Morning Coffee: Deutsche Bank’s former rainmakers are on a quest for revenge. The “zombie” employers that can destroy your career

If there’s one thing that every experienced banker knows, it’s that in the investment banking industry, the past is never truly finished. All too often, it’s not even past. 

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For example, a child born in 2008 is almost old enough to vote. Deutsche Bank has had three different CEOs since that year. Surely, the unfortunate deals that Deutsche did in its Italian subsidiary in that year are long since past and gone?  Surely, they can’t have anything to do with Christian Sewing’s new, streamlined, efficient and largely scandal-free Deutsche?

To ask the question is to answer it, of course. Deutsche Bank’s former rainmakers, Dario Schiraldi and Michele Faissola, are still not happy with the way that the fallout from that episode ended up falling on them, and they have enough money to lawyer up. Schiraldi has already filed a lawsuit against Deutsche, and according to German media, Faissola is seriously considering doing so. 

What makes it particularly annoying for current-day Deutsche is that the two bankers want to make the case that they weren’t treated fairly by the investigation into a deal nicknamed “Santorini”, which involved the clever (in retrospect, too clever) use of off-balance sheet vehicles to conceal losses at an Italian bank, while simultaneously flattering Deutsche’s own accounts. This eventually resulted in a substantial accounting restatement and a lot of regulatory trouble, which was only slightly mitigated by the fact that Deutsche was able to convince the bank supervisors that Schiraldi and Faissola’s team had concealed the transaction’s nature from top management.

And the chief auditor who was assigned to look into the Santorini transaction, and who drew this conclusion? A reliable, conservative long-term Deutsche employee, called Christian Sewing. Who was, of course, later recognised for his conservatism and diligent risk management with promotion to the CEO job.

The way that this sort of investigation is meant to work is called “three lines of defense” by the regulators – the first line is the business itself, which isn’t meant to do bad deals in the first place.  Second line of defense is the risk management department, which is meant to identify the potentially problematic trades and either stop them or mitigate the risk.  Which means that by the time internal audit has become involved, things have already got to a pretty bad state.

In those sort of circumstances, it’s natural that people end up disagreeing about who knew exactly what at exactly which point in the timeline. Schiraldi and Fiassola claim that Deutsche’s top management knew what they were doing all along and were happy with it. The company, on the other hand, maintains the view that all previous investigations were correct and that as soon as they realized what had happened, they owned up to the regulators and made the restatement.

Cases like this are usually hard to win for the bankers. The basic issue is that the whole point of being a rainmaker banker is that you understand your transactions better than anyone else. But egos are big, and senses of hard treatment substantial, so there might be a lot more uncomfortable moments before this episode is finally consigned to financial history.

Elsewhere, if you’re working in private equity you might feel like a zombie half the time, particularly after a succession of all-nighters while closing a transaction. But what about the fund you work for? Is your employer showing any of the signs of undeath?

According to specialist headhunting firms like Selby Jennings or BraddockMatthewsBarrett, it can be absolutely deadly to your career to spend too long a period working at a PE fund that is neither raising new money nor making new investments. Rather than maintaining your personal contact book and profile, you end up just presiding over a glorified yard sale, at the end of which the principals presumably head off into a lucrative retirement, leaving their employees stuck with a mediocre investment track record and little else.

Even worse, it’s likely that any other firm which you might try to move to will already know that your employer is a zombie, greatly reducing your leverage. Apparently the best that you can do is put a brave face on it, refrain from badmouthing anyone but, as in a zombie movie, shamble slowly toward the exit and then run for your life.

Meanwhile…

“I am thinking of leaving this job within a year. It's taken a toll on my physical health. My body is tired. And it's so much stress, so many hours.” A French analyst in London, who spends her salary and saves her bonus, feels like the lifestyle isn’t for the long term. (Le Monde)

Once upon a time, people used to throw away macro research because they were only interested in stock picking. Nowadays, they throw away geopolitical research because they want to concentrate on macro. But investment banks need people to produce the stuff clients throw away, so if you’re capable of saying “there’s a 40% chance” and “Europe needs to get its act together” convincingly, there’s potentially a lucrative career option. (FT)

As long as your employer isn’t a zombie, private equity firms are prepared to pay top dollar for the few remaining investor relations people who have the gift of keeping investors happy while they wait for the deals pipeline to pick up again. (Business Insider)

A former Deutsche Bank derivatives trader, turned high-end bookmaker, got into a scheme to buy every ticket and claim the Texas Lottery jackpot. There’s surely got to be easier ways to make money. (Daily Mirror)

Cantor Fitzgerald is seriously scaling up its FIG group – it’s made five MD-level hires to cover US regional banks, REITs and nonbank lenders. (Bloomberg)

They say that history is written by the winners, but in the hedge fund world the real winners write satirical novels.  Amran Gowani was a hedge fund manager, who claims to have “Created and managed the Seven Deadly Sins Fund for psychotic nepo-baby Kash Montgomery Cash”. Now he’s written “Leverage”, a well reviewed expose of the industry. (Keen on America)

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