Morning Coffee: Barclays’ biggest bonus goes to retail bankers who left 18 years ago. The worst words to say in banking

There are some kinds of transactions which send a shiver down your spine when you read about them, because they have such a habit of turning bad.   For example, a big global bank acquiring a fintech platform.  Or a European player deciding that it wants to expand in the USA.  Gaining market share in consumer finance at an uncertain point in the economic cycle. An investment bank wanting to acquire an origination platform to boost its securitization franchise.  And now Barclays has done a deal which appears to combine all four of these. Wow.

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Maybe it's less risky than it seems.  For one thing, Barclays has had a presence in US credit card lending for a long time; its Barclaycard US operation is nowhere near the scale of that of Citi or JPM, but it’s a top ten player and well regarded in the industry. (It handles the branded cards for JetBlue and Wyndham). Nor is it acquiring a start-up: “Best Egg”, the fintech lender specializing in unsecured US consumer loans (🤔) which it’s just acquired for $800m, was set up in 2013 with the less cutesy name “Marlette Funding” and a group of founders who had worked together at Barclaycard US.

So to a certain extent, this is a bit of a homecoming for people like Paul Ricci, the Best Egg CEO and the other senior employees whose share of the $800m will make rejoining Barclays in these circumstances their most lucrative move ever. It also makes them less of an unknown quantity when it comes to integrating Best Egg with the rest of Barclays’ US consumer credit operation. 

From the point of view of Barclays' investment bank, it all seems like great news.  Barclays will apparently be keeping some of the loans originated by Best Egg on its own balance sheet, but will be packaging most of them up into asset-backed securities and shunting them off to investors.  That’s a relatively easy boost in the ABS league tables, and might even help to get Barclays fixed-income bankers through the door with some clients who would otherwise be hard to reach.  Having a captive source of deal flow also helps with economies of scale. Maybe there will be continued hiring in this area?

Best Egg's founders will be among the highest earning people at Barclays this year. Their share of the $800m acquisition price is likely to be quite a few multiples of what they might have expected to be paid as middle managers in Barclaycard US.  But that’s all water under the bridge now.

Elsewhere, it’s well known in banking that “I appreciate your input” is the rudest thing you can say in a meeting without risking HR getting involved.  But there’s now a new catchphrase in town, equally innocent looking but apparently also guaranteed to enrage any institutional investor that it’s uttered to. And that’s "we respectfully decline."

Apparently, this is the form of words that’s popular at the legal firm Kirkland & Ellis, when refusing to negotiate adjustments to private equity investment terms.  And their repeated failure to explain or compromise has wound up clients so much that Financial Times says the words “Fire K&E” appeared prominently in a word-cloud at an investor conference this year. 

The phrase has apparently been “banned” internally, and lawyers on the global funds team have been given training in “improving their tone”, but it looks like the problem might go a little deeper than that.  Some people speaking anonymously to the FT seem to be claiming that Kirkland lawyers might have played harder ball than their private equity clients wanted them to. The firm has hired a managing director from the investors’ trade association to try to mend fences.

Of course, lawyers make easy scapegoats and that might be what happened here.  One of the reasons why Kirkland & Ellis have been involved in so many frustrating situations is simply that they’re one of the biggest law firms involved in private markets.  And another reason is that the balance of power has changed; investment capital is more scarce than it used to be, so the investors are more likely to push their luck.  It is a lot easier to be friendly in a bull market than a bear market.

Meanwhile …

At the Riyadh Future Investment Initiative, Paul Taubman is pointing the finger of blame at a particular year of dealmaking.  “A lot of transactions birthed right after 2021, when there was free money and a risk-on mentality, have come undone … We’re spending a disproportionate amount of time restructuring that vintage of transaction”.  Interestingly, no CEOs have yet joined up the dots that these were also deals which, for the most part, were put together by teams who were working remotely. (Bloomberg)

Get. It. In. Writing. The judge in a $70m lawsuit between a US fintech and its former chief strategy officer made the reasonable point that “multimillion-dollar equity grants generally are not accomplished by a phone call with your boss”. (Business Insider)

After promising to invest $1.5trn in “national economic security” industries, JPMorgan has tapped its global co-head of investment banking coverage to manage the actual business of doing so … (Bloomberg)

… with the consequence that Dorothee Blessing is now the sole head of coverage. (Financial News)

Mike Lamb, the former Barclays banker who has been chair of global insurance in Citi’s FIG group, is leaving. (Financial News)

“It’s very validating to have a couple dozen of your colleagues actually listening to what you’re saying”.  Lots of CEOs are joining Jamie Dimon’s campaign against people who send texts during meetings. (WSJ)

They appear seven times in your life before making contact, they create the impression of knowing everyone you know, and then they start telling you that your boss doesn’t appreciate you.  According to a former Russian “sex spy” (who of course might be lying), there’s a standard playbook which works best on lonely techies, but could be applied to bankers, if they had any time for dating. (NY Post)

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