I’m a vice president in an investment bank. I’ve been here five years after joining through a side entrance as an associate, and if I’ve observed one thing, it’s that banks are wasteful places. There’s a lot of beating of the cost-cutting drum in the C-suite. but on the floor we’re still spending like crazy. No one seems to see it, or to understand the costs that are there to be plucked out.

If my managing directors (MDs) want to get serious about cutting costs in this business next year, I have some suggestions. They’re simple, but revolutionary in finance terms.

1. Stop making redundancies: Forget cutting costs through redundancies. Redundancies sound like a good way to cut down on costs but the reality is that a lot of the people who are let go just didn’t get on well with their managers. I’ve seen excellent performers cut. Clients often move when salespeople move and this ends up costing the bank millions throughout the year. Redundancies should be a last – not a first – resort.

2. Stop travelling: Bankers think they need to travel to meet clients and colleagues and to close deals. There are probably thousands of trips a year that are completely unnecessary. Some trips are planned around weekends. Hmmmm.  I’ve come across an MD who took three people from his team across the U.S. from London to meet clients, all travelling in business class. Imagine how much a trip like that costs!  Why not give each employee $100USD per flight when they travel economy instead of business class? Plenty of people would go for the offer. Others need to cut down on unnecessary trips. .

3. Actually complete the lifecycle of software development: Technology and banks are not the best of friends. Tech companies like Facebook, Apple, Snap and so on have grabbed the best talent on the street. This is a problem for banks, which have big IT budgets, but suffer a constant turnover of IT staff. Whenever someone new is hired in, they want to start something new and there’s zero progress on existing projects. Solution: pay IT people more so they don’t leave and actually stay to achieve something. In the long run, this will cost less.

4. Stop moving desks around: Similar to technology, new managers want to change things around and the easiest way to do so is to reshuffle the desk layout. The justification is usually that this is being done to “improve communication”, the implication being that their predecessordid a bad job. Some moves are just a desk or two away. Even so, rumour has it that it costs a £1k or so to move each desk – Ouch.

5. Stop promoting bad managers: Just because you’re good with clients, that doesn’t mean you’re a good manager. Client people are promoted as a means of retaining them. But experience suggests they’re often self-serving narcissists. It ends up costing the bank in resignations: people don’t want to work for bad managers.

6. Ban the taxis and minicabs that wait outside the office with their meters running: We all get stuck on client calls that prevent us from hanging-up and meeting the taxi waiting outside, but there’s far too much of this in banking. The delays end up costing thousands. Set a limit on taxi waiting time.

7. Turn all the screens off at night: A trader now can’t do his or her job without a huge array of screens. I have seen traders with eight. If i were COO, I’d make it a policy to switch these screens off after work. It would save costs and be good for the environment.

8. Give us free coffee and snacks: Bloomberg cleverly provides staff with free drinks and snacks. Most banks, on the other hand, charge more for in-house food and drinks than surrounding shops and coffee houses. Their coffee doesn’t even taste better. So what do we all do? We leave the building to get a coffee from outside. Think of how much this costs the bank. A trip for a coffee in a high-rise building can take at least 10 minutes!

9. Dump the global orientation element of the graduate program. Every year, banks fly all their graduates to a city (either New York, London or Hong Kong) for their  ‘global orientation.’ This is a month long program that introduces the future of the firm to the world of banking. It’s exciting when you’re 22 years old, but is it really adding value? I would respectfully say no. Get rid of.

Joshua Braden is the pseudonym of a VP in a U.S. investment bank

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I’m an MD in an investment bank. This is my Christmas pep talk to the team

It’s been a tough year. As 2017 draws to an end, I’ll be glad of the festive rest. This time of year can be exhausting for anyone, but in banking

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““

While no one can predict the future, it’s still possible to examine banks’ activities and performance and read the tea leaves to figure out which roles are likely to be best at Wall Street banks in 2018.

Our verdict is as follows. If you could work in any role on Wall Street next year, you should choose one of the following:

1. Chief technology officer and chief information officer

Wall Street is undergoing a technological transformation that will continue throughout 2018. Some banks have decided to stop using outside fintech vendors or scale back their dependence on them and start hiring tech-savvy people internally.

Roles focusing on innovative, disruptive technologies are on the list of what every Wall Street firm plans to invest in as a hiring priority for 2018, according to Jeanne Branthover, a partner at recruitment firm DHR International.

“Artificial intelligence, machine learning, digital, mobile, the cloud and cybersecurity are all areas where banks will be hiring in leadership roles, as well as continuing to build both internally and externally focused technology teams under them, from building trading systems to analyzing data and communicating with clients,” Branthover says. “Hiring will continue on Wall Street in all areas of technology, including data scientists, developers, quants, product specialists, search scientists and software engineers.”

Banks are lining up CTOs and CIOs, says Branthover. In addition: “The next level is going to be the head of trading systems, someone who heads up the cloud, web, mobile apps and other specialties within tech, and then the people on their teams, mainly C++, Java, Hadoop and Python developers.”

2. Those regional client-facing jobs 

OK, so they’re not actually on Wall Street but they are at Wall Street banks. Big banks are ramping up their recruitment of middle-market deal-makers to capitalize on the growing revenue stream in that business. However, the reverse is also true, with middle-market banks looking to expand into bulge-bracket banks’ historical areas of strength.

Paul Webster, managing director and the head of Page Executive North America at Michael Page, says that one of the biggest strategic changes he has seen in the industry over the last five years is firms previously perceived as middle-market banks encroaching into the markets that the very large investment banks have traditionally dominated.

Examples include Key Bank, PNC Bank and SunTrust Robinson Humphrey, firms that have traditionally focused more on middle-market lending. Many of them are headquartered outside of New York so they are less well-known on Wall Street, but they are hiring. Webster says mid-market bankers are hiring across syndicated loans, leveraged finance and M&A. At the same time, pension funds, asset managers and private equity funds are themselves funding leveraged finance deals – and hiring bankers to help with this.

3. Equity Capital Markets bankers

U.S. investment banking revenue increased 6% year-over-year to set an annual record high of $38.4bn in 2017 fueled by a 30% increase in ECM revenue, up to $6.1bn, and record high revenues from DCM, up to $9.7bn, according to Dealogic. This suggests banks’ could be in the mood for ECM hiring in 2018.

So which banks are most likely to be hiring in this area on Wall Street next year? The following is Dealogic’s U.S. ECM revenue leaderboard for this year:

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““

2018 has the potential be a big year. As Robert Mueller continues to probe the U.S. election campaign, as Theresa May teeters through Brexit with Jeremy Corbyn waiting in the wings, and as North Korea tests its missiles, banks face a series of changes and challenges that could alter the world for their employees.

This time next year, banks will likely be in a different universe.

1. MiFID II’s manifestation

By December 2018, MiFID II will be 12 months old. We will know by then whether star researchers will indeed have had their pay re-rated to reflect their “franchise value,” whether third party algo providers will really have come into their own, whether systematic internalizers will have displaced existing exchanges, and whether clients will continue to demand contact with sales traders who can help them understand and navigate the new landscape.

Russell Clarke, founding partner of search boutique Figtree, says strategists and economists are set to become more important under MiFID II: “Platforms are investing more in strategy under MiFID II and economists in particular are going to become more branded,” he predicts. “It will be like 2005 again – individual economists will be the brand of the house and the clients will choose who to use on the strength of that brand.”

2. The repercussions of Brexit

By this time next year, we’ll also know a lot more about Brexit. Whatever happens, there will not be passporting: U.S. banks will no longer be able to have a branch in London and to use it to operate across the EU. They will need to have licensed businesses in EU countries instead. Accordingly, Goldman Sachs is going to Frankfurt and Paris (whilst also building up in Warsaw), Morgan Stanley is going to Frankfurt, Bank of America is going to Dublin and Paris, and Citi is going to Dublin and Frankfurt.

What remains to be seen is precisely how many jobs will move.

Much depends on the nature of the deal that is done with the EU. One senior banker recently told the Financial Times that if the UK “pulled a rabbit out of a hat 10 minutes before midnight” on March 31, 2019, then banks including his own would reverse their decisions to shift jobs overseas. Barclays’ experience suggests there’s a staffing advantage to staying in the UK: the British bank says staff at its investment bank aren’t leaving as much as usual because they’re more confident of staying in London if they remain working there.

3. The resurgence of the regional banker

2017 will see the return of the banker-on-the ground. In Europe, Goldman Sachs is shunting 40 people out of London and into Milan, Frankfurt, Paris, Madrid and Stockholm. In the U.S., it’s moving people to Toronto, Atlanta, Dallas and Seattle.  Goldman isn’t the only one. Bank of America has also indicated that it will be getting closer to local clients this year. Being in with big-name CFOs will still get you a senior banking job in 2018, but it might count for less than before.

4. The continued demise of Goldman Sachs’ trading business 

2018 could also see the continued erosion of Goldman Sachs’ fixed income trading business as a place to aspire to work. Goldman was the worst performer in fixed income currencies and commodities (FICC) trading in the first nine months of 2017, with revenues declining 23% year-on-year. The firm has a plan to remedy this. Among other things, it wants to chase corporate clients and long only asset managers. However, there’s some skepticism that this will work: corporate clients tend to work with banks with balance sheets, and Goldman will struggle to compete with the likes of Citi and Bank of America.

There’s also the possibility that Lloyd Blankfein, a former commodities trader, will leave Goldman in 2018. Co-COOs Harvey Schwartz and David Solomon are already jostling for position. Blankfein himself has indicated that the two men could replace him and that the CEO role could be split. Either way, it would be the end of an era.

5.The disappearance of Jes Staley at Barclays

There’s also the possibility that Barclays’ investment banking resurgence might fall apart. While chief executive of the investment bank Tim Throsby preaches the virtue of a return to risk taking and hires in traders, group CEO Staley is under investigation by the UK’s Financial Conduct Authority for attempting to unearth the identity of a whistleblower The FCA’s judgement is due soon. If Staley goes, Barclays investment bank (which achieved a return on equity of just 5.9% in the third quarter) could come under scrutiny. The new CEO may decide that cuts rather than growth are the path to glory.

6. The repeated failure to pay bonuses at Deutsche Bank 

One headhunter notes that people at Deutsche Bank have been “remarkably loyal” after last year’s bonus disappointment, when performance pay was cut to almost nothing. Nor have Deutsche’s people left as a result of the share price, which is still 37% below the €23 it needs to reach if the German bank’s compensatory “retention packages” are to be worth anything.  This might be because Deutsche’s people feel there’s nowhere else to go. It might also be because Deutsche’s salaries are higher than elsewhere, or because people at the bank are feeling optimistic after the recent rush of big name hires. 

Either way, bonus time at Deutsche Bank in 2018 will be revealing. After a weak 2017, Deutsche can’t really afford to pay big bonuses. If it pays them all the same, it will confirm the ongoing ability of employees to hold banks to ransom. If it doesn’t (and people still don’t leave), other banks might get ideas.

7. The return of rising profit margins at the biggest investment banks

When banks discussed their third quarter results with investors, one thing cropped up repeatedly: margins.

After years of investing in technology and control staff, the new hope is that costs will plateau or fall in 2018 and margins will increase. Credit Suisse, for example, expects to do away with 45% of its control staff due to “digitalization.” 

James Gorman’s comments on margins were typical of big banks: “I think what you’re going to see with every $1 of incremental revenue, you will still see a higher incremental margin,” he told investors in October.  As big banks garner more profits on past investments, they stand to corner the market on hiring and pay.

