Morning Coffee: UBS has got rid of fewer Credit Suisse bankers than planned. The best performing banks allow more working from home
By the standards of investment banking takeovers and cost cutting programs, the integration of Credit Suisse into UBS seems to have progressed with relatively little drama - and there might be “one weird trick” to thank for that.
From day one, UBS’ management made it clear that they were aiming for a cost reduction target, and that although that might have implied that there would be headcount cuts, that wasn’t a goal they were going to announce publicly.
As a result, although they have to put up with occasional headlines saying that they’ve “missed job cutting targets”, they have not suffered anything like the franchise damage which they might have. All too often, when an investment bank announces job cuts, you can expect the “10/20 Rule” to apply – you cut 10% of your staff, and then another 10% leave, and the 10% who left of their own accord are usually the exact ones that you wanted to keep.
Basically, investment banking is a people business, and it’s one in which good employees are aware of their market worth, but also often slightly paranoid. People don’t like changing jobs, and they usually need a reason to start looking for other opportunities. But the fear of being cut is exactly such a reason. And once somebody has their resume out on the market, it is out there – they will start to get offers, if they’re good. Which is why you often get global heads and co-heads in the ironic position of walking straight from one conference room where they’re drawing up lists of redundancies, into another conference room in which they’re trying to persuade one of their most important rainmakers to stay.
If you want to avoid this, you need to treat your bankers like the nervous little woodland creatures that they are. Don’t scare them with big numbers for job cuts (particularly if, as is the case in UBS, they are inflated with redundancies coming from the retail network). Try to do as much as possible via natural attrition, and make a big deal out of filling vacancies internally.
That’s what UBS has done, and the results appear to have been good. The reason that the (internal, implied) job reduction forecasts have run ahead of reality seems to be that, in line with trends observed across the whole sector, attrition rates have fallen to historically low levels. People just aren’t resigning as much as they usually do. But in an industry where compensation is variable, there isn’t the same direct connection between headcount and costs that you see in other industries.
And so UBS has preserved most of its core franchises, and managed to keep a baseline level of stability which is allowing it to challenge for a top 5 position in the USA. It’s a great example of the benefits of applying a little bit of emotional intelligence to a very tricky human resources problem, rather than taking “tough decisions” which sound great at the first shareholders’ meeting but set up problems for the business which can last a decade.
Elsewhere, although it’s conventional wisdom in the banking industry that “a strong commitment to office working is a sign of a hungry and intensive culture, a team that wants to win... firms with more staff on site will benefit from the synergies and efficiencies”, to quote Mike Mayo, the evidence for this being the case is surprisingly difficult to quantify. If there’s a big divide in the industry, it’s between the USA and Europe, with European lenders for the most part (other than the big French banks) allowing more generous remote working policies than American counterparts.
Has this less intense and less hungry European culture resulted in worse performance? Surprisingly, no. The period in which the USA began to get tough and Europe allowed pandemic-era policies to continue also saw the European industry begin to close the long standing share price gap with North America.
Even within the USA, Jane Fraser’s Citi doesn’t seem to have suffered and may have gained competitive advantage from its less demanding presenteeism. One academic suggests that a big driver of tougher return-to-office demands has been that companies tend to introduce them after a period of poor stock performance. Once more, it seems to be the case that many CEOs would rather have something to say at a meeting than take the best decisions for the business.
Meanwhile…
Another day, another high ranking hire from JPMorgan to Citigroup – as expected, Amit Nayyar has made the move. It also appears to be a promotion, as he was running fintech investment banking at JPM but will be leading EMEA coverage for the whole technology sector at Citi. (Financial News)
Although other second tier and foreign players have been expanding, Scotiabank has downsized its non-Canadian investment banking operations, with multiple redundancies at MD level and a significant reduction in the healthcare team. (Bloomberg)
It’s hard to crack down on unauthorised WhatsApp groups without setting the “tone from the top” – 41% of these breaches over the last year were committed by senior staff. (Financial Reporter)
Barclays described securitized products as a “focus area” last year and now it’s walking the talk, hiring Shaishav Argawal from Deutsche to be head of US CMBS and Guangqing Xhiang from Bank of Montreal to be head of CMOs. (Bloomberg)
After spending close to a decade as crypto sceptics, Wall Street CEOs are now jumping on the crypto bro train. But they’re more interested in stablecoins than bitcoin, so the most insufferable person on your trading desk is not really vindicated. (NYT)
If you want to get insight into the luxury goods industry, study the lyrics of Billboard chart hits. Brands like Gucci, Louis Vuitton and Hennessy had their greatest periods when rappers were always name-dropping them, but as fashions have changed, the luxury market has also turned down. The industry is now hoping that “Dior” is going to be the song of the summer. (Bloomberg)
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