Morning Coffee: Goldman Sachs and UBS just ramped up the cost cutting. The unanswered question
As banking analysts cut their predictions for banking profits and therefore banking bonuses in the wake of the UK referendum, banks are busy cutting costs. UBS and Goldman Sachs are the latest to embark upon cost reduction initiatives; each has a different approach.
For Goldman Sachs' investment bank, cutting costs means cutting headcount. Fresh from letting go of "dozens" of people globally in IBD in June, of around 100 people in sales and trading in May, and of all sorts of partner-level staff throughout the year, Bloomberg reports that Goldman is now intent upon cutting another 55 positions in New York City before December (although probably sooner rather than later). The cuts, half of which will come in sales and trading, will bring Goldman's running total for 2016 layoffs to 400 in New York City.
At UBS, meanwhile, cutting costs is more about non-hiring than removing existing staff. Bloomberg reports that UBS CEO Sergio Ermotti has imposed a partial hiring freeze upon the Swiss bank's wealth management business. The freeze won't cover revenue generators (client advisors). It will cover all the staff who back them up (support staff). Other banks have also imposed hiring freezes with some success: Jes Staley, for example, cut headcount at Barclays' investment bank by 6,000 people in four months simply by declining to hire-in new people when existing staff leave.
Separately, Atlantic Equities analyst Chris Wheeler nails the crucial question about banks' second quarter results, which are due to be reported from Thursday this week. The "big unknown" is exactly what happened at each bank during the last week of June, before, during and after the UK referendum, says Wheeler. Were banks caught on the wrong side of market volatility? And did they make any money from record high volumes, or simply funnel trades through low margin electronic platforms? We're about to find out.
Goldman Sachs’s investing and lending segment may have been hurt by a drop in the value of equity and credit positions on Brexit. Revenue in the division could fall by $700 million to $1.1 billion. (Bloomberg)
New UK prime minister Theresa May sounds like good news for infrastructure and project finance bankers: she wants government-backed project bonds to boost infrastructure. (Financial Times)
Theresa May's husband works in asset management. (Independent)
J.P. Morgan expects investment banking employee numbers in the UK to dwindle over a five to ten year period and for a new European hub to emerge. (Financial News)
Working in fixed income sales has totally changed. In the past it was about selling as much as possible, now it's about providing clients with as much information as possible. (Business Insider)
Citigroup appointed Vincent Folliot and Alessandro Amicucci as co-heads of strategic equity solutions for Europe, Middle East and Africa. (Reuters)
Why Citi's hiring in strategic equity solutions: “Strategic investors are thinking a lot about risk right now. Who wants to sell equity in a soft market? Better to hedge the equity and retain upside, or draw down financing to sell in the future at a more attractive price.” (Financial Times)
It's a bad time to work in UK ECM: IPOs by value were down 75% year-on-year in the second quarter. (Financial News)
Deutsche Bank will add 25 relationship managers annually in Hong Kong and Singapore over the next five years. (Bloomberg)
Would you like to buy 10 Hammersmith Grove, an office building valued at about £105 million ($136 million) from Aberdeen Asset Management's gated UK real estate fund? (Bloomberg)
Real output per person is central London is nearly four times the average in the European Union, and nearly twice that Europe’s other large, rich metropolitan areas, such as Amsterdam and Paris. (Marginal Revolution)
Look someone in the eye for between two and five seconds if you want someone to like you without conveying an impression of weirdness. (BPS)