8. The slow creep of machine learning 

In theory, machine learning will transform jobs in investment banks. Just listen to Sergio Ermotti: the CEO of UBS thinks 30% of jobs at the Swiss bank could be displaced by intelligent machines in future. In reality, it’s not so simple – especially for markets jobs. Although J.P. Morgan has had some success with the likes of LOXM, an intelligent algorithm that trades equities, complaints are being voiced about the problems applying artificial intelligence to markets data, which can often be misleading. For the moment, cleaning data remains a work in process and machine learning is likely to be most successful in areas like compliance, accounting, law and preliminary customer contact – where the emphasis is on the interpretation of language rather than historical trading information.

9. Bitcoin’s breakout

Will 2018 be the year that bitcoin jobs come to investment banks? Despite disparaging bitcoin as a “vehicle for fraudsters”, Goldman Sachs is reportedly looking to set up a bitcoin trading operation of its very own. Goldman juniors already quit for bitcoin-related firms in 2017 and the firm invited a pierced bitcoin trader in to give its people a talk in September. This could be the start of something new.

10. Higher personal taxation

2017 could also be the year that bankers in New York and London sacrifice a higher proportion of their incomes to the state. Tax changes in New York could see bankers there go from paying 50% to 55% of their income in tax.   In London, the Labour Party’s proposed Chancellor, John McDonnell, has promised to create a new tax bracket for people earning between £80k and £150k and has said that the top 5% of earners will need, “to contribute more in tax to help fund our public services.” It’s not clear precisely how much more high earners will need to contribute under McDonnell’s plans, but he hasn’t ruled out a marginal rate of tax of 50%. While this alone is unlikely to dissuade anyone from putting in an 80 hour week, the attitude to taxation is changing. Under a Labour government with a large majority, a marginal rate of 50% could just be the start.

11. Capital controls

After years in the dark, people are starting to say the C word again. Capital controls (so-called “exchange controls”) were abolished in the UK in 1979. In recent history, they were introduced by Cyprus in 2013,  Greece in 2015, China in 2016 and Argentina in 2011, but it’s been a while since they were present in a country with a major financial centre. Ever since McDonnell said that he had been “war gaming” a run on the pound if Labour gets elected, there have been suggestions that capital controls could make a comeback under a Corbyn government in the UK. Their introduction could disrupt liquidity in the FX market and deal a further blow to a banking sector already reeling from Brexit.

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I’m an MD in an investment bank. This is my Christmas pep talk to the team

It’s been a tough year. As 2017 draws to an end, I’ll be glad of the festive rest. This time of year can be exhausting for anyone, but in banking

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If you’ve ever wanted up and leave your banking job for a month and a half, then you’re hoping that this new pilot program catches on: Bank of America Merrill Lynch will offer paid sabbaticals to some of its staff.

In addition to vacation time, veteran employees of BofA’s global banking and markets division will soon be able to take off four weeks of paid leave on their 10-year anniversary and every five years after that. On their 20^th anniversary, they can take off five weeks, and on their 35^th anniversary, they’re entitled to a six-week sabbatical.

The idea is to use the time away from the bank for philanthropy, traveling, resting and recharging, as well as spending time with family, according to Charlotte Business Journal.

Now that the new sabbatical program has gone into effect just in time for Christmas, BofA will likely be flooded with requests from traders and investment bankers for additional paid leave. Financial services professionals everywhere will be watching closely and hoping that their employer follows suit and creates a similar program.

Separately, when private equity hedge fund managers talk, Washington politicians (whose campaigns depend on funding from the financial sector) listen.

White House chief economic advisor Gary Cohn, formerly Lloyd Blankfein’s right-hand man at Goldman Sachs, said the administration failed in its attempt to cut the carried-interest tax loophole for private equity and hedge fund managers even though it was one of President Trump’s key campaign promises.

“We would have cut carried interest,” Cohn said what was the one change he would make to the tax reform bill, according to CNBC. “We probably tried 25 times. We hit opposition in that big white building with the dome at the other end of Pennsylvania Avenue every time we tried. It is just the reality of the political system.”

Carried interest, the money manager’s cut of the fund’s profit, is taxed at the lower capital gains tax rate, while profit in other professions is taxed at the higher ordinary income rate. Trump promised to eliminate this loophole, saying hedge fund managers were “getting away with murder.”

However, Cohn said that the hedge fund and private equity lobby was too strong to overcome.

“The reality of this town is that constituency [hedge funds and private equity] has a very large presence in the House and the Senate. They have really strong relationships on both sides of the aisle. We just didn’t have the support on carried interest.”

Hedge fund managers and PE professionals are relieved that the Washington, D.C. swamp remains intact.

Meanwhile:

The F.D.I.C. found that four banks’ living wills have shortcomings: Wells Fargo, Bank of America, Goldman Sachs and Morgan Stanley. (New York Times)

“An analyst has three roles: (1) know the industry you cover and its dynamics, (2) know a company’s business model inside and out, and (3) be a great stock picker.” (Business Insider)

Regulators will grant financial firms a six-month delay in implementing part of the sweeping MiFID II overhaul of rules that are set to take effect on Jan. 3., as both companies and countries struggle to meet the deadline. (Bloomberg)

Theresa May told Parliament that the next phase of Brexit talks will convince the EU that it needs the City of London financial district to remain strong as she committed to fighting to protect its status as a global finance center. (Bloomberg)

Big foreign investment banks face a tougher regulatory regime in the EU under European Commission proposals the to bring them under the direct control of the European Central Bank. (Reuters)

The BOE will give big European investment and commercial banks an easy way to stay in London once Britain quits the EU, offering them the same terms that big U.S. and Swiss banks get. (WSJ)

The U.K.’s plan to leave the EU has thrown up an opportunity to help foster a more competitive financial services industry in Lithuania, which is making special accommodations for fintech firms. (Bloomberg)

“Investment banking and capital markets remains a core part of Credit Suisse and we can see a path to better profitability,” says Credit Suisse CEO Tidjane Thiam. (Euromoney)

This banker was tasked with counting 1.2 million coins, and it took him six months to do so. (Fortune)

The global bond market isn’t going quietly into the New Year, and fixed income traders and DCM bankers have taken notice. (Bloomberg)

There are perils to joining a venture-backed software startup. (Bloomberg)

Obscure firms, including juice-makers, gold miners and a designer of sports bras, have announced a corporate reinvention to the cryptocurrency or blockchain business, and such moves have paid huge dividends. (Bloomberg)

Bitcoin’s smaller cousins are outpacing the largest cryptocurrency’s gains since major U.S. exchanges started offering futures. (Bloomberg)

Coinbase Inc., one of the most popular U.S. cryptocurrency exchanges, is investigating allegations of insider trading on its platform in the hours before the company announced it would enable purchases of the bitcoin spinoff known as bitcoin cash. (Bloomberg)

Women finally have enough collective power to do something about the issues that matter most to them. (Bloomberg)

Self-respect is uniquely correlated with assertive behavior. (British Psychological Society)
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““

It’s a common enough scenario in investment banking (especially here in Asia): you’re in the office over the Christmas season, but you don’t have nearly as much work on as usual (unless you have a deal to launch immediately after the New Year). Because Christmas in Singapore and Hong Kong isn’t quite as big an occasion as in the West, many bankers in these cities still clock in at work in between the public holidays.

I would often be among them during my 20-plus years as a banker (I worked in Singapore, Shanghai and Hong Kong – most recently as an MD at UBS – and I now teach finance students at HKUST, NUS and Renmin University). I made sure I used the end-year period, especially the really quiet days between Christmas and New Year, to focus on my career and upgrade my skills in order to become a more successful banker. And I’d strongly recommend that you do the same.

In the first half of my career, I mainly used the festive season to improve my technical skills. I think it’s best to boost your knowledge in new areas that might help your career (and your clients) in the future. You can always get better at your day job during the course of the year with each new deal you do.

One December, for example, I read up on financial maths, and during another I got to grips with Bloomberg functions. And most Decembers I tried to pick up an understanding of new products, such as FX options, total return swaps and margin loans.

How did I manage to learn the basics in just a few days in late December? I chatted to my colleagues in other departments who’d worked on deals in the areas I wanted to know more about, and I asked them for in-house material to read. I certainly learned a lot more by reviewing actual pitch books, for example, than by reading generic textbooks or looking online.

Late December is also a great time to approach HR and volunteer to help at campus recruitment drives the following year. You could offer to speak at summer intern events, too. Don’t underestimate how important these small gigs can be when you’re building your profile within the bank, especially when you’re a junior trying to rise up the ranks. And by securing speaking slots now, you can steal a march on the competition.

During the more recent years of my banking career, I used some of the festive period to work on my ‘social selling’. I’d recommend this to all bankers. For example, make sure your LinkedIn profile is thorough and up to date. You would be surprised by how many bankers have short and elusive profiles – some just state their name and current employer, and don’t even have a photo or work history. You should also expand your netwroks (on LinkedIn and other platforms like WeChat) and publish your own thought-provoking articles.

Why? Online networking isn’t just important if you want a new job next year; it’s important if you want to succeed at your current bank. No matter how senior you are, be under no illusions: colleagues, clients, potential clients, bankers from firms you’re collaborating with, and candidates for jobs in your team will all look you up (and may follow you) online, especially on LinkedIn. Clients, for example, will often remember the banker whom they last saw online – perhaps they read a post of yours, because you write an opinion piece every month.

You could also use late December to connect online with colleagues from other departments (say ‘happy Christmas’ on the invites – December provides the perfect excuse to connect). I can tell you from experience that having a wide internal network (from the back office to the front) will help you get deals done more efficiency. Expanding and strengthening your online networks is now key if you want to make MD, bring in clients and manage teams. And now is the best time to do it.

Eric Sim is a former Hong Kong-based UBS investment banking MD, and is currently a guest lecturer at HKUST, NUS and Renmin University.

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Many young people pursue a career in investment banking thinking they’ll be able to change the world for the better but end up getting disillusioned when it becomes clear that making money is the only real purpose of their work. That said, there are firms out there that attempt to combine profitability with doing good in the world, and many are looking to recruit such disaffected millennials.

One example is Big Path Capital, a boutique investment bank that connects mission-driven, sustainable investing and impact investment companies, venture capital firms, private equity and private debt fund managers with like-minded investors. It assists its altruistic-yet-profit-seeking clients with the full or partial sale of a business, mergers-and-acquisitions advisory, capital raises and strategic options.

“A lot of people have reached out to me ask about job opportunities and career paths in this space,” says Shawn Lesser, Atlanta-based co-founder of Big Path Capital and a former managing director at Deutsche Bank. “It’s seen huge growth, and Goldman, Morgan Stanley, U.S. Trust, Barclays, Bernstein, UBS and Deutsche Bank are all bringing in new people for impact [investment] initiatives.

“The best way to get into impact investing is to first get a job at one of the bigger firms, get educated and learn about finance – once you have that, it will be easier to get into an impact firm,” he says. “First you should have knowledge of the markets, and then learn about impact investing – after you acquire skills then transition over and integrate impact investment.”

Lesser claims that Big Path Capital has no interest in competing with the bulge-bracket banks, even if it does hire candidates from them on occasion. With the exception of some outliers such as TPG Capital, a private equity firm with more $73bn under management, its clients are impact investing firms with as little as $10m in revenue, although the sweet spot is the $50m to $200m range, which spans the lower middle market up to the middle market.

Interest and activity in the space have spiked in the past decade, both from investors and aspiring financial services professionals who want to work at a firm that focuses on mission-based, sustainable or impact investing.

