With round after round of cost cutting hitting the headlines in a disappointing trading environment, it’s worth reminding ourselves that sometimes you need to spend money to make money. In the past, at least, nobody ever grew to dominate a market because they fired the most people.
Citigroup, for example, are no strangers to cost reduction measures, and they shut down their CitiCross trading network entirely earlier this year. But they’re by no means entirely on the back foot. In fixed income, they have something called SPRINT – the Spread Products Investment Technologies team, a kind of fintech incubator specialised in investing in new trading infrastructure products and run by Matt Zhang, the global co-head of structured credit and securitisations trading. It’s not entirely clear how you get to work there – when it launched last May, it seemed to be made up of rising stars at around director level with backgrounds in trading and clearing operations rather than techies, but it now seems to be employing at least some people, like Katya Chupryna, with a background in AI startups.
SPRINT has been moving fast; a year after inception, it's already started delivering goods. Their latest innovation is not an independent fintech, but an application that runs over Citi’s own fixed income client platform, to automate the process of “bids wanted in competition”, a method of soliciting bidders for an auction which is used to speed up the often torturous process of matching orders in the highly illiquid CLO trading market. According to Zhang, they've seen material market share growth since launching the application, as institutional investors have been able to see on their screens what deals are out in the market, rather than answering dozens of speculative sales calls and still not finding a trade.
In this way, it looks like Citi has reached the holy grail of trading IT – as sharp managers have known since the earliest days of algorithmic trading, if you can establish a platform that you own as the natural place for something to trade, then it’s pretty hard to not make money out of that. Liquidity gets liquidity, leading to a positive feedback loop, and client take-up of a new and convenient technology can be shockingly quick. Given the size and growth of the CLO market, investing in a platform to try and take the first-mover spot was (with the benefit of hindsight) an obvious move.
Quite what this means for Citi's current CLO traders, who've been working the phones trying to make markets, isn't entirely clear. However, it seems reasonable to assume that their jobs are slighly less secure than before, and that Citi's SPRINT technologists are at least partially responsible for this. CLO hiring has made a slight comeback in recent years, but any further recover may now be stymied. In the meantime, Citi is hiring for its exciting SPRINT team and CLO jobs don't seem to be the only thing being automated - the bank is also looking for business analysts to help automate the broader origination business.
Elsewhere, UBS seems to be getting with the notion that cognitive powers crumble once you hit the age of 50 and beyond. Lukas Gaehwiler, the 53-year old chairman of UBS Switzerland, reckons that “the next CEO [of the domestic Swiss operations] should be 20 to 25 years younger than my generation”. Depending on which end of the range you take, and your interpretation of “my generation”, that could mean someone in their twenties, which seems unlikely, or it could stretch to mid-forties.
And although that sounds pretty young for a global bank, it definitely could happen. For example, if Tidjane Thiam were to serve four more years and retire at age 60, then there are three people currently on the CS executive committee (including Iqbal Khan who is widely regarded as definitely being capable of playing in that league) who would still have a 4 as the big figure on their birthday cake. Of course, such a young CEO could easily have fifteen years ahead of them; a sudden trend toward youth at the top would be very bad news for the “Prince Charles” generation immediately below, who could be left for a decade waiting for opportunities to arise.
HSBC has become one of WeWork’s biggest clients, leasing 1,000 flexible working desks from them in London. Does this mean that HSBC bankers will be enjoying the famous WeWork free beer taps? There has been no public statement but we’d assume not. (Financial News)
Turnover continues at Deutsche Bank, with Christiania Riley now proposed as the replacement for Tom Patrick in one of the roles that Deutsche has had real trouble filling in recent years – CEO of DB USA. There appear to be some regulatory complaints about the lack of stability … (WSJ)
…which might be why insiders seem to expect that the Fed will continue to place capital restrictions on the US operations, even if Deutsche passes the stress tests when the results are published next week. (Reuters)
An “existential crisis” for the City of London. Brexit? No, the most serious problem is that the financial sector is finding it impossible to recruit graduate talent according to a government taskforce (Financial News)
The lobbying effort in Ireland to get caps lifted on banking sector bonuses appears to be going nowhere (Bloomberg)
Unusually, an analyst note urging a bank to do something other than aggressively cut costs. Citi analysts think Credit Suisse might be making a mistake reducing its emphasis on prime brokerage business. They do say that fixed income ought to have more cuts though, the world hasn’t completely changed. (Financial News)
A con artist has been wearing a silicon mask to fake the appearance of the French defence minister, and defrauding rich people by asking them to help pay ransoms for hostages in the Middle East. At least €80m was stolen this way, although French police suspect that there may be other victims who don’t want to publicly admit it (BBC)
If Alan Partridge had a wealth manager, it would most likely be NW Brown, the Goldman Sachs of Norwich and Cambridgeshire. Now it’s been acquired by KBL European Private Bankers, the firm of former UBS WM boss Juerg Zeltner. Aha (Finews)
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