Morning Coffee: Deutsche Bank has got a bad feeling about US banks in 2023. JPMorgan's jobs with restaurant budgets
How are things going out there? By the end of this week, we will at least have an understanding of how things were before the dawn of 2023: it's US banks' results season and a welter of banks are reporting, starting with Jefferies this afternoon.
Goldman Sachs won't be announcing its fourth quarter results until January 17th. When it does, it may not be pretty; profits at the firm are expected to fall 46%. In preparation for this, Bloomberg reports that Goldman will begin hacking at jobs this week, although the Goldman cuts are now expected to be a more diminutive 3,200 instead of the 4,000 flagged before Christmas.
Why is Goldman going easier on its layoffs? Could it have something to do with the ebullient utterances of Dan Dees and Jim Esposito, heads of its global banking and markets division, who think that a recovery is coming and that GS just needs to hang tight until the second half of 2023, when this year's "clear headwinds" will blow warm and balmy?
Only Goldman knows why 800 employees are now being spared. But if Matt O'Connor, Deutsche Bank's US banks researcher, had been consulted, those jobs may well have gone along with the rest. O'Connor doesn't expect a revenue recovery for US banks in 2023; just the opposite.
O'Connor's predictions for investment banking (M&A, equity capital markets and debt capital markets) fees in the coming year are shown in the chart below, as are his forecasts for global markets (sales and trading). Neither are looking pretty.
Instead of recovering, O'Connor thinks Goldman's investment banking revenues will fall by 2% in 2023 and that industry-wide investment banking revenues will remain flat at 2022's woeful levels. Unlike Dees and Esposito, he predicts the comeback won't happen until 2024. Worse, he thinks investment banking divisions won't be cushioned by sales and trading in the 12 months to come.
Employees at US banks need to hope O'Connor is wrong, or that he goes easy on his gloomy research notes until bonuses are paid. - If this year is going to be worse than 2023, banks will have little need to pay bonuses for retention purposes: it's always cheaper to pay people zero and let them leave of their own accords.
Fortunately for bankers at Goldman Sachs, O'Connor's prognostication appears to have been displaced by internal exuberance. Morgan Stanley bankers will want to hope something similar happens there.
Separately, while banks start looking at cutting costs on things like staff coffee and fruit, JPMorgan has been spied advertising jobs where food is an integral part of the role. Business Insider reports that the bank is looking for two restaurant reviewers in London on salaries of between $85k and $130k. This will be supplemented by a $30k budget to spend at restaurants annually.
The jobs don't have anything to do with banking and are part of a restaurant review business, The Infatuation, acquired by JPMorgan in 2021. Dining out regularly may not be a good fit with resolutions to lose weight, but the roles could be an option for laid-off investment bankers to put transferable skills acquired in client entertainment to good use.
Meanwhile...
Wall Street just had its worst year for dealmaking and fundraising since 2016. (Bloomberg)
The Federal Trade Commission wants to ban non-competes. This could be a big issue for hedge funds, which are lavish users of non-competes that last for one or even two years. (New York Times)
Big multi-strategy hedge funds are thriving, but launches of new hedge funds by individual managers are at their lowest level since 2008. (Financial Times)
Brevan Howard's top funds gained as much as 28% last year. (Bloomberg)
Wells Fargo terminated an Indian VP who allegedly drunkenly urinated on a 72-year-old woman during a flight. (NY Post)
Jacob Rees Mogg will receive £500k in annual dividends from his stake in Somerset Capital Management. (Guardian)
How humans think: "The belief is that strengths and shortcomings balance out, and that in the end we are all equal in terms of overall points. Smart but awkward, hot but dumb, rich but lonely, etc." (Rob Henderson)
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