“When we first got into this, if you talked about environmental, social and governance investment, you were put in the bucket as charity, but now there is more of an appreciation and realization that you can get competitive returns and have the social and environmental aspect,” says Michael Whelchel, Asheville, N.C.-based co-founder of Big Path Capital.

“For millennials and women especially, it’s a different value proposition, and the larger banks [that neglected this area] have seen defections of their clients,” he says. “It’s becoming a competitive advantage for [financial services] firms.”

Big Path Capital recently added three people, including a five-years post-MBA vice president who came out of a bulge-bracket investment bank, and the firm plans to add staff as the business grows in 2018.

“We’re looking for people with experience, existing relationships and a couple of years under their belts doing finance, probably at least five or six years of experience,” Whelchel says. “As a small firm, we can’t afford to train a junior person on spreadsheets – we need mid-career to senior people who are going to be additive to the bottom line starting on the first day.

“One of our folks was the CEO of a couple different companies, and we’ve hired people who have been on the operational side as well,” he says. “We’re not strictly hiring investment bankers on the finance side, also [candidates from] hedge funds, asset management and real estate PE.

“The core requirement is people who are dying to get into this space and are passionate about this.”
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““

Beyond the bubble of Wall Street and the City of London, the banking industry still does not have the best of reputations. Christmas – when extended families assemble for food and alcohol – is an occasion when banking’s not so good reputation can be pressed upon its practitioners by the likes of emboldened, inebriated, relatives.

Take the experience of Goldman Sachs CFO Marty Chavez. During a Thanksgiving dinner, someone hit him with: “Marty, how can you work for that company? How do you look at yourself in the mirror?.” Chavez obfuscated by saying that he didn’t work for Lehman Brothers (thereby intimating that he was exonerated from causing the financial crisis), and the questioner let it drop. Chavez could, however, have said something else: he could have claimed he was a “virtuous agent” leading a “worthy human life” by working in finance, and elaborated further upon request.

So suggests a new paper published in the Journal of Business Ethics by academics at the Università della Santa Croce in Italy and the Universidad de Navarra in Spain. Intended as a refutation of an earlier paper decrying the morality of people with careers in trading, it sets out why traders in particular deserve a break. Chavez isn’t a trader, but the argument might be adapted for anyone in finance. The main points are as these:

1. Finance has a valid social role – you just haven’t realized it

“Finance came into being to make possible inter-generational projects that serve the well-being of persons and communities,” say the academics. “Part of present-day finance is still aimed at the realization of long-term projects—e.g., providing a mortgage to buy a family home, borrowing to make it possible to go to college, securing funding for building a school, saving for a pension, making available easy and secure ways of making monetary transactions, and many other activities.” Finance has a broader human purpose.

2. Traders keep prices at fair levels

A lot of trading is about arbitrage – buying and selling on different markets and benefiting from price differences. Arbitrage trading is less easy in the age of algorithms, but the principle remains sound. Because arbitrageurs continuously monitor price differentials, their activity keeps prices at a fair level. They detect and combat price manipulation.

3. Speculation is unavoidable in life

The academics define speculation as, “the activity of performing high-risk financial transactions having on the one hand the possibility of big losses and on the other hand the possibility of huge gains.” They note that speculation can be subject to “reckless misuse,” but this doesn’t necessarily make it evil.

They point out that every choice involving a risk that cannot be controlled involves speculation. Similarly, any choice made in a situation of incomplete information about the future is necessarily speculative. They suggest that speculation should only be criticized when the associated risks are disproportionately large, or when they involve a moral defect like a clear conflict of interest between the trader and her client.

4. And it’s entirely natural that speculators should be rewarded 

Because speculators are assuming risk, the academics say it’s justifiable that they should benefit if the risk pays off. “Clearly, it would be unfair to expect a person who risks his assets on a project to incur large losses in the event that the project goes “south” but not benefit economically in the event that the project is successful.”

5. Trading is a specialized and necessary skill in itself

Traders have a purpose. Agency traders act on behalf of clients who don’t have the time or capability to place effective trades of their own. Without traders, many transactions would simply never take place.

6. Traders can be as virtuous, responsible and righteous as the next man or woman

Lastly, the academics suggest that it’s perfectly possible to be “good” as a trader (in the same way that it’s possible to be bad.) They define a virtuous trader as someone in possession of, “practical, executable knowledge about financial trading, being familiar with its purposes and knowing how to apply its techniques successfully.” They describe a righteous trader (a trader “of integrity”) as someone who exhibits, “a wholehearted, responsible, and stable commitment to integrate his desires, activities and projects into a meaningful and worthy life,” plus, “a steadfast commitment to avoid accepting “double standards” or rationalizing unethical behavior for “special” circumstances or social contexts.” And they describe a responsible trader as someone, “able to engage in responsible adaptation: he adapts to the rules of the game in a critical and selective spirit, harnessing them to his or her own legitimate purposes…”

Try repeating this at the Christmas dinner table.

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Have a confidential story, tip, or comment you’d like to share? Contact: sbutcher@efinancialcareers.com
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““

Financial services jobs go in and out of fashion. In 2001 equity research for internet companies was all the rage. In 2006, structuring collateralised debt obligations (CDOs) was the thing. In 2010, credit traders were popular. In 2014, compliance professionals were it. In 2017, it was all about machine learning and big data.

In May, J.P. Morgan’s quantitative investing and derivatives strategy team, led Marko Kolanovic and Rajesh T. Krishnamachari, issued the most comprehensive report ever on big data and machine learning in financial services.

Titled, ‘Big Data and AI Strategies’ and subheaded, ‘Machine Learning and Alternative Data Approach to Investing’, the report says that machine learning will become crucial to the future functioning of markets. Analysts, portfolio managers, traders and chief investment officers all need to become familiar with machine learning techniques. If they don’t they’ll be left behind: traditional data sources like quarterly earnings and GDP figures will become increasingly irrelevant as managers using newer datasets and methods will be able to predict them in advance and to trade ahead of their release.

At 280 pages, the report is too long to cover in detail, but we’ve pulled out the most salient points for you below.

1. Banks will need to hire excellent data scientists who also understand how markets work

J.P. Morgan cautions against the fashion for banks and finance firms to prioritize data analysis skills over market knowledge. Doing so is dangerous. Understanding the economics behind the data and the signals is more important than developing complex technical solutions.

2. Machines are best equipped to make trading decisions in the short and medium term

J.P. Morgan notes that human beings are already all but excluded from high frequency trading. In future, they say machines will become increasingly prevalent over the medium term too: “Machines have the ability to quickly analyze news feeds and tweets, process earnings statements, scrape websites, and trade on these instantaneously.” This will help erode demand for fundamental analysts, equity long-short managers and macro investors.

In the long term, however, humans will retain an advantage: “Machines will likely not do well in assessing regime changes (market turning points) and forecasts which involve interpreting more complicated human responses such as those of politicians and central bankers, understanding client positioning, or anticipating crowding,” says J.P. Morgan. If you want to survive as a human investor, this is where you will need to make your niche,

4. An army of people will be needed to acquire, clean, and assess the data 

Before machine learning strategies can be implemented, data scientists and quantitative researchers need to acquire and analyze the data with the aim of deriving tradable signals and insights.

J.P. Morgan notes that data analysis is complex. Today’s datasets are often bigger than yesterday’s. They can include anything from data generated by individuals (social media posts, product reviews, search trends, etc.), to data generated by business processes (company exhaust data, commercial transaction, credit card data, etc.) and data generated by sensors (satellite image data, foot and car traffic, ship locations, etc.). These new forms of data need to be analyzed before they can be used in a trading strategy. They also need to be assessed for ‘alpha content’ – their ability to generate alpha. Alpha content will be partially dependent upon the cost of the data, the amount of processing required and how well-used the dataset is already.

5. There are different kinds of machine learning. And they are used for different purposes

Machine learning has various iterations, including supervised learning, unsupervised learning and deep and reinforcement learning.

The purpose of supervised learning is to establish a relationship between two datasets and to use one dataset to forecast the other. The purpose of unsupervised learning is to try to understand the structure of data and to identify the main drivers behind it. The purpose of deep learning is to use multi-layered neural networks to analyze a trend, while reinforcement learning encourages algorithms to explore and find the most profitable trading strategies.

6. Supervised learning will be used to make trend-based predictions using sample data

In a finance context, J.P. Morgan says supervised learning algorithms are provided with provided historical data and asked to find the relationship that has the best predictive power. Supervised learning algorithms come in two varieties: regression and classification methods.

Regression-based supervised learning methods try to predict outputs based on input variables. For example, they might look at how the market will move if inflation spikes.

Classification methods work backwards and try to identify which category a set of classifications belong to.

7. Unsupervised learning will be used to identify relationships between a large number of variables

In unsupervised learning, a machine is given an entire set of returns from assets and doesn’t know which are the dependent and the independent variables. At a high level, unsupervised learning methods are categorized as clustering or factor analyses.

Clustering involves splitting a dataset into smaller groups based on some notion of similarity. For example, it cant involve identifying historical regimes with high and low volatility, rising and failing rates, or rising and falling inflation.

Factor analyses aim to identify the main drivers of the data or to identify best representation of the data. For example, yield curve movements can be described by the parallel shift of yields, steepening of the curve, and convexity of the curve. In a multi-asset portfolio, factor analysis will identify the main drivers such as momentum, value, carry, volatility, or liquidity.

8. Deep learning systems will undertake tasks that are hard for people to define but easy to perform

Deep learning is effectively an attempt to artificially recreate human intelligence. J.P. Morgan says deep learning is particularly well suited to the pre-processing of unstructured big data sets (for instance, it can be used to count cars in satellite images, or to identify sentiment in a press release.). A deep learning model could use a hypothetical financial data series to estimate the probability of a market correction.

Deep Learning methods are based on neural networks which are loosely inspired by the workings of the human brain. In a network, each neuron receives inputs from other neurons, and ‘computes’ a weighted average of these inputs. The relative weighting of different inputs is guided by the past experience.

9. Reinforcement learning will be used to choose a successive course of actions to maximize the final reward

The goal of reinforcement learning is to choose a course of successive actions in order to maximize the final (or cumulative) reward. Unlike supervised learning (which is typically a one step process), the reinforcement learning model doesn’t know the correct action at each step.

J.P. Morgan’s electronic trading group has already developed algorithms using reinforcement learning. The diagram below shows the bank’s machine learning model (we suspect it’s blurry on purpose).

10. You won’t need to be a machine learning expert, you will need to be an excellent quant and an excellent programmer

J.P. Morgan says the skillset for the role of data scientists is virtually the same as for any other quantitative researchers. Existing buy side and sell side quants with backgrounds in computer science, statistics, maths, financial engineering, econometrics and natural sciences should therefore be able to reinvent themselves. Expertise in quantitative trading strategies will be the crucial skill. “It is much easier for a quant researcher to change the format/size of a dataset, and employ better statistical and Machine Learning tools, than for an IT expert, silicon valley entrepreneur, or academic to learn how to design a viable trading strategy,” say Kolanovic and Krishnamacharc.

By comparison, J.P. Morgan notes that you won’t need to know about machine learning in any great detail. – Most of the Machine Learning methods are already coded (e.g. in R): you just need to apply the existing models. As a start, they suggest you can look at small datasets using GUI-based software like Weka. Python also has extensive libraries like Keras (keras.io). And there are open source Machine Learning libraries like Tensorflow and Theano.

