One of the warning signs that an investment banking franchise is in trouble is that memos start going round the office telling everyone that business class travel is being curtailed. It tends to be followed by strict limits on client entertainment, or even the banning of particularly popular and expensive restaurants.
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This is often regarded as the ultimate in false economies – it doesn’t really save all that much money, and the problem in banking is almost always “not enough income” rather than “too much costs”. If you make it more unpleasant and difficult for bankers to schmooze clients, they will do less of it.That usually means that fewer deals will be done, revenues will fall and pressure to cut costs will redouble.It’s how franchises get into a death spiral of falling headcounts and worsening losses, which often doesn’t end until the business is completely lost.
So should staff be worrying at HSBC, Standard Chartered and Lloyds Banking Group, all of which have imposed various degrees of hair-shirtedness on their bankers this year? Maybe.But maybe not.There does seem to be at least a little bit of realism in the approach being taken; for example, StanChart CFO Diego DiGeorgi admits that his measures (no business class flights if the scheduled time is five hours or less) are “hygiene measures” rather than “transformation agents” which might make a real difference to the cost base.
That might not be much comfort to someone who has just got off an economy flight from Hong Kong to Tokyo, or from London to Tel Aviv, and who’s expected to walk straight into a series of meetings.But on the other hand, it puts the focus on people who are taking business class for short regional trips, or booking hotel rooms for visits to a single client, particularly if they’re timed to coincide with a sporting event or Taylor Swift concert.Another bad sign of a franchise in trouble is that some staff start to take advantage, and management really can’t allow themselves to be seen tolerating that.
And the other way in which cutting the perks sometimes helps is if it can reasonably be seen as temporary.If the message is not so much “no more taxis” as “taxis are for when we’re doing deals”, then there’s an incentive to start focusing on the right client meetings and taking the kinds of actions that might have a chance of turning things around.
On the other hand, bankers who have been through a few business cycles might just shrug their shoulders and say in resigned fashion that “to everything there is a season”.A lot of the time, cost control at big banks is not so much a “fundamental hygiene factor” as a coping mechanism, to help top management deal with the fact that profitability is volatile, cyclical and largely out of their control.At a different point in the deals cycle, the same managers will be exhorting their rainmakers to spend even more.
Elsewhere, the Summer of Heat On Wall Street continues, with climate protestors continuing to give employees at Citgroup a hard time.The reasons aren’t hugely clear why Citi has been singled out for this treatment. Apparently it shows up in some reporters as “among the top financiers” of fossil fuels on Wall Street.But it might just be that Citi has an attractively tree-shaded plaza outside its headquarters building, making it slightly less unbearable for the protestors to link sweaty arms, lie down in mass “die-ins” and even wear orca costumes.
Unsurprisingly, tempers have occasionally flared.Being stuck in New York City while all the really rich people flee to the Hamptons is bad enough, but being unable to get back to your desk because someone is yelling that “Hot People Hate Wall Street” must be intolerable.Citi’s security staff are warning the bankers to “keep their cool”, but with three more long and sweaty weeks before Labor Day, this is likely to be a summer to forget.
Meanwhile…
The asset management industry is apparently absolutely terrible at succession planning, according to a survey carried out by a law firm. Nearly all the investors in hedge funds and private equity firms are worried about what will happen to their money when the founders retire or die, but (egos in the business being what they are), few of the key personnel want to take any steps which might involve admitting they are anything other than unique and irreplacable. The survey concludes that the only realistic way out of this is “succession by acquisition”. (Institutional Investor)
Suddenly, now that the result of the next election seems more uncertain, people have become interested in the membership of the Wall Street “K-Hive”. (WSJ)
Congratulations to Justin Best, a junior analyst at tech boutique Union Square Advisors, who has won an Olympic gold medal for rowing. He explains that combining two of the most demanding activities known to man can be possible if you learn to get really efficient at Excel, and if you have a boss who’s also an elite level rower. (If you think you’ve seen this story before – that was another banking junior Olympian whose boss was a rower.Apparently the “rowing into finance” pipeline is a real thing). (Business Insider)
What if career progression in investment banking was even more based on the skills and clients you bring to the table, and less on your experience and time served?It might smooth out the observed phenomenon of the industry that at some ranks bankers are grossly overpaid for what they do and at other levels grossly underpaid. (WTW)
Iqbal Khan is relocating his “home base” to Hong Kong, as he takes on the role of leading UBS’s Asian operations as well as being co-head of global wealth.Hopefully he will be able to get his garden landscaped to his satisfaction there, without starting any arguments like the one that led to his departure from Credit Suisse. (Bloomberg)
A vexed question for lawyers – it’s all very well to explore how generative AI could triple the productivity of your associates, but how does that help when you’re charging by the hour? (FT)
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