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Business/Finance See other Business/Finance Articles Title: Unwanted Deposits and Bank Reshufflings Unwanted Deposits and Bank Reshufflings Oct 19, 2015 8:30 AM EDT By Matt Levine No one wants your cash. A bank is a magical place that transforms risky illiquid long-term loans into safe immediately accessible deposits. Like most magic, this requires a certain suspension of disbelief. We live in skeptical times, though, and people who would once have gazed with childlike wonder on the magic being worked by banks are now all like, well, that is kind of a risky mismatch, you should really hold a lot more capital against all those flighty demand deposits. And so you get stories like "Big Banks to America’s Firms: We Don’t Want Your Cash": Many businesses have large sums on hand and opportunities to profitably invest it appear scarce. But banks don’t want certain kinds of cash either, judging it costly to keep, and some are imposing fees after jawboning customers to move it. The banks’ actions are driven by profit-crunching low interest rates and regulations adopted since the financial crisis to gird banks against funding disruptions. Corporate demand deposits are viewed as risky funding for a bank, which of course they are; have you seen that movie? And so regulators, who want to make banks less risky, discourage banks from taking that flighty short-term funding and investing it in risky loans. But the exact and only purpose of a bank is to take flighty short-term funding and invest it in risky loans. Everything else is ancillary. Fund advisers. On Friday, the Securities and Exchange Commission "published a report that provides private fund industry statistics and trends, reflecting aggregated data reported by private fund advisers on Form ADV and Form PF," and it is kind of a delight. I mean, I struggle a little to find much meaningful information in the aggregates: The hedge fund industry (the majority of the assets covered by this report are in hedge funds, though private equity, venture capital and real estate funds are also represented) is too heterogeneous for generalizations to be all that useful. (The New York Times struggles too, pointing out as highlights that "The use of derivatives by funds rose to $14.8 trillion from $13.6 trillion, but derivatives made up a smaller portion of total net assets, 221 percent versus 256 percent," and that very very few hedge funds "use high-frequency trading strategies.") But the report at least points to that heterogeneity. The SEC finds $3.4 trillion of net asset value in 8,635 hedge funds as of the last quarter of 2014, with $2.7 trillion of that in 1,541 "qualifying hedge funds," that is, funds with at least $500 million under management that are managed by advisers with at least $1.5 billion under management. Of about $2.7 trillion in qualifying funds, on my reading, 20.8 percent is managed by the top 10 advisers, and 30.2 percent by the top 20. So by my math the average top-10 hedge fund adviser has about $56 billion under management, while non-qualifying hedge funds -- the large majority of the funds reporting to the SEC -- average something like $100 million. Deutsche Bank. I used to work at Goldman Sachs, where the cultural and structural divide is pretty clearly between investment banking, on the one side, and sales and trading, on the other, so it always puzzled me that the big universal banks tend to have divisions that are like retail banking, commercial banking, credit cards, mortgages, etc., and then investment-banking-and-sales-and-trading as one big unit. Investment banking and sales and trading seem so different! I suppose they are more like each other than they are like credit cards, but still. I guess Deutsche Bank was never that big on credit cards, but now it will split its Corporate Banking and Securities business into two units, more or less Corporate Banking (and investment banking) and Securities (sales and trading). This comes as part of a bigger management reshuffling under new co-Chief Executive Officer John Cryan: As part of the reorganization announced Sunday, Deutsche Bank will abolish its 19-member group executive committee as well as 10 of its 16 management board committees while expanding the board to 10 members from eight and supplementing it with four general managers. “We want to create a better controlled, lower cost, and more focused bank that delivers long-term value to shareholders,” Cryan said in a statement. Here is a guide to the changes, which also include splitting asset and wealth management in two (dividing high-net-worth clients and institutions/funds) and lots of personnel shuffling (including the departure of "several longtime executives close to recently departed co-CEO Anshu Jain" and the probable addition of "the first women on Deutsche Bank’s board since Ellen Ruth Schneider-Lenne’s death in 1996"). Elsewhere, Credit Suisse's strategy under Tidjane Thiam may follow the example of UBS, with "cost cuts, a sharpened investment bank focused more on equities and less on credit and currencies, and the possible disposal of Credit Suisse’s subscale U.S. private bank." A story about equity derivatives. I found this story a little hard to understand, and I used to sell equity derivatives for a living, but the gist of it seems to be that the government of Papua New Guinea bought a big chunk of shares in a company called Oil Search, funded and collared by UBS, in a deal that delighted bankers but is otherwise controversial: Through a series of leaked documents and interviews Fairfax Media has reconstructed what UBS insiders describe as one of the "most amazing deals" the bank has ever done. Others, however, say the amazing part is that the bank was able to get away with it. They see a cash-strapped government getting stitched up. Bankers often find that outsiders don't fully appreciate their most beautiful derivatives deals. Speaking of unappreciated beauty, here is another somewhat hard-to-follow story about a banker who "claims he was fired so his boss could take the credit for his idea to save Barclays £51.5 million and boost his own bonus." Barclays Capital Services had done a 551.5-million-pound deal with an Italian bank that was then rejected by the Bank of Italy, which "left the Italian bank desperate to reclaim the fee they were in the process of paying to Barcap," apparently 51.48 million pounds. But "Barcap refused to give up their fee leaving the two banks in a standoff and staff desperate to rescue the long-standing profitable relationship." And in swooped our hero, whose "genius solution" was "an 'unwinding' or undoing of the original transaction which had caused the problem." I ... don't understand why that is genius? Like, one, that seems obvious, but two, I am not sure how it gets Barclays paid? Anyway now he's suing, so perhaps we'll find out. A story about training quizzes. Post Comment Private Reply Ignore Thread
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