11. These are the coding languages and data analysis packages you’ll need to know

If you’re only planning to learn one coding language related to machine learning, J.P. Morgan suggests you choose R, along with the related packages below. However, C++, Python and Java also have machine learning applications as shown below.

12. And these are some examples of popular machine learning codes using Python

13. Support functions are going to need to understand big data too

Lastly, J.P. Morgan notes that support functions need to know about big data too. The report says that too many recruiters and hiring managers are incapable of distinguishing between an ability to talk broadly about artificial intelligence and an ability to actually design a tradeable strategy At the same time, compliance teams will need to be able to vet machine learning models and to ensure that data is properly anonymized and doesn’t contain private information. The age of machine learning in finance is upon us.

Follow @MadameButcher
Contact: sbutcher@efinancialcareers.com

“”

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When James Trant got the offer to join the analyst program at Goldman Sachs, he wasn’t sure what to expect. “I was absolutely delighted, but also slightly apprehensive,” he says. “There are lots of misconceptions about the firm. People would say, “Well done!”, but also, “Good luck””

Goldman Sachs came out as the ideal place to work among the students we surveyed. This is testimony to the strength of bank’s brand among young people, who ranked Goldman highly for pay and challenging work. But with popularity and brand ubiquity come an element of notoriety. “There’s a misconception that Goldman has a brutal culture,” says Trant. “In fact, it’s a much more open culture than people realize. When I arrived, what really struck me was how down-to-earth people here are – not at all flashy or egotistical.”

Trant started out in Goldman’s investment management division before switching to investment banking last year. He now works in the firm’s consumer, retail, healthcare and real estate team. This kind of cross-divisional move in the first few years at Goldman isn’t standard, but can happen. “I decided I wanted to move across to banking and started meeting a lot of people internally from last January,” says Trant. “I moved in the summer.”

Trant says young people want to work for Goldman Sachs because of its reputation for excellence. “Young, ambitious people want opportunities. Goldman Sachs will provide that. They will push you and challenge you in new ways that put you outside your comfort zone.” Goldman people may be down-to-earth and non-egotistical, but Trant says they’re also highly driven: “Everyone you work with here is incredibly motivated. The pace of work is very fast – people expect things quickly, and to a high standard. It can be tough, but it’s also very rewarding. When you’re at university, you want to work for the best places and Goldman Sachs offers the best opportunities in finance. ”

As an analyst in the investment banking division, Trant has benefited from the measures Goldman’s taken to make life better for its young people. Every week, he’s compelled to stop work at 9pm on a Friday – irrespective of whether he’s staffed on a live M&A deal. He’ll also get promoted to associate earlier than before: Goldman’s analyst program now lasts two years instead of three.

“Before I moved into the investment banking division, I was a bit skeptical that I’d get Saturdays off – I thought there would always be exceptions, but it’s something that’s taken really seriously. I haven’t worked a single Saturday since joining in August. It makes a real difference – I leave on Friday at a decent time and go out for a few drinks. Saturday is then usually brunch, going to the gym and watching sport.

“People like to avoid working Sundays at all costs if possible,” adds Trant. “I sometimes come in or login from home for a few hours to take the pressure off on a Monday. It’s personal preference. I probably do some work two Sundays a month on average, depending on the project.”

The so-called “Saturday rule” and “accelerated analyst program” are the hallmarks of Goldman’s new approach to its most junior staff, but Trant says there are also elements which have been less well-discussed. One is Goldman’s attempt to make the job more interesting…The other is the new system of continuous feedback which allows for appraisal of everyone on a project- including vice presidents and (we assume), managing directors.

“There’s a lot of emphasis on using technology to make things more automated,” he says. “As a result, we spend less time on PowerPoint and more time on interesting work. It means we get less bogged down in nitty gritty things and have more time for making strategic contributions.”

More interestingly though, Goldman’s new appraisal system (known as OngoingFeedback360+) allows juniors to flag situations where senior staff have overworked juniors through project mismanagement. In this sense, it’s similar to an initiative introduced by Barclays in 2014. “After every project, we have the opportunity to rate how things went in terms of efficiency and whether everything ran smoothly. People tend to be very honest about this,” says Trant.

And if you want to work for Goldman too? Trant suggests you set aside any misconceptions and “go for it.” “It’s a challenging environment but you will be working alongside some really driven and motivated people. I’ve made some real and genuine friendships and haven’t looked back since joining.”

Needless to say, getting into the firm isn’t easy – only 4% of internship applicants get a place.  Trant says you need to be very considered at the application stage; “Really think about your application. Goldman Sachs doesn’t put you through numerical tests or assessment centres when it’s hiring you. There’s far more emphasis on your cover letter and interview. You need to really understand the firm and think about why you’d be a great fit.”

“My interviews at Goldman Sachs were more like a free-flowing conversation than a tick box exercise,” he concludes. “One of the best pieces of advice I had during the process was from a GS interview. He told me to be myself, to relax and go for it. I’d agree: This is a great place to work. What have you got to lose?”

Follow @MadameButcher
Contact: sbutcher@efinancialcareers.com

View the complete 2017 Ideal Employer Rankings

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“”

Photo credit: Walkway by S M s licensed under CC BY 2.0.

Investment banking and strategy consulting are like avocados and quinoa: both attract the elite (or, in the words of one ex-McKinsey director, “insecure, deeply left-brain, hyper-intellectual, OCD over-achievers.”). Both pay well. Both involve some serious commitments of your time and some heavy academic achievements.

This is not to say that banking and consulting are equivalent careers though. Like avocados and quinoa, they have some pretty substantial differences. What works for one person will not work for the other.

So… which is right for you? We asked a large population of people with experience of working for Goldman and McKinsey, or J.P. Morgan and Bain & Co. for their opinions on the differences between the two industries. These – plus some quantitative information – are listed below.

Are you a banker or a consultant? All will become clear.

You want higher pay? Choose banking (for the first 20 years)

If you want money, you probably want to work in banking. As the figures below from pay benchmarking company Emolument.com are to be believed, front office banking careers are generally a lot more lucrative than careers in consulting.

A note of caution, though. One ex-McKinsey consultant who now works in investment banking says the figures above are a simplification. If you play a long game in consulting, he tells us you’re likely to come out on top of the bankers. Bankers are paid more at the start of their careers, “But once you reach MD-level in an investment bank, compensation starts to plateau,” he tells us. “In banking, you can be subject to volatility, both from the market and personal performance. Meanwhile, consultants are on a consistent trend upwards.”

While the pay in banking is plateauing, he says compensation at places like McKinsey only really kicks in at the senior partner level. He also says that if you look at the median compensation of consultants with 15 years’ experience versus that of bankers at the same level, consultants will come out on top.

You want job security? Choose consulting

This brings us to the second point: job security. Your chances of having a 15-20 year career in consulting look a lot higher than your chances of having a 15-20 year career in banking.

Take McKinsey & Co. Between 1994 and 2001, it went from 3,300 consultants globally to 7,700. Right now, it has around 12,000 consultants – along with 2,000 “research and information professionals”. In other words, headcount in consulting just seems to rise and rise. – Although firms like McKinsey and Boston Consulting advocate layoffs and restructuring at client companies, their own staff seem fairly secure.

By comparison, all banks are under pressure to cut costs and heads. In the five years following 2008, American banks and insurers slashed 400,000 jobs according to the U.S. census.

Banking therefore looks like the more risky career option – you might get paid more to start with, but it might not last.

You want weekends off? Choose consulting 

Everyone we spoke to (literally everyone) agreed that consultants generally have a better life than bankers.

“My life is unimaginably better as a consultant,” says one ex-M&A banker. “My current colleagues are always listening in horror and shock when I recount some of my long months on less than a handful of hours of sleep when I was in M&A. Leaving at 11pm is really late in most cases in consulting.”

The really big difference, though is weekends: “Most consulting firms treat the weekend as sacred and it’s relatively rare to get an e-mail from a partner or a client.,” he says.

This isn’t to say that the hours aren’t sometimes tough in consulting too. One consultant said weekend work is often needed just to catch up. And even when consultants don’t work weekends, they spend their weeks ‘on the road’ (see below), miles away from home. An ex-consultant we spoke to said weeknights are often a killer in consulting jobs – you’re lucky to get in by 10pm.

Like banks, consultancy firms are alert to the long-hours issue. Boston Consulting Group has been implementing a policy known as ‘Predictable Time Off’ for years. Under it, consultants at the firm are assigned ‘predictable periods’ of downtime at the start of a project. During these periods, BCG consultants are required to be off completely – they mustn’t check their email and they mustn’t check their voicemail. Meanwhile, McKinsey & Co introduced flexible work programmes a few years ago – employees there can now take blocks of unpaid leave between projects, work three or four days a week, or take a leave of absence for up to a year.

You want less travel? Choose banking (for the first 10 years)

Everyone agrees that the big downer about consulting is the travel. If you work in banking you’ll commute in and out of your office on Wall Street, in New Jersey, or in the City of London every day. Yes, you might have to do a lot of travelling if you’re in a senior client-facing position, but if you’re a junior M&A banker or a trader you’ll mostly be glued to your screen at the mother-ship.

By comparison, if you work in consulting the travel is immediate. And it’s relentless. The ‘McKinsey Client Model’ involves, ‘Monday to Thursday at the client site and Fridays in your home office,” according to one McKinsey employee.  That client office could be nearby, or it could be hundreds of miles away. If it’s hundreds of miles away, you’ll spend your weeknights in some kind of faceless hotel. “The travel is a killer – you’re on the road non-stop unless you get a plush home city assignment,” says one ex-McKinsey consultant who now works in banking.

You want interesting work? Choose…consulting

Junior bankers in IBD spend their lives creating financial models in Excel and pitch books in Powerpoint. Consultants, meanwhile, spend their time creating diagrammatic models and Powerpoint presentations. Junior bankers devote their time to studying the value of a company and its capital structure; junior consultants think about the strategy of a company and its organizational structure.

Junior M&A bankers who’ve gone into consulting say the work they’re doing as consultants is more interesting. “I’m given a lot more responsibility here,” says one. “Already, I’m presenting to the top management of our clients, whereas when I was in banking I had little hope of meeting clients until I made vice president.” Another consultant says he’s presenting to top management and to general employees which gives him a better feeling for how the business really works: “In banking, you only think about the people at the top.”

One ex-banker turned consultant says the work in banking was too hurried and samey: “In banking, you end up specialized in a particular industry whereas here I’m more of a generalist. As a junior consultant, I get to handle a lot of different kinds of challenge each day and it’s about finding the right answer to a difficult problem. In banking, it was usually about getting the same things done in a short amount of time – we always felt very rushed.”

In theory, life as a consultant should be more fulfilling because consultants actually get to implement the recommendations they make, but one ‘executive transitioner’ who works with consultants moving into other industries says consultants get frustrated with the endless presentations and the limited opportunities to put their ideas into practice (a bit like junior bankers who put together endless pitchbooks for M&A deals that never happen). For this reason, he says they often move out of consulting and into management roles in industry instead.

The ex-McKinsey consultant-turned banker says life in consulting can be interesting due to the sheer variety of projects. On the other hand, the executive transitioner says some junior consultants get staffed across a broad range of projects managed by a range of different partners just to keep them interested, and that this can be come a struggle in itself.

One ex-consultant who now works for J.P. Morgan, says the standard of work is higher in banking: “In consulting I often felt that we were guessing the solutions without any reasonable argument. In banking, 100% correctness is always required and the level of work delivered to clients is very high.” This consultant also says that consultancy firms waste time and are inefficient: “In consulting, 4,000 slides were thrown on me to find something relevant for the task I had to do. You don’t get this in banking.”

