The Swiss bank has wasted no time in starting the cost cutting programme it announced just this morning. Some people learnt of this when they tried to enter their offices on Tuesday morning, only to discover their passes weren’t working. Our hedge fund sources also tell us that many of their UBS contacts “have red dots on their B’berg” this morning, meaning they’re not logged in. It sounds like sales staff have generally been the first to go.
Yahoo acquires social app || Amazon records first quarterly loss since 2003 || Apple warns of effect of product launches on profitability || Random House, Penguin tie-up || S&P negative on French banks || US Libor probe widens || Samsung’s record net profit || Anglo American CEO to depart || Credit Suisse wants to develop an exchange
Credit Suisse has totally bored Matt Levine at Dealbreaker with their latest earnings announcement. There are only so many ways to outperform in banking. But these days balance sheets are constrained, regulations are biting, and financial ‘innovation’ raises eyebrows. It’s just dull, in some respects. Here’s Matt, bemoaning the utterings of Credit Suisse CEO Brady Dougan: I had so much hope!
Read enough books and economics papers about the recent US financial crisis, and at some point you might notice something odd. Most of them are about the factors that made the crisis and subsequent recession so profound and enduring — excess leverage, deregulation, lax lending standards, the rise of securitisation, blindness of the rating agencies, fraudulent bankers — but very few of them are about what actually started the crisis.
What happened with all that European bank deleveraging? Some of it is over with, says Barclays — leaving, by our estimates of their estimates, about €650bn* of deleveraging yet to be carried out among the major European banks they cover**. Quite big, but much less than the €1.5tn – €2.5tn being discussed late last year.
Asian stocks swing on poor US corporate outlook, improved Chinese PMIs || King warns BoE tools are reaching the limit of effectiveness || UBS to cut back investment bank || Apple’s mini iPad pricing disappoints || Facebook’s mobile advertising impresses || Martin Wolf on Reinhart-Rogoff and Bordo-Haubrich
ROUND-UP Warnings of a weak economy by DuPont, Xerox, UPS and 3M and others hammered equity markets. Xerox highlighted “widespread economic uncertainty, especially in the United States” while UPS said its freight business saw “an environment of slowing global trade” (Financial Times). Despite relatively strong results at UPS, DuPont stock fell 9 per cent on Tuesday after the chemicals company swung into loss. The S&P 500 closed down 1.44 per cent at 1,413.11, with the Dow shedding 243 points, or 1.82 per cent, to finish at 13,102.53 (Reuters).
Could it be that the stampede of Oxbridge graduates clamouring to work 100-hour weeks in Canary Wharf is slowing? Perhaps four years of banking crises, scandals and enthusiastic ‘banker bashing’ is having a real effect on the industry’s appeal? The rise in starting base salaries offered by investment banks in London seems to suggest so. First year salaries were in the region of £36,000 going into the crisis (2007 and 2008). They had been flat at that level for a good few years before then.
BBVA and Santander reported deposit declines of about 1 per cent in the second quarter. While that represents a notable trend, it’s not yet one that should be called alarming. Unless, points out Citi on Friday, you turn to the corporate and investment banking component in the deposit trend.
Said Wall Street legend’s barfage took place on CNBC: “What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail,”
Key sentence is “senior resignations at the bank and the consequent uncertainty surrounding the firm’s direction are negative for bondholders”, although they add that recent events could be positive over the long term. Below is the full statement: Moody’s changes outlook on Barclays’ standalone rating to negative
In ‘The Formula That Killed Wall Street’? The Gaussian Copula and the Material Cultures of Modelling, Donald MacKenzie and Taylor Spears present a history of the development of the one-factor Gaussian copula model, which is used to price various structured products, including Collateralised Debt Obligations (CDOs). As the title of the paper suggests, the model has many critics and has had a lot of blame placed at its feet. What this paper reveals that really stands out is that the quant community also didn’t, and doesn’t, rate the Gaussian copula model highly at all. In fact, we’re putting that very mildly if the statements from quants interviewed by the researchers are anything to go by.
Tuesday is a big day for France-German relations. Francois Hollande will be inaugurated president, and announce his choice of prime minister. Just hours later he’ll meet Angela Merkel, marking the genesis of a new portmanteau. Goodbye Merkozy! Hello Merd*! While the relationship has had an inauspicious start, the signs are that it will go well, at least initially. Both leaders find themselves under pressure at home, but they need each other.
Arguably THE banking factoid of the year, by way of Espirito Santo’s review of Thursday’s Deutsche Bank conference call (see bold): The conference call provided the first clear indication from management that reduced capital allocated to trading operations is impacting trading revenues in the IB. This has been a strong theme that we have highlighted to clients, which first arose as a concern in 4Q11.
