JPMorgan stopped counterparty trading with Citadel last month in protest at the $20 billion hedge fund’s recent hires of the bank’s staff. Employees at JPMorgan were told to stop trading stocks, bonds and currencies with Citadel. However, the dispute lasted only 24 hours. Both parties declined to comment but sources say relations between the two firms began to sour in March, when Patrik Edsparr left JPMorgan to run Europe and fixed income for Citadel. There have been several other hires from JPMorgan since that time, more lately Brian McDonald, formerly a managing director and senior portfolio manager with the US bank’s ABS Principal Investments Group. The final straw, though was the hire of Greg Boester, an adjustable-rate mortgage securities trader with the bank.
JPMorgan’s boycott was regarded by many as an unreasonable sulking fit. "Who does JPMorgan think it is?" says one hedge fund industry participant. "In this environment naturally employees will be looking to move to stable firms like Citadel rather than worry about their future in banks that have made big acquisitions." JPMorgan reportedly claims the hires have breached contractual agreements with Citadel.
Citadel has been hoovering up bank employees as an increasing number have become disgruntled with their employers or nervous about their salaries or future. In September alone Citadel hired at least seven people, four of whom were from banks. Tobias Gehrke and Anita Nassar joined as co-heads of international distribution and marketing in the EMEA region from Merrill Lynch.
Citadel’s position seems to be strengthening by the day. Now that Goldman Sachs and Morgan Stanley are to become commercial banks and will therefore be under stricter regulation and leverage requirements, will firms like Citadel take their place as the money-makers of Wall Street? Debates that Goldman Sachs would have been better off as a private firm only support the argument that Citadel, which has remained private, could become the future model of investment banking.
In addition, reports that Citadel is considering creating a division to advise midsize and large banks on technology-balance-sheet issues also point to the firm emerging as a competitor to the former investment banks. "Will Citadel become the next Goldman Sachs? The hedge fund is certainly building up a great franchise, poaching excellent staff, and has a diversified business and good financials," says John Godden, chief executive of hedge fund advisory firm IGS Advisory.