You want to use your numerical skills? Choose banking

What makes a good banker vs. a good consultant? One McKinsey & Co. analyst who worked for a bank says bankers are more analytical: “They’re more numbers driven,” he says, adding that bankers use numbers to build up a big picture. By comparison, he says consultants have better communication skills and more aware of the small details behind a successful organization. “Junior bankers are routinely used to narrowing down a lot of info (eg. due diligence into its essential components), whereas most consultants will focus on getting additional information, creating deeper insights.”

You want to work with interesting people? Choose consulting. Want intelligent people? Choose banking

Consultants are probably more interesting people than bankers. Juniors who’ve worked in both industries tell us consultants are more “lifestyle” focused (i.e. they actually have lives outside work). By comparison, one consultant says M&A teams tend to be comprised of pretty similar high achievers. “This is great, because you’ll make friends for life in your analyst class, but in consulting you meet people with really varied interests and backgrounds, which can be more enriching.”

Another consultant who’s experienced both industries says people are smarter in banking. Consultants are good, but not that good.

You want a non-hierarchical culture? Choose consulting

While banks are all about saving money, consultants still have cash to splash. Juniors tell us the lifestyle in consulting is more fancy than in banks. While banks like Nomura now only offer cabs after 10pm and all banks breathe down your neck on things like colored photcopying, consultants say they get cabs to and from work, “many expensive dinners on company, private drivers to the airport.”

Another plus is that hierarchies in consulting firms are often flatter/less evident than in banking. “You feel that the seniors you’re working for actually care about your personal development and they’re often quite proactive in getting to know you beyond the scope of work,” says one McKinsey analyst. “That wasn’t really the feeling in banking – although granted I wasn’t to keen on spending that much more time with my MD after having worked with him for a daily average of 18 hours over at least a month.”

You want job prospects? Choose consulting

What happens when you decide you don’t want to work in banking or consulting any more?

If you work in consulting, you can always go off and become a senior executive in the sector you’ve been consulting in. McKinsey says 450 of its former consultants are currently running ‘billion dollar organizations’ around the world. They include Tidjane Thiam, the new CEO of Credit Suisse and James Gorman at Morgan Stanley.  

By comparison, swapping out of banking can be more of a challenge. The best people from investment banking go into private equity or event driven hedge funds. Sometimes they go into corporates to work for ‘in-house deal teams.’ But there are often more people who want to leave banking than there are places for them.

Interestingly, it seems very easy to go from banking into consulting and less easy to move in the opposite direction: there are plenty more people at McKinsey who used to work for Goldman Sachs but far fewer at Goldman Sachs who used to work for McKinsey.

One junior consultant says this is because banks offer an excellent schooling: “I’ll never learn as much in consulting as I did during those two years in banking, but I’m having a lot more fun as a consultant.”

If you’re smart therefore, maybe you’ll start out in banking and then move into consulting as your career progresses. That way you’ll be able to sample both worlds. And if you still can’t decide? You could always watch this. 

Follow @MadameButcher

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““

This summer I interned in the investment banking division of a European bank in London. It went well: I got an offer to come back and work here when I graduate, but the experience was marred by a serious problem I had with my boss.

I’m not writing this because I want to attack my boss or to get him into more trouble than he’s already in. I’m writing this because I’m angry and want to get it out there. Hollywood has – or had – Harvey Weinstein. Banks have men like my boss.

When I arrived for the internship, it was pretty clear that this man – an experienced banker who’s worked in the City for years – was having marital problems. I knew it, and so did all his colleagues. We couldn’t not know it: he was often on the phone in the office talking about his messy divorce. We could hear what he was saying and it was very awkward. There were arguments with his wife, conversations with family members; things that colleagues shouldn’t be witness to.

Maybe it was because of these marital problems that my boss started making unwanted advances on me. The first time, he called me “baby” and “darling” and asked me to go for a drink with him. I turned him down; I was polite about it and explained that I didn’t want to get involved with anyone at work.

Some men who’ve been told “no” think it’s ok to try again. My boss was one of those. The next time we were alone in the office, he came up behind me and put his hands on me, asking why I didn’t like to be touched. He also said – in somewhat fewer words – that he wanted to sleep with me.

Now, I was just an intern. I worked hard to get that internship and I really wanted an offer at the end of it. My boss would be instrumental in me getting that offer. He knew that and he was exercising his power.

Even so, I went to HR. I actually went to HR the first time, just to let them know that he’d made an advance. This made it easier to go again the second time, when he touched me. They were hugely supportive. I was preparing to make an official complaint of sexual harassment when he left. Overnight. I got in the next day and he’d cleared all his stuff. I haven’t seen him since. Maybe he got a whiff of what was coming.

In some ways, I was lucky. Lucky that I had the courage to go to HR and talk out against a man who seemed to have power over my future. Lucky too that he wasn’t aggressive. And lucky that I had the support of the bank and my other bosses (some of whom were very angry).

However, his actions made me wonder about the experience of other young women in banking. This is an industry with a lot of men in senior positions and a lot of young women lower down the hierarchy. Those men have an opportunity to abuse this power. The fact that my (ex-) boss was so bold made me question whether he’d behaved like this before and got away with it. He’d had plenty of opportunity to do so during his long career.

There are a lot of good men in finance. There are also some young women who use their gender to their advantage and send confusing signals. However, the gender imbalance in banking is so skewed that – like Hollywood – this is an industry with significant potential for the abuse of male power. Until there are more women at the top, it’s up to HR departments and good men – like my other bosses – to protect young women whose careers are only just beginning.

Laura Smith is the pseudonym of an intern at a bank in London.

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In 1985, Goldman Sachs was still a partnership. The current partners owned around 80% of the firm, retired partners held the remainder. Lloyd Blankfein was a 31 year-old trader at J. Aron, the commodities house Goldman had purchased four years earlier. Run by John Weinberg, a former M&A banker, Goldman in 1985 was mostly a U.S. operation. There were a handful of overseas offices, including one in London, but in the words of Lisa Endlich, Goldman’s London few hundred staff were sitting in an, “unair-conditioned setting on one floor of an office building.”

Nonetheless, Goldman wanted expansion. In 1986, it decided to go for growth. Over the next 12 years, the firm doubled in size and its capital increased five times.

This is the world depicted by a fixed income recruiting video made by GS in 1985 which has just surfaced on Youtube. Despite being posted to the video sharing network in March 2015, it’s only just been unearthed.

We’ve posted the 10 minute video below (3 mins on YouTube are blank). Goldman used it to make a pitch for, “exceptionally talented and motivated individuals,” to work in the fixed securities markets which it said were experiencing, “rapid growth.”

Highlights of 1985 Goldman Sachs included smoking at the desk, endless coffee in paper cups, pagers in belts, big hair, big computers, a lot of telephones, a lot of paper and a lot of human beings. The video supplements this with an encouraging ’80s musical accompaniment.

“The pace is fast, and the atmosphere is intense,” Goldman’s former self warns: “Emotions change from minute to minute.” Prerequisites for getting a job there included, “intelligence, independence, a strong desire to succeed, creativity and the ability the quickly translate ideas into action…”

If anyone knows who the people in the video are, please enlighten us in the comments box at the bottom of this article (future GS CEO Jon Corzine can be seen shouting into the phone at 7 minutes 30 seconds). If you like the genre you can always go on to sample the 1987 documentary about Paul Tudor Jones. 

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Contact: sbutcher@efinancialcareers.com

“”

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Bankers love to cry. Go check out the men’s room stalls and you’ll see what I mean. They’re in there. I’m not one to talk. I’ve cried too.

What brings this on? I’ve worked in banking 18 years. Here’s when I’ve seen grown men break down into tears.

Got fired

Lets start with the obvious ones. This is has got to be the worst.

Getting fired sucks. No two ways around it.

I’ve seen people slam desks, run in shame or just stare into space in disbelief. I remember this guy Jim who called his girlfriend to get some empathy and she dumped him right on the phone. Heartless.

Didn’t get promoted

This happened to me, and did I cry.

I was supposed to make managing director (MD) in 2010. A few weeks before the event, I got pulled into the boss’s office to be told that it wasn’t going to happen.

I held it together till I got home and then it was an hour of tears with my wife…..she hasn’t divorced me yet.

Didn’t get paid

Sometimes bankers get a donut for their bonus. For the newbies that means a big fat zero. You walk into room thinking you’ll get enough for a new Porsche or maybe a down payment, and you walk out with friggin donut.

It happens more often than you’d think. Management is ruthless these days. Tears are full of impotent disappointment – and maybe regret for working so hard.

Got abused

And this is the most regular source of visits to the men’s room. Even after all the politically correct talk, abuse happens. It happens daily.

The phone rings, the boss calls you to his office. You walk in thinking its going to be about the next project or deal. And the abuse begins. Somewhere you messed up. He’s mad and he’s not going to let it go. And your ego gets bashed, beaten and destroyed. You manage to pick yourself off the floor and walk as casually as possible to the men’s room before breaking down.

Didn’t get to go to a client meeting

Now let’s talk about the more petty episodes. Have you ever been in these client meetings where there are three people from the client side and 13 bankers? I’m sure you know the ones.

Now, why is everyone there? Thirteen bankers in one room. Ego. It’s like everyone getting a trophy for participation.

The thing is, the kid who did all the work for the meeting, probably isn’t there. That poor soul is still stuck in his cubicle crunching numbers and wiping those tears wondering why they didn’t take him.

Raise your hand if that’s happened to you.

What do we do about all this, other growing a back bone? Somewhere in my tenth year I picked up a copy of Marcus Aurelius and Seneca. The stoics helped me out.

If your ego’s been getting bashed, I highly recommend you check them out and go google Warren Buffett and his inner scorecard. Good luck. And it’s ok cry.

The author is a former Goldman Sachs managing director and blogger at the site What I Learnt on Wall Street.

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It will happen again. Almost 10 years since the collapse of Lehman Brothers and the global financial crisis, Deutsche Bank issued a cheering note pointing out that another financial crisis will happen, and that it will be worse than the last.

In a new iteration of an annual study, titled ‘The Next Financial Crisis’, Deutsche’s European strategists identify 11 potential things that could cause disaster between now and 2020. These we have listed below. Given that the last crisis eviscerated banking jobs (eg. American banks and insurers slashed 400,000 between 2008 and 2013), you might want to take note.

1. Central banks will unwind quantitative easing (QE)

DB’s strategists suggest we’re in the early stages of the “great unwind.” Since the financial crisis, $10 trillion+ has been added to the balance sheets of the four largest central banks, which now over $14 trillion of assets. As the charts below show, this is unprecedented.  Deutsche notes that in just over two years the ECB has printed the same amount of money that it’s taken the whole 1.3bn Indian population to produce economically in a year.

This situation needs to change. The trouble is that central banks will be unwinding their monetary stimulus into a situation where global debt is at all-time highs – particularly at government level. How will the economy cope without it?

Central Bank Assets (inflation adjusted to June 2017 price levels) – Four largest (left) and only Fed and BoE (right)

2. There will only be dangerous weapons left in the policy armory

DB strategists say the danger is that this “great unwind” takes place just as economic growth sputters and dies. With government debt already high, will governments be able to afford to replace monetary with fiscal stimulus? Will they go for full monetisation of their debt (ie. buy the debt with printed money and never pay it back in a form of self-funding)?