Asian stocks fell on Monday as concerns grew about Spain’s rising bond yields. China’s weekend decision to allow the yuan to trade in a wider band against the US dollar had negligible effect on mostregional currencies and equities. (Wall Street Journal) The yuan itself fell the most in three months. (Bloomberg) Goldman Sachs sold nearly half of its remaining stake in the Industrial and Commerical Bank of China before Asian markets opened Monday in its fourth large sale of the Chinese bank’s shares since 2009. (Wall Street Journal) Goldman raised about $2.5bn selling the stake to Temasek, sources said. (Bloomberg)
- Spanish bond yields rise, along with unease. Borrowing costs rose above 5.5% yesterday for the first time since January. (Financial Times) - GM to close ‘one or two’ European factories as part of Opel/Vauxhall cost-cutting plans, according to people familiar with the plans (Wall Street Journal)
Deutsche Bank’s incoming co-chief executive, Anshu Jain, is making an early mark on Germany’s largest bank with a wide-ranging reshuffle that ushers several investment bankers into top management positions, reports the FT. Mr Jain, the investment banking head who will take over with Jürgen Fitschen, head of regional management, as co-chief executive in June, plans to establish a new business unit called asset and wealth management that will be headed by the investment banker, Michele Faissola, people close to the situation said.
An insider dealing ring that included two brothers working in the confidential printrooms of investment banks UBS and JPMorgan Cazenove made more than £1m profit, a jury was told on Monday. Prosecutors for the Financial Services Authority told Southwark Crown Court that Ali Mustafa and his brother Ersin, who is not on trial, worked in the banks’ printrooms, reports the FT. They are alleged to have passed sensitive information to five other defendants, who used it to place trades through Mitesh Shah, another defendant. He worked as a broker at Finspreads, a spread betting company now called City Index, the court was told. The seven men all deny insider dealing charges relating to six stocks, including Reuters and Biffa Group.
The FT reports that cash bonuses on Wall Street fell 14 per cent last year, according to an estimate by New York state, reflecting the weak performance of investment banking and the shift towards “deferrals” as a bigger element of pay. But the fall, from $22.8bn in 2010 to a forecast $19.7bn, is much smaller than the decline in industry earnings and smaller than many bankers experienced – a discrepancy that the state comptroller attributed to the increasingly popular practice of spreading bonus payments over several years. “Part of what’s happening here is the increase in deferred compensation,” said Thomas DiNapoli, state comptroller. Although cash bonuses were cut sharply this year, he said the impact was mitigated by payments from previous years. The structural change was applauded by the state, which hopes it will lead to smoother tax revenues.
That wasn’t quite our last pre-LTRO/Ltro/L-Troh post. On Tuesday Marc Chandler, global head of currency strategy at Brown Brothers Harriman, ventured an interesting hypothesis on what the market’s response might be to the LTRO-II take-up, in relation to the consensus expectations of roughly €500bn.
The European Investment Bank, the development lender for the 27-member bloc, is getting a similar exemption from Greek debt writedowns to the ECB, says Bloomberg, citing two regional officials familiar with the matter. Peter Munro, the head of investor relations and marketing at the EIB, declined to comment, as did a spokesman at the ECB. The Luxembourg-based EIB’s holding of Greek debt totals more than €100m and less than €1bn, one of the officials said.
Stephen Hester, chief executive of Royal Bank of Scotland, defended the pay of its investment bankers on Thursday as the state-controlled group posted a deeper annual pre-tax loss of £766m, the FT reports. Mr Hester, who gave up his own bonus of almost £1m last month under intense political pressure, said investment bankers’ remuneration had been falling faster than the profits of their division, which has been hit by tough trading conditions. RBS confirmed that its investment banking bonus pool for 2011 was £390m, down 58 per cent on 2010’s £937m and an average of £22,941 per employee. The operating profit of its investment banking arm fell 54 per cent to £1.6bn. Mr Hester said the task of salvaging the bank after its disastrous over expansion and poor lending required it to offer competitive pay.
From Prof Dimitris Petmezas, Chair in Finance at Surrey Business School, University of Surrey… Investment banks, and particularly top ones, have been in the firing line over their role in the recent financial crisis and the very high – some might say exorbitant – fees they receive. Are top investment bankers the bad guys they are often presented as by the media? Investment banks’ main job in today’s demanding financial world is to deliver expertise to their clients in capital market transactions, including M&A, in return for fees. The leading investment banks compete heavily for pole position in the league tables, as high rankings open the ground for new clients and, hence, new deals. How important are the league tables? Do they really distinguish the good banks from the bad and is it worth paying such high fees for employing top-tier investment bankers?