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Macaskill on markets: 12 months of ’13

Euromoney columnist Jon Macaskill takes a look at the year ahead when investment banks go back to the future.


Barclays CEO Antony Jenkins unveils the results of his strategic review of the group. The investment bank formerly known as Barclays Capital is to refocus on fixed-income trading and debt capital markets. An acquisition of Bank Zachodni WBK of Poland is announced so that the investment bank can use the brand name BZW. Recently appointed Barclays head of compliance Hector Sants announces a zero-tolerance policy towards trading abuses at the firm. “I was head of the Financial Services Authority when our Light Touch policy did so much to stamp out shady practices in the City of London. I now believe the time has come to implement a Heavy Cost approach to monitoring the new procedures introduced in my current job,” says Sants.

Separately, Barclays discloses that a sharp rise in compliance costs, rolling waves of regulatory fines and the closure of high-margin derivatives books mean that it is unlikely to cover its cost of capital for the foreseeable future.



Bank of America CEO Brian Moynihan is deposed again in continuing suits pursued by MBIA and others against the bank over the quality of mortgages generated by its Countrywide subsidiary before the credit crisis. Moynihan reiterates that he had very little awareness of the details of moves by former CEO Ken Lewis to buy Countrywide and Merrill Lynch. “There was nothing exceptional about my lack of involvement in the deals made back in 2008 when I was president of corporate and investment banking, then general counsel,” Moynihan explains. “Even today, I have no idea what our current global corporate and investment bank head, Tom Montag, is up to.”

Later in the month, Bank of America announces a settlement of its long-running dispute with MBIA, sparking a sharp rally in the specialist insurer’s shares and a 70% fall in its credit default swap prices. Some former Bank of America employees find new positions at credit hedge funds in a welcome relief from a poor bonus season.


Citigroup CEO Mike Corbat outlines a new “staff-free” policy for its securities and banking unit. “Frankly, the staff members in our sales and trading division were more trouble than they were worth,” says Corbat. “If they weren’t piling into new business areas when the market was near a top, they were disappearing for months on end for tours of the regional offices or strategy reviews. Plus the chairman, Mr O’Neill, told me I have to announce even bigger cost cuts every quarter or he will find someone who will.”

Citigroup shares rise when it becomes apparent that the new motto, “No frills - lots of branches”, is an accurate description of the firm under O’Neill.


Credit Suisse CEO Brady Dougan announces further refinements to a compensation policy for the bank that he hails as “a groundbreaking move that we expect to be adopted as the model for the coming decades by our peer group”. The payout threshold for a G20 group of veteran senior employees at the bank is based on a complex formula that measures risk-weighted asset reduction progress and counterparty exposure to long-dated swaps with a multiplier of the number of days the bank is able to pay negative rates on Swiss franc deposits.

Credit Suisse shares fall when it becomes apparent that the new compensation policy has effectively set a floor for top employees at current levels, with significant upside if the markets perform strongly.

The shares then stabilize after it is disclosed that Credit Suisse has secured a lucrative mandate to securitize the value of SAC hedge fund founder Steven Cohen’s modern art collection. “The SEC charges of insider trading by various former SAC managers should not distract investors from participating in a deal that offers access to reliable stores of value such as Damien Hirst artworks,” the bank says in a statement.


Deutsche Bank holds its annual general meeting in Frankfurt. Co-CEO Anshu Jain dazzles local shareholders by downing a stein of lager before delivering a fluent speech announcing that Deutsche Bank “is a German bank for German people”. He pledges to leave no stone unturned in his drive to discover the details of controversial trades done by the markets division at the bank during the crisis. “Heads will roll,” Jain warns, before clarifying that heads that do not roll will at least have to move to a different group at the bank.

Separately, the SEC abandons an investigation into valuation policies by Deutsche Bank. “Their regulator, BaFin, said they were told by Deutsche that everything was OK, so I guess we’ll have to go along with that,” according to a spokesman at the SEC. “Plus our head of enforcement, Robert Khuzami, used to work there, so it was all getting too complicated.”

Deutsche Bank shares rise after it predicts that regulatory sanctions and fines will cost “no more than a few years of earnings” and will not prompt any new capital call.