Something has to be done: Deutsche says people in the lower half of the income scale will no longer tolerate stagnating wages. As fiscal policy and debt monetisation take over, Deutsche sees inflation making a comeback. The fraught combination could cause a crisis as the economy adjusts.

3. There will be even more quantitative easing and even longer negative rates

As an alternative to debt monetisation, Deutsche says governments could continue to rely upon quantitative easing (in which central banks buy debt but promise to sell it on again later). This could risk a return to negative rates and worries about the stability of the financial system.

4. There will be a crisis in Italy

Deutsche says Italy is a disaster waiting to happen. It has high populist party support, a perpetually under-performing economy, a comparatively huge debt burden, and a fragile banking system which continues to have to deal with legacy toxic debt holdings. If anything goes wrong with the global economy, Italy will be very exposed. In particular, Italy’s export sector could struggle as the euro rises.

Deutsche says Italian banks still have €349bn of gross non performing loans. The good news is that most of these are at Italian banks now supervised by the European Central Bank.

Italian Government Debt to GDP

5. There will be a crisis in China

If it’s not Italy, it could be China. Deutsche notes that credit growth in China averaged 20% on an annual basis over the last 7 to 8 years, far outstripping the pace of Chinese GDP growth. The country has a huge property bubble and growing tensions from social inequality.

“Rapid credit expansion due to an insatiable demand for debt fuelled growth, compounded by a hugely active shadow banking system, as well as an ever expanding property bubble,” are China’s main issues, say Deutsche’s strategists. They point to a study by the IMF which shows that other countries with credit booms like China’s have historically had hard landings.

6. Global trade imbalances will become a problem

Since the end of the gold standard in the early 1970s, Deutsche notes that global trade has increased dramatically and that more countries have substantial current account surpluses and deficits (see the charts below).

“We live in a world where huge cross border flows are essential to fund the status quo,” note the strategists. “As such this surely makes the financial system more crisis prone as domestic policy makers have less control of their own economy.”

G20 (including EU) Current Account Balances (Net, % of GDP)

Current account balances (most recent figures, % of GDP) – ordered from largest surplus (left) to largest deficit (right) with G7 countries shaded

7. Populism will become a problem

We’ve had the Brexit vote. We’ve had the Trump vote. Within the next nine months, Deutsche notes that we will also have Italian elections where the anti-establishment “Five Star Movement” could gain a foothold on power and destabliize Europe. At the same time, they say Trump could yet exert U.S. military might in Asia and cause “great friction” with China. All of this risks an “extreme event” that could disrupt the financial system.

8. Stretched asset prices will ping back to earth

Deutsche says current asset prices are possible at their “most elevated in aggregate” throughout the whole of history. A sudden correction cannot be ruled out.

Aggregated 15 DM country average bond (nominal yields) and equity percentile valuations (100% = most expensive; 0% = cheapest)

9. There will be a crisis in Japan

Japan’s been scraping along at rock bottom for a while now, but this doesn’t mean things there can’t get worse. Deutsche notes that the country still has large budget deficits, still has huge QE, and has, “the highest public debt ratio in the developed world at a time when the population is falling and ageing with obviously fewer and fewer workers to pay the bills and more and more elderly to try to support.”

In these circumstances, the strategists say it’s almost impossible to see how Japan can get onto a sustainable path without massively increasing retirement ages, quickly repopulating, or “resetting” inflation.

10. Brexit will be messy

Sterling’s already fallen 19%, but DB’s strategists say this is nothing compared the crisis that could unfold if the UK’s relationship with the EU breaks down completely. This would have economic and geopolitical implications – to say nothing of the liquidity implications from the isolation of London markets.

11. Illiquid markets will stop functioning properly

Lastly, Deutsche points a finger at declining market liquidity. Market makers’ holdings of inventories have declined substantially since the last financial crisis. This could cause a problem if there’s a “change in the yield” environment and banks can’t facilitate trading because they now only match buyers to sellers rather than buying securities to sell them on. If there are no buyers, for example, prices could fall dramatically.

Deutsche notes that a lot of market activity has shifted to exchange traded funds instead. However, these have not yet been fully tested in a sustained bear market and could make things even worse.

Average daily trading volume as % of market size in US HY and IG

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Photo credit: Lost by Wendelin Jacober is licensed under CC BY 2.0.

2017 bonus announcements are fast approaching. Who will be lucky? Who will be luckless? Here’s our roundup of all the portents for performance payments for 2017.

Bank of America Merrill Lynch: Good news for investment bankers, less so for traders

What’s actually been said? Nothing at all. BofA’s executives have made no public references to likely bonus levels for 2017.

Can they afford to pay? Yes, but only really in global banking (equity capital markets, debt capital markets and M&A). As we noted at the time of BofA’s third quarter results, its investment bankers have done exceptionally well, with profits increasing nearly 30% year-on-year in the first nine months. Its traders have done less well: global markets profits were down 9%. The bank said it’s investing heavily in technology for the trading platform, and these technology investments are likely to take precedence over paying staff.

Who deserves to get paid at BofA? Research by market intelligence firm Tricumen shows Bank of America excelling in three areas in 2017: debt capital markets, M&A and FX trading. If bonuses are targeted on a divisional basis the recipients should probably be here.

Barclays: Bad news for at least half the people in the investment bank

What’s actually been said? Barclays’ senior management have explicitly indicated that bonuses will be bad this year. During the bank’s third quarter call with investors, CFO Tushar Morzaria said the bank had made “significant cuts” to its “performance pay accrual.” This was subsequently clarified by CEO Jes Staley, who said bonuses accruals were cut 25% in the third quarter. Staley added that this was unlikely to be repeated in fourth quarter. However, chief executive of the investment bank Tim Throsby said this week that the bottom performing half of Barclays’ bankers and traders will be paid down this year.

Can they afford to pay? Not really. Profits were down nearly 8% at Barclays’ corporate and investment bank in the first nine months of this year compared to last. Similarly, the cost ratio in the investment bank was 74% in the third quarter, up from 68% a year earlier. Staley said that Barclays has under-invested in technology and needs to make amends, so this will (again) surely take precedence over paying staff.

Who deserves to get paid at Barclays? Tricumen suggests that almost no one deserves to get paid at Barclays. In the first nine months of the year, it suggests almost every Barclays business under-performed rivals in revenue terms. The one exception was cash equities, which Tricumen says out-performed. However, cash equities is increasingly a reflection of investment in trading systems and outperformance here may be ascribed to the bank rather than to individuals. Things aren’t helped by the fact that Barclays has done some big external hiring in 2017: bonuses that might have been paid to incumbents are likely to have been diverted to buying-in new talent from outside.

BNP Paribas: Cost squeeze is a bad omen

What’s actually been said? Nothing at all, but costs are being squeezed. BNP plans to extract around €108m in costs from its investment bank in the fourth quarter. This doesn’t augur well for 2017 bonuses.

Can they afford to pay? Yes. Profits in the corporate and investment bank were up nearly 16% in the first nine months of 2017 compared to the previous year. However, they fell 35% year-on-year in the third quarter, a shock that’s likely to discourage generosity when the bonus pool is being decided.

Who deserves to get paid at BNP Paribas? Tricumen suggests there are a few business areas at BNP which have done better than the market (in revenue terms) this year. These include: securitization, rates, equity derivatives, and prime services.

Credit Suisse: Pay will be flat (at best)

What’s actually been said? Credit Suisse CEO Tidjane Thiam has explicitly said that his bankers shouldn’t expect bigger bonuses this year.  In an interview with Bloomberg, Thiam said Credit Suisse staff should expect a “balance”: “You should not expect anything spectacular, but something fair. Not a big increase compared to the previous year.” This balance comes as CS emerges from two years of restructuring and continues to take costs out of the investment bank. “Balance” may be optimistic: in the first nine months of the year, average total pay in Credit Suisse’s global markets division was down 10% to CHF160k, while average pay in the investment banking and capital markets division was down 7% to CHF290k.

Can they afford to pay? Yes they can. Profits in investment banking and capital markets were up 140% in the first nine months of the year compared to last. Profits in global banking and markets were up 1,400% after a big writedown last year.

Who deserves to get paid at Credit Suisse? Tricumen suggests only a handful of Credit Suisse businesses outperformed in revenue terms during the first nine months of this year. They were: debt capital markets (loans), securitisation, and credit.

Citi: Can afford to pay, but probably won’t

What’s actually been said? Nothing. Citi has said nothing about this year’s bonuses. Nor does it break out compensation in the investment bank.

Can they afford to pay? Yes they can. Profits at Citi’s institutional clients group were up 24% year-on-year in the first nine months and 15% in the third quarter. However, Citi’s investment bank has one of the lowest cost ratios in the industry and CEO Mike Corbat has a reputation for parsimony.

Who deserves to get paid at Citi? To the extent that bonuses are awarded for revenue outperformance, Tricumen suggests a handful of businesses in Citi’s investment banking division (IBD) deserve to be rewarded. The bank’s debt capital markets (DCM) bankers, M&A bankers and equity capital markets (ECM) bankers outperformed the rest.

Deutsche Bank: Says it will pay, could still have second thoughts

What’s actually been said? After last year, when performance-related bonuses were all but eliminated at Deutsche Bank, the big question is what happens to bonuses for 2017. Back in February, head of the corporate and investment bank, Marcus Schenck, promised that bonuses will be “back to normal” this year. This is still expected to be the case.  During the bank’s third quarter investor call, CFO James Von Moltke said Deutsche is, “highly cognizant that we need to compensate our employees fairly and incentivize.” Moltke then added that, “decisions are still outstanding in terms of comp for the year,” and that investors should be aware that last year’s fourth quarter was flattered by the decision to eliminate bonuses – suggesting this won’t be repeated. Subsequently, Deutsche CEO John Cryan complained about the European Union’s rules on deferred bonuses, which he said make the bank uncompetitive. Given that Deutsche has actively chosen to implement a harsher-than-necessary version of these rules, with five year “cliff” deferrals for senior staff, there’s a possibility that DB will relax its vesting schedule.

Can they afford to pay? Not really. Profits in Deutsche’s corporate and investment bank fell 25% year-on-year in the first nine months of the year. The German bank has spent heavily on hiring people in (24 directors and managing directors have been added in U.S. corporate finance alone). So far, it has little to show for it. Deutsche’s most recent hire, Peter Selman, will lead the global equities business, where revenues fell 18% in the first half of this year. Selman’s appointment so close to bonus time suggests equities traders stand to be particularly disappointed this year. There are some ominous general signs: average pay per head in Deutsche’s corporate and investment bank fell 7% to €126k in the first nine months of this year compared to last.

Who deserves to get paid at Deutsche? No one really. Tricumen says almost every business at Deutsche Bank underperformed the market in the first nine months of this year. The exceptions were DCM and FX, which performed on a par with rivals.

Goldman Sachs: Spending its money on outside hires, but says it values existing staff 

What’s actually been said? During Goldman’s third quarter call, CFO Marty Chavez said there might be some “modest upwards pressure” on the proportion of revenues Goldman spends on compensation as it brings in extra hires from outside. Accordingly, the compensation ratio rose to 41% in the first nine months, up from 40% a year earlier, and pay per head rose 3% to $271k.

Can they afford to pay? Yes, they can: profits were up 18% year-on-year in the first nine months of 2017 compared to 2016. Whether Goldman will want to pay is another question: with questions raised about its business model, the firm is under pressure to keep shareholders happy. This year’s bumper crop of managing director promotions can be seen as an attempt to incentivize staff through channels other than compensation.

