Back in the day, working as a trader in a bank was exciting stuff: if you were lucky, you were able to use the bank's own money to explore your trading ideas. If your trading ideas were right, you were paid. However, the Volcker Rule put a stop to most of that stuff. Traders in banks are now there simply to create markets for clients whilst making money on the spread and hedging the bank's positions. Unfortunately things could be about to become less exciting still.
In an interview with the Wall Street Journal's Moneybeat blog yesterday, James Gorman, chief executive of Morgan Stanley, said Wall Street is returning to the pure agency model of trading which it started from. This sounds like bad news. From a trading perspective, agency trading is the least exciting thing going - agency traders are simply middle men. They don't actually hold any securities themselves, they just match buyers and sellers. There's no need for hedging, there's little need for skill, and it can mostly be done electronically. The excitement is all in hedge funds. Young people going into trading jobs in investment banks have been warned.
Separately, Antony Jenkins made another speech about the future of Barclays yesterday. Jenkins pointed out that Barclays' investment bank has cut 700 jobs, resulting in annualized cost savings of £300m (or a massive £429k per person cut). In total, Jenkins said Barclays wants to cut £600m in annual costs at its investment bank, meaning it's just halfway through the process. The good news, however, is that Jenkins also said he expects only 50% of the cost savings across the bank to come from rightsizing, with the remainder delivered by 'industrialization' and innovation. Rightsizing has delivered 50% of the cost cuts at Barclays' investment bank already, so should therefore be over according to Jenkins' own reasoning. However, last February Jenkins also said that Barclays would cut 1,800 jobs from its investment bank, meaning that there are still more than a thousand layoffs to come. Any remaining job cuts may fall in operations following industrialization of the bank's processes. In the context of the investment bank, Jenkins said yesterday that industrialization will involve such things as streamlining the documentation for new clients.
Morgan Stanley and Goldman Sachs will be brutalized by the proposed new leverage rules. (The Street)
Goldman Sachs stands to be most affected by curbs on physical commodities trading. (Wall Street Journal)
The European Financial Transactions Tax (FTT) may not be compatible with European treaties. (Financial Times)
Ian Hannam, the former chairman of global capital markets at J.P. Morgan is investing his own money into a group that backs that the expansion of Heathrow airport. (Telegraph)
Strange habit of Ken Griffin, Citadel founder and chief executive: he spoons foam from one Starbucks coffee cup to another. (Financial Times)
The GS elevator guide to being a man. (Business Insider)
The Wall Street chiefs living it large in a post-meltdown world. (Public Integrity)