The long-awaited changing of the guard at Goldman Sachs occurs, as CEO Lloyd Blankfein steps aside to be replaced by president Gary Cohn. The new CEO takes the no-email policy for important messages a step further by also banning phone calls about sensitive information. Future discussions about complex deals with staff or clients are to be conducted by shouting at them. “Just get right in their faces and tell them how it is going to be,” Cohn told a meeting of partners. “They’ll understand you, believe me.” Cohn also announces that Blankfein’s approach of lightening the tone during meetings with jokes has been suspended with immediate effect. Future internal meetings will continue until there is a clear victor, with no breaks of any type. Cohn demonstrates by taking a meeting with vice-chairman Michael Evans that results in a new role for Evans as head of Asia-Pacific, ex-Japan and Asia.


JPMorgan CEO Jamie Dimon announces that he is getting mightily sick of having to explain the changes made at the bank after the London Whale $6.5 billion credit derivatives trading loss. “What the hell is wrong with you people?” he asks a gathering of investors and analysts. “It was over a year ago, I’ve been through it a dozen times and we have a totally different management team in place now. Very few of these guys have experience in their current roles, so I can rely on them to keep quiet while I decide when I want to leave this agita behind. I mean this place basically runs itself, except when it doesn’t of course.”

Dimon’s policy appears to be vindicated when JPMorgan earns more from investment banking in the first half of 2013 than its four closest competitors combined.


Morgan Stanley CEO James Gorman says that the firm’s transformation into a retail brokerage with a Japanese commercial bank backstop is ahead of schedule. “We aren’t pulling out of investment banking – far from it,” says Gorman. “But we have made a vital qualitative upgrade in the staff in our institutional securities business line. The days when our corporate finance staff would take a wild punt on a technology stock flotation like Facebook and close down the IPO market for months are behind us. And the bond traders I brought in to replace the old lot have the ability to calibrate complex interest rate basis trades that is finally allowing us to break into the top tier in fixed income”.


The Federal Reserve admits that the unexpectedly sharp fall in US unemployment to below 7% has brought forward the likely end to its five-year easing policy. Long-dated interest rates globally push upwards, with sharp dislocations between bond and derivatives markets and heavy trading losses. JPMorgan reveals that it controls or has an interest in over 40% of all mortgage-backed securities globally, as a consequence of its return to a “low risk” function for itsChief Investment Office and will therefore be recognizing mark-to-market losses equivalent to four years of investment banking profits. The global target date for full Basle III implementation is put back by three years to allow JPMorgan and other too-big-to-fail banks to reorganize their interest rate exposure.


Morgan Stanley’s third-quarter losses result in a decision to withdraw completely from fixed-income trading. CEO James Gorman says that in retrospect it was a mistake to hire a former Goldman Sachs bond trader under regulatory investigation to put on risk at the top of the market, but that he is pleased to be able to complete the firm’s move away from sales and trading on an accelerated timeline. Goldman Sachs itself bucks the market trend by reporting strong third-quarter results, largely as a result of huge short positions in swaps and mortgage-backed bonds. A rally in its shares is halted after it emerges that Goldman is under investigation for the way it used its report, Fixed income – The coming 20-year bull market, to persuade clients to take the other side of its short trades.


Emilio Botín reveals that he expects to be able to retire as chairman of Santander soon after Spain and Brazil meet in the final of the soccer World Cup in Rio de Janeiro in July 2014. “The Anglo-Saxon model of banking has had its day,” Botín says. “Santander is close to the completion of a new banking complex carved into a mountaintop in Brazil that will serve the citizens of fast-growing emerging economies across Latin America and the world. The Botín-Ozymandias campus is my gift to the banking customers of the future.” Grateful employees and shareholders of Santander commission a towering statue of chairman Botín to be erected at the entrance to the new campus.


UBS CEO Sergio Ermotti says that his decision to scale back the bank’s fixed-income trading presence and risk-weighted assets at the end of 2012 has borne fruit, as the firm outperformed competitors during 2013 for the first time in over a decade by avoiding the impact of rising rates. “I have accordingly decided that the time is right to rebuild our presence in fixed income while there are market-share opportunities due to the weakness of many of our peer-group members,” Ermotti says. “During 2014 we expect to transform UBS into a global investment banking powerhouse with the help of the trading veterans I recently hired from Barclays, Deutsche Bank and Goldman Sachs.”

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