Who deserves to get paid at Goldman Sachs? Despite raised eyebrows about Goldman’s performance, Tricumen says various of its businesses outperformed in revenue terms this year. They included: debt capital markets, rates trading, cash equities trading and principal investments.

J.P. Morgan: Spending on tech. The poor performance of the investment bank doesn’t augur well 

What’s actually been said? Nothing really, but during J.P. Morgan’s third quarter call CFO Marianne Lake said the bank continues to invest in both coverage bankers and technology, suggesting that compensation might therefore be squeezed. J.P. Morgan doesn’t break out compensation per head for its investment bank staff any more, but in the first nine months of the year average compensation across the combined investment and corporate bank fell 1% to $153k.

Can they afford to pay? Yes, they can. Profits at J.P. Morgan’s corporate and investment bank rose 15% year-on-year in the first nine months, and costs fell to 69% of revenues.

Who deserves to get paid at J.P. Morgan? Almost no one. Tricumen says only J.P. Morgan’s prime brokerage business outperformed the market. All other investment banking businesses either under-performed or performed on a par with rivals

Morgan Stanley. Can afford to pay, but has historical aversion to doing so

What’s been said: Nothing, However, Morgan Stanley CEO James Gorman has an historic aversion to bonuses, having declared that bankers were overpaid when he arrived in 2012.  Even so, compensation spending in Morgan Stanley’s institutional securities division was up 9% year-on-year in the first nine months, which would seem to augur well.

Can they afford to pay? Absolutely: profits were up 25% year-on-year in the first three quarters.

Who deserves to get paid at Morgan Stanley? Tricumen says Morgan Stanley’s ECM bankers, DCM bankers and rates, credit and FX traders all outperformed the market this year.

UBS: Quietly increasing bonuses in the investment bank 

What’s been said: In the notes to its third quarter results, UBS said performance pay in the investment bank has been increased this year. Nonetheless, compensation per head was flat during the first nine months, at CHF476k.

Can they afford to pay? In theory, yes: profits rose 72% in the first three quarters compared to 2016. However, this was largely the result of accounting changes, absent which profits were still up – but by a more modest 15%.

Who deserves to get paid at UBS? Tricumen says UBS’s ECM bankers, M&A bankers and equity derivatives traders all outperformed.

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You’re out of time. If you can’t already write a piece of code to find the longest palindrome in a string, you probably won’t be able to do so before the automation revolution deals a body blow to your banking job sometime around 2022.

Cathy Bessant, the chief technology and operations officer at Bank of America, said as much in conversation with Bloomberg last year. If you’re a bank employee who’s technologically illiterate, Bessant said it’s no good rushing to do a few coding courses on the side. You’re too late: things are moving too fast. “The kind of skills that we’ll need have to be taught beginning at a much earlier age,” said Bessant. “Whether you can train the same worker at the same time you’re changing their job remains to be seen.”

As banks automate everything from the IPO process to trading execution, to settlements, to research, the implication is that entire swathes of current employees will become superfluous. Bessant isn’t alone in sounding the alarm. Sergio Ermotti, CEO of UBS, says 30% of jobs at the Swiss bank could be automated out of existence within 10 years. Another UBS executive told Bloomberg that figure is more like 40%, and the time period is more like four to eight years than an entire decade.

The reality is that the displacement is happening already. Huy Nguyen Trieu, the former head of macro structuring at Citi, told us he knows of a team of just four algorithmic traders who now manage 70% of the trades that were done by 140 people in 2010.“Even being an outstanding trader in that team didn’t help anyone’s career,” Nguyen Trieu said. As we reported previously, the most forward thinking traders took time out to retrain in machine learning years ago.

However, as the tide goes out before the tsunami arrives, there is – maybe – something that can still be done. Not for nothing has Goldman Sachs president David Solomon been extolling the virtues of a well-rounded education that incorporates public speaking and communication. Just as banks need geeks, they’ll also need exceptionally charismatic individuals to act as the face of the new automated reality. Banking skills are bifurcating: if you can’t code, you’ll need charisma. If you have neither, bad luck.

The split is already happening. Speaking off the record, one senior equities saleswoman says banks are automating all the most “boring” parts of the sales process like booking client meetings and sending out research, but clients still want contact with, “trusted advisors”. A senior fixed income salesman tells us the most important clients have automated trade execution, but not the decision-making process preceding it, making salespeople as important as ever. A senior FICC salesperson says some banks are starting to wonder whether they tried to “equify” their fixed income sales and trading businesses too quickly: in illiquid markets, clients want human interaction.  “Senior salespeople who were let go are wanted back.”

Of course, survivors who can’t code will need to combine charisma with a deep understanding of the systems they’re working with, especially under MiFID II. As Michael Dubno, former CTO at Goldman Sachs, said last month, future client relationships will pivot not upon research but upon data, and data will often sell itself. “Almost every business is going to be automated to the point where very few people are involved in the running of it,” said Dubno. Those few people will either design the automated systems or will sell the automated systems to clients. If you’re not going to be in the first cohort, you need to be in the second. Position yourself now before it’s too late.

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Former Brevan Howard star trader Chris Rokos’ $6.8 billion hedge fund has roped in yet another senior executive from Barclays, continuing its hiring spree in London as it expands its UK operations.

Dan Azzopardi, a former director at Barclays Capital, joined Rokos Capital Management as the chief technology officer (CTO) in December. Azzopardi comes with 17 years of experience. Alongside equity derivatives technology, he specializes in technical leadership, agile development, distributed computing and Excel-based front office tools and application development, according to his LinkedIn profile.

In his previous London-based role at Barclays,  Azzopardi  was responsible for front office rapid application development (an application development methodology which reduces the time required for development ) for equities, equity derivatives market risk systems design and delivery as well as high-performance computing and grid computing strategy. Before joining Barclays in 2007, he worked for Credit Suisse, where he lead rapid application development team for equity derivatives and oversaw the delivery of the next generation of scalable grid computing infrastructure.

Azzopardi is the latest addition to Rokos Capital’s list of senior recruits, which predominately includes former traders from large investment banks. Last year, it hired Michael Waresh, a former Goldman Sachs prop trader, Ramnek Matharu, a former Goldman Sachs managing director, Omar Gzouli, a former managing director at Barclays in New York and Robin Wilson, the former head of emerging markets trading for Europe, the Middle East, and Africa at Credit Suisse.

Rokos Capital Management was set up in 2015 by Chris Rokos after a long non-compete dispute with his former employer, Brevan Howard Asset Management, where he was also a co-founder. Its assets under management ballooned to $6.8bn after it raised $2.2 billion in early 2017. Although Rokos Global Macro Master Fund had a rough first half of 2017, with performance reportedly down by -5.1%, it gained +3.3% in September, according to Bloomberg, narrowing down the loss to just -1.2% by the end of October 2017

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The top level of investment banking is notoriously a Game of Thrones, where seeming colleagues are in fact engaged in all manner of intrigues and office politics to reach a position of first among equals. But there is one main rule of the game – he, or she, who is closest to the biggest potential fee pool is the king, or queen of the hill for the time being.

And that means that in order to understand the power struggles at the top, you need to understand the stage of the cycle. The capital markets and advisory business, as a rule of thumb, is usually in one of three phases. It’s in a tech cycle. It’s in a natural resources cycle. Or it’s in a financial institutions group (FIG) cycle. Going into 2018, it looks like it’s likely to be in a FIG cycle.

The banking industry now has a stable set of Basel Accords to aim at, for the first time in ten years. Even more than this, we have a public policy environment in Europe which is actively encouraging M&A activity. We will also see a substantial change in the rules on securitisations, which is specifically aimed at resurrecting a market which is currently moribund, but which accounted for US$450bn of annual issuance within living memory.

But wait, there’s more. The finalisation of the TLAC and MREL standards for bank unsecured debt means that a significant proportion of the sector’s outstanding bonds need to be refinanced, and the introduction of Basel 4’s “output floor” for internally modelled capital requirements means that there are now three potential constraints on bank capital, tripling the opportunities for regulatory arbitrage transactions. And the insurance industry has regulatory change of its own through Solvency II. And then there’s the fact that FIG will have at least as good a claim as Tech for whatever response the industry makes to the ICO and cryptocurrency gold rush…

All of this suggests that the new power brokers in investment banking divisions (IBD) will be the Heads of FIG at banks which are prepared to make an investment in chasing the growing financial fee pool. Within FIG, the regional franchises in EMEA will be in the spotlight. Expect, therefore, to hear a lot from Max Mesny and Armando Rubio-Alvarez, recently promoted co-heads of FIG EMEA at Credit Suisse. Or from Jose Enrique Concejo at SocGen, recently promoted to global head of FIG. BAML appears to be a little ahead of the curve here, promoting Jim O’Neil from Global FIG to co-head of all EMEA investment bankin[, although the loss of Henrietta Baldock as chair of European FIG may leave a gap

These high-level moves are likely to prefigure considerable hiring and firing activity among the MD and ED ranks as the new head bankers start to set their priorities for the 2018 fee pool. Even at the boutique level, former HSBC FIG banker Ben Leonard appears to have been enticed back from his organic vineyard to set up a fintech boutique called Meta.

Dan Davies, is a senior research advisor at Frontline Analysts and a former banking analyst at Cazenove, Credit Suisse and BNP Paribas.

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Where are banks likely to hire and fire in 2018? Here’s our round-up of the hiring intentions disclosed at the time of their third quarter results.

Bank of America: Massive spending on (and likely hiring in) technology. Needs to get rid of some more traders 

Bank of America’s investment bankers working on M&A and capital markets deals have been doing well this year. Its salespeople and traders have not. 

In the call accompanying BofA’s third quarter results, CEO Brian Moynihan boasted that the bank has cut costs equivalent to the entire “cost structure” of Merrill Lynch since it acquired the Merrill in 2008. As BofA invests in technology, including artificial intelligence, it’s working to keep costs stable. Across the bank, BofA spent a huge $2.5bn on technology this year. CFO Paul Donofrio noted that savings which have been made in the banking (IBD) division have been offset by technology investments, and that BofA has been upgrading rather than making net new headcount additions.

Bank of America laid off around ten traders in September 2017. However, it could benefit from making more cuts to its markets division, where costs were 77% of revenues in the first nine months of this year, versus 65% in global banking and around 60% across the bank as a whole. Neither Moynihan nor Donofrio gave any indication that cuts are coming, however.

Barclays: No redundancies planned, ongoing hiring across technology and sales and trading (especially cash equities and electronic)

Barclays has been one of this year’s biggest hirers. In the ten months to October, it recruited 21 managing directors, two thirds of whom went into the markets division. Tim Throsby’s presentation in September suggests it hasn’t stopped hiring yet.

Throsby said Barclays wants to “restore excellence” in electronic trading, to “regain a leading position” in FX and rates, and to pursue “targeted growth” in equities, prime services and credit. The implication is that Barclays could hire further in all these areas, although it may not do so this year. In the call accompanying the bank’s third quarter results, CEO Jes Staley also said Barclays has been over-reliant on flow equity derivatives, whilst neglecting cash equities and that it intends to remedy this. Separately, Staley said that Barclays has “under-invested” in technology and will make amends for this too.

While Barclays is hiring, it says it won’t be firing. Despite a cost ratio of 74% in its investment bank in the third quarter (up from 68% a year earlier), it insists restructuring is over.  “You cannot cut yourself to glory and those that try will ultimately fail,” said Staley. Instead of cutting heads, Barclays is cutting bonuses.

