Morning Coffee: UBS' hedge fund deal halted by the trade from hell. BlackRock boss on a mission to save Davos

“Great quarter, guys”. Although this cheerful cliché of conference calls has been on a bit of a decline in recent years, it felt like Q3 of 2025 would be an opportunity for equity analysts to say it sincerely, without worrying about being laughed at.  Because it really does look like the big banks are ready to report a great quarter; there was an unusual volume of M&A activity during the summer, equity capital markets have been strong and trading income seems to be up too, against a decent base for comparison. 

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But then a horrible black cloud called First Brands drifted across the horizon (right in the dying days of September and start of October, to maximise the inconvenience for accountants). And suddenly everyone seems like they’re back to worrying about the future again.

Particularly concerned will be the employees of O’Connor & Co.  Halfway through the process of buying the hedge fund business from UBS, Cantor Fitzgerald have decided they want to renegotiate the deal, due to some significant First Brands exposure in one of O’Connor’s strategies. This might mean that the offending pod gets left out of the deal entirely, or that the sale price is reduced, or both.  In any case, it will probably affect the generosity of any retention payments, and it makes it very unlikely that O’Connor will be run with the same degree of independence it used to enjoy from UBS.

Jefferies bankers are also likely to feel their ears burning somewhat.  Although it doesn’t appear – so far – that they have direct losses on the P&L, Jefferies was one of the most important banking relationships for First Brands, syndicated quite a lot of the debt that has gone bad and appears to have significant exposure in a fund that they manage.  A lot of fingers are being pointed, and in that situation, banks often tend to set aside a bit of precautionary money that might otherwise have gone in the bonus pool.

On the other side of the trade, anyone who ever turned down a First Brands deal can now do a victory lap. Michael Gatto of Silver Point, for example, gets to say things like “First Brands is a clear case of a company with a very aggressive founder and very bad financial disclosures”, possibly while daydreaming about whether Christian Bale or Ryan Gosling would be more suitable to play him in the movie.  Scott Caraher of Nuveen will hopefully be dressing up his investment process to sound a bit more impressive than “submitted diligence questions for more information, which were never answered”, but even if he doesn’t, the relative performance counts the same whether it’s attributable to luck or judgement.

For most of the rest of us, it’s not an occasion for schadenfreude.  First Brands was hardly the only over-leveraged company out there, and the nature of private markets is that it’s very difficult to know what other shoes may be waiting to drop.  So let’s hope we still get to enjoy the Q3 reporting season when it arrives.

Elsewhere, Larry Fink of BlackRock is on a Mission To Save The World (Economic Forum).  Although it seems like the governance scandals surrounding the Davos sponsor have been investigated and not come to much, they might have provided an occasion for many of the world’s movers and shakers to ask whether they really wanted to keep going to the party.  Although the opportunity to rub shoulders with Jamie Dimon and Andrea Orcel is tempting, and the piano bars and mulled wine excellent, some feel that a festival of globalised capital is out of tune with the spirit of the age.

So it’s pretty important that this year’s WEF puts on a show to leave the Future Investment Initiative in the sand and the Milken Institute in the juice bar.  As interim co-chair following the retirement of Klaus Schwab, it’s falling to Larry Fink to attract enough star-powered speakers to generate the amount of FOMO needed to get, in the nicest possible sense, bums on seats.

Of course, the one name that everyone wants would be Donald Trump, and Fink might be one of the only business leaders with a chance of landing him.  So far, they’ve had “promising discussions”.

Meanwhile …

Henrik Melph has a rare talent in interest rate derivatives – he’s able to do a sales job without relying too much on client entertainment.  That’s the name of the game when your clients are central banks, and he’s just moved from Deutsche to Citi to help build up their franchise in this niche. (Financial News)

Japanese investment banking is coming back into fashion; it’s been in the doldrums for so long that it’s almost difficult to remember how important Tokyo used to be. (IFR)

“If the market is pricing in a 10% chance [of a crash], I’d say it’s 30%”.  You don’t get to Jamie Dimon’s age and experience without learning how to make a prediction that everyone will credit you for if it’s right and forget if it’s wrong. (NY Post)

Why would a student at Berkeley’s business school turn down an internship at a venture capital firm? Because they’ve been offered a chance to play quarterback for Indiana, apparently.  Having previously enjoyed spreadsheets, case studies and commercial real estate, business major Fernando Mendoza is now the hottest prospect for the NFL. (WSJ)

The top three watch brands for bankers are the same, but Patek Philippe and IWC are creeping up on Rolex for the top spot. (Finews)

Hats off to Aman Mittal of Moelis & Co.  When asked how he would describe his job “in terms that anyone could understand”, rather than reaching for cutesy analogies or jargon he just said “I try not to. I work in finance and I do investment banking, and that's good enough. These days it's easier, I work in data centers, that's the topic of the moment”. (Business Insider)