar.  Worth reading if you want to sound smart in the next geopolitical advisory pitch. (Business Insider)

The Credit Suisse offices at One Cabot Square in London are going to get steadily more eerie and cavernous, and the nearby bars will become the exclusive territory of Morgan Stanley bankers, as all (remaining) staff are expected to move to UBS’ offices by the end of next year. (Financial News)

A classic co-head structure for Citi’s capital markets & advisory division in continental Europe – one ten-year veteran (Linos Lekkas) and one hard-charging recent hire (Patrick Frowein).  This sort of compromise usually reflects some sort of internal politics, but it’s hard to say exactly what from outside. (Bloomberg)

Multimanager hedge funds are the fastest growing category, and within that subsector, the majority of the inflows are going to the small number of large firms. (WSJ)

You could pretty much guess that an “AI based algorithmic hedge fund” being marketed today would not have much genuine AI content to it.  If you were given the additional information that it was being marketed by a Florida-based manager to parishioners of his former church, you might also guess that there wasn’t much hedge fund to it either – “Tadrus Capital LLC” has been charged by the SEC with running a Ponzi scheme. (Dealbreaker)

Some bankers would regard this as a challenge – a landlord is charging $20,000 a month in rent for a New York apartment, but providing $20,000 of credit per month for the restaurant downstairs. (NY Post)

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AUTHORDaniel Davies Insider Comment

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