BNP Paribas: Still pursuing ~5% compound annual revenue growth in its global markets business. Has a further €100m of costs to take out of its corporate and investment bank before the end of the year

BNP Paribas has been hiring in 2017. The French bank has a 5% annual growth target for its global markets business between now and 2020 and has been recruiting in fixed income. Most recently, it recruited Deutsche Bank’s former head of inflation trading. It’s also added in credit and emerging markets. 

BNP’s new recruits look more like upgrades than net headcount additions, however. Whilst bringing new people in, it has also been letting existing people go, the most recent exit being Simon Birch, the former head of emerging markets fixed income trading, who left last month.

For a bank that prides itself on its cost efficiency, BNP’s global markets division is starting to look a bit flabby. In the third quarter, costs rose to 77% of revenues, up from 71% a year earlier.

Fortunately, therefore, BNP is in the process of a cost cutting programme. In its third quarter presentation, it said it has around €200m of costs to cut before the year is over, half of which are likely to be extracted from the investment bank. Fixed income traders should probably be worried.

Credit Suisse: Continued cost squeeze focused on contractors. Equities hiring is over, but hiring (seemingly) continues in compliance 

Credit Suisse wants to keep costs in its global markets division below CHF4.8bn this year – a reduction of 11% on 2016 and 45% (yes!) on 2015. It’s on track to do this. In the first nine months of the year, global markets costs were CHF3.7bn, implying that Credit Suisse can spend CHF1.1bn in Q4 2017, down only slightly on the CHF1.3bn it spent during the same period last year.

Despite cutting costs viciously, Credit Suisse has been expanding headcount.  In October 2017 it had 80 more people in global markets than in October 2016, and 350 more people in the investment banking division. It also had 750 more people across all business in Asia Pacific.

How can CS cut costs and hire? Simple: its cost cutting focus is contractors and consultants. In the year to October, 3,050 contractors and consultants were let go. As one Credit Suisse contractor pointed out this week, this is causing consternation among contractors still at the bank, who claim it’s cutting too deeply and that working there has become a misery.

While Credit Suisse is cutting contractors, its hires in global markets have been particularly focused on equities, where it’s been hiring heavily from UBS. However, in last week’s analyst call CEO Tidjane Thiam said the bank’s equities hiring is over and that CS is now waiting for revenues to come through in the next 18 to 24 months.

Separately, Thiam said Credit Suisse has been hiring for a new “compliance lab” which houses 18 PhDs and 54 people with masters qualifications. This appears to be the new, new thing at CS, and hiring there may well continue. It is likely to be to the detriment of other Credit Suisse compliance and control staff, however: at the bank’s November investor day, CS said it plans to cut around 45% of staff in this area in the next 12 months.

Citi: Gaps to fill in credit trading, still building in equities. No mention of cost cutting 

Citi’s institutional clients group (its investment bank) has had an exceptional year and outperformed all its rivals. The bank has spent the last few years bolstering its equities trading business and in Citi’s third quarter investor call CFO John Gerspach said he was pleased with its progress and with the 30% combined revenue uplift between equities trading and equity capital markets compared to the previous year. Unlike Thiam at Credit Suisse, however, Gerspach didn’t say equities hiring at Citi is now over.

Gerspach also didn’t say that Citi is hiring in credit. However, as we reported yesterday, Citi has gaps to fill because its senior credit traders are defecting to Nomura.

There was no mention of cost cutting in the bank’s third quarter presentation, even though Citi said previously that it wants to shave 70 basis points off expenses in the investment bank by moving staff to low cost locations. At 67% of revenues in the first nine months of the year, costs in Citi’s institutional clients group were some of the lowest in the market.

Deutsche Bank: Cuts likely in support functions. Hiring likely in the U.S.

Deutsche Bank has a cost problem. In the third quarter of 2017, costs ate 87% of revenues in its investment bank, up from 74% a year earlier. And things threaten to get worse.

As Deutsche CFO James Von Moltke pointed out in the bank’s third quarter call, Deutsche has committed to actually paying bonuses this year, meaning that compensation costs will rise in the fourth quarter compared to 2016 (when it didn’t).

Naturally, there is a way around this, and that is to cut heads and pay those who remain. This is almost certainly what Deutsche will do. The bank already says it’s made cuts from its fixed income sales and trading staff and CEO John Cryan said today that Deutsche employs far too many people. Deutsche’s overall headcount of 97,000 could be halved by technology, said Cryan, adding that the bank has too many people in back office functions compared to front office functions. Following earlier suggestions by Cryan that Deutsche employs a lot of accountants who are performing the tasks of an abacus, the implication is that Deutsche is going to do something harsh with people working in support roles. This is unlikely to happen before Christmas. however.

While Deutsche is culling its middle and back office staff and replacing them with automated systems, it’s likely to add front office staff in the U.S. Cryan has reportedly called in McKinsey & Co. to help him turn the bank around and McKinsey and Co. say conquering the U.S. market will solve all Deutsche’s problems.

Goldman Sachs: Hiring ‘coverage and distribution staff’. Quietly culling some U.S. equity derivatives traders 

Goldman Sachs has got big expansion plans. Outlined by COO Harvey Schwartz in September, these plans involve chasing $5bn+ in revenues over the next three years, split between fixed income currencies and commodities ($1bn+), lending and financing and Marcus ($2bn), investment banking and coverage ($0.5bn) investment management ($1bn) and equities ($0.5bn).

To this end, the firm is hiring. Most importantly, it’s hiring “laterally” as it brings in experienced people from rival banks. In the bank’s third quarter call, CFO Harvey Schwartz said Goldman has doubled its lateral hiring this year compared to last and that the hires are weighted to “sales distribution” after the bank said it wanted to increase its penetration of corporate clients. Many of Goldman’s hires have been at executive director and managing director level.  After culling 30% of its credit sales and trading professionals between 2012 and 2017, Goldman has a particular need to hire in flow credit.

As Goldman goes for growth, no mention was made of cost cutting. This doesn’t mean it’s not happening. Fox Business reported this week that the bank is quietly pulling out of listed equity derivatives trading in the U.S. 

J.P. Morgan: No mention of hiring, no mention of firing, but firing would be beneficial. Machine learning specialists welcome 

Cost cutting is supposed to be over at J.P. Morgan. Investment bank CEO Daniel Pinto said as much earlier this year. 

However, J.P. Morgan’s sales and trading business didn’t do well in the third quarter and the bank may well be tempted to take costs out before December – particularly as CFO Marianne Lake warned that fourth quarter sales and trading revenues are also likely to be down on last year. 

J.P. Morgan is working hard to automate as much of its investment bank as possible. The bank as a whole already spends $9.5bn on technology and one of Pinto’s insiders is David Hudson, the head of markets execution who says the bank has done too much to protect employees in the past. Last month, Pinto promoted Samik Chandarana, a former credit trader and J.P. Morgan veteran, to the role of developing the bank’s data and machine learning strategies. This follows the success of David Fellah, a member of J.P. Morgan’s  European equity quant research team, who developed LOXM, J.P. Morgan’s new self-teaching trading algorithm, which can execute large and complex equities trades.

Morgan Stanley: Investment in technology. No cuts planned

Morgan Stanley has no need of making cuts to its ‘institutional business.’ CEO James Gorman says the bank’s 72% efficiency ratio is below its 74% target and that its “project streamline” expense savings are coming to fruition.

Morgan Stanley hasn’t been a big hirer this year. However, Gorman suggested things may have been happening behind the scenes. Morgan Stanley is “driving electronic transformation” in its investment bank, said Gorman and building a platform that will last for the next decade. Expect technology hiring then.

UBS: No cuts coming. Ominous things have been said about automation and hiring in technology

UBS has also finished cutting heads in its investment bank for the moment. Andrea Orcel said as much earlier this year and UBS added 81 people in its investment bank (many of whom are likely to have been recent graduates) in the third quarter. of 2017. In the same period, costs consumed 85% of revenues in the investment bank, down from 91% a year earlier.

Even so, UBS could potentially benefit from taking some more costs out of its investment bank, where its cost ratio remains high relative to rivals.

Ultimately, this is likely to happen through automation. UBS CEO Sergio Ermotti has said that 30% of jobs at the bank could go in the next decade due to automation. Another UBS executive told Bloomberg it’s more like 40% in as little as four years. 

Accordingly, UBS used its third quarter presentation to say that it has increased its spending on regulation and technology in the investment bank by 8% in the past year. As at other banks, technologists and compliance professionals (especially technologists working on compliance technology) are the people of the moment.

Follow @MadameButcher
Have a confidential story, tip, or comment you’d like to share? Contact: sbutcher@efinancialcareers.com

Bear with us if you leave a comment at the bottom of this article: all our comments are moderated by actual human beings! Sometimes these humans might be asleep, or away from their desks, so it may take a while for your comment to appear. Eventually it will – unless it’s offensive or libelous (in which case it won’t.)

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Investment banking, sales and trading, research: they are all hard jobs.

You will likely be stabbed in the back by your colleagues, your clients will slam the phone down on you and pull an order, and your boss will either make you doubt yourself or throw you under the bus.

Don’t sweat it. Don’t be disheartened. This is the nature of the game.

There is nothing wrong with you.

Learn how to persevere and not break down.

Many times over the last 17 years I have doubted myself, my abilities, my profession. Even today, these doubts continue. I have come close to quitting many times. But, each time I talked myself off the edge. How?

Resilience.

I got through seventeen years of banking, investing and trading because of resilience.

Resilience is being able to bounce back from your problems, it’s being able to get back up when you fail and it’s being able to keep going when you don’t know what to do and all seems lost.

Here’s what I learnt about resilience, about taking the pain and coming back stronger:

Don’t get emotional – Resilient people acknowledge difficult situations and acknowledge them early. They then keep calm and evaluate the real facts rationally so they can make a plan and act. Getting emotional or making rash decisions just leads to trouble.

Quit early – I know quitting might not sound like being resilient, but trust me sometimes that is exactly what you need to do. For example, when your company starts laying people off, you can be the smart person who sees the issues immediately and jumps ship to get a new job before all the other resumes flood the market.

Looked at in another way, this is not quitting in the normal sense of the word, but merely acknowledging that the ship you’re on is sinking.

Be prepared – It is easy to deal with bad things when you are prepared for them. Of course preparing to get fired is stressful, but you can still work to build new skills, develop your network and be irreplaceable.

An easy area I have found is just acquiring good habits – for example get into the habit for exercising three times a week, or get into the habit of going to bed an hour earlier so you can get to the desk before anyone else does, or into the habit of meeting one new person internally every day to grow your network.

Keep moving – When things get tough, people get sad or scared, retreat and distract themselves. Pretending something is not happening will not get rid of the mess.

Resilient people know that staying busy not only gets you closer to your goals but it’s also the best way to stay calm. For example say you just got laid off from your job in banking, a resilient person would immediately schedule coffee or drinks with all her old colleagues from work, talk to her old clients regularly to stay in the flow, pick up new skills that will make you even stronger, apply for an MBA, arrange a drinks event with the local alumni chapter of your university.

Help out – Sometimes helping someone else is the best way to ensure your own survival. It takes you out of yourself. It helps you to rise above your fears. Now you are a rescuer, rather than a helpless victim. If nothing else, this creates great karma for you.

And always remember the old saying – what does not kill you can in fact make you stronger.

The author is a former Goldman Sachs managing director and blogger at the site What I Learned on Wall Street (WilowWallStreet.com). What I Learnt on Wall Street is an education focused business founded a group of Wall Street veterans from the best firms determined to help the next generation. They just launched: Smart Cuts to the Top, a live course delivered on Jan 24th.

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