Macaskill on markets: Banks will reassert their structured offerings when flow is not king
The proposition that if you build an investment banking franchise clients will come was severely tested in the third quarter. Sales and trading revenues were weak for most dealers, though with wide variance between big firms. Results were particularly poor for banks such as Morgan Stanley and UBS that had been rebuilding their investment banking franchises on the assumption that an aggressive push into flow business lines would result in increased client volumes.
Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks
The sales and trading stumbles were embarrassing for senior managers and could feed into a broader reassessment of the post-crisis conclusion that flow is king and an emphasis on structuring a thing of the past.
Structuring provided a bright spot for some firms in the third quarter, and it is increasingly apparent that the opportunity for embedded proprietary risk-taking in client business lines will be key to future investment banking outperformance.
An indication of how this is likely to play out can be seen in the steps taken by market leader Goldman Sachs to cope with the new regulatory environment, including Dodd-Frank limitations on proprietary trading.
Goldman made a big play of the closure of its well-known Principal Strategies group. The bank sent public best wishes to nine US traders led by Bob Howard, who moved to KKR. The likely success of Pierre-Henri Flamand, former London-based co-head of Principal Strategies, in raising capital for his new fund and of Morgan Sze, the other co-head, in launching an Asian fund, also received widespread coverage.