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Morning Coffee: Morgan Stanley bankers have a strange new respect for each other. Ex BofA banker casts aspersions on West Coast guys

Ted Pick, working the metaphors

The way that Ted Pick puts it, the sales and trading businesses at Morgan Stanley sound like they could be the subject of a Hollywood romantic comedy:

“People in equities, traditionally, maybe are nervous about working with people in fixed income. And people in fixed income think that they're probably a little brighter than people in equities. And people on equities and fixed income both agree they really don't want to deal with bankers.

So it's kind of a classic case. And what we've done is we kind of have a laugh about that because we've mobilized people in those 3 divisions into each other's pond. So of course, by the time you're in the new -- you were in the new tribal outfit, after 6 months, you're like, "Wow, the equities guys are a heck of a lot smarter than I thought. And the fixed income people are actually interested in working with clients. And actually, the bankers have a great high-margin product."

Ted is Co-President and head of the Institutional Securities Group, presenting at the MS European Financials Conference yesterday, and can’t you just seen the heartwarming montages as the mismatched bankers grow to love each other?  For some reason, we’re seeing Ryan Reynolds as Fixed Income, Reese Witherspoon as Banking and maybe Ke Huy Quan as Equities.

The first paragraph of Pick’s story is unarguable – the three tribes are just as he says, and they dislike each other in exactly those ways.  The happy ending might be considered more of a “wait and see”, as the history of investment banking throws up quite a lot of “One Bank” initiatives that look successful to begin with but eventually fall apart.  Time will tell.

One thing that is apparent, though, is that according to Pick, MS is still investing in growth and still, more or less and relative to peers, killing it.  Although “the banking numbers will continue to be pretty anemic” until the “dry powder” in the private equity industry is finally lit, he regards M&A advisory as “the top of the triangle”.  The metaphors pile up a little, but the numbers are clearer; Morgan Stanley has about 15% market share, and “we want to grow that business”.  Similarly, the equities business is one of “three competitors that are able to generate returns above the cost of capital” (which is difficult because of the “enormous amount of capex” required) and the credit and securitized products teams are “going from a 6 share to a 10 share”. 

What’s interesting is that the MS management team seem to be looking at the same strategic issues as Goldman Sachs, but addressing them differently.  Rather than adding new businesses to improve diversification, they’re aiming to improve the earnings quality of the businesses they already have.  Ted Pick refers to this as making the “ballast” more “engine-like” and the “engines” more “ballast-like”, which in practical terms seems to imply that franchises like prime broking and wealth management are beginning to drive growth, and the wealth management business is helping to drive banking and trading revenues.  So it’s an airship or balloon, with engines, at the top of a triangle, flying around full of people in tribal outfits getting ready to use their dry powder. This is going to be a fantastic movie.

Elsewhere, we should also remember that although the three great nations are Equities, FICC and IBD, rivalry is fractal, and it’s an unusual banker who can resist a dig at a competing firm, a nearby product team or a different geography. 

Craig Coben, for example, is the former global head of ECM at Bank of America, and spent most of the 2010s organizing rescue capital issues for distressed financial companies in Europe.  In an article for the FT, he looks at the similar deal that Silicon Valley Bank tried but failed to execute last week, and suggests that the West Coast bankers at Goldman Sachs did a few things which he’d have done differently if he’d been there.  It’s easy to be wise after the event, and it’s also fun, which is why everyone does it. 

Meanwhile …

HSBC is doing the deed and cutting base pay for senior bankers in London by 25% to £225k from £300k. (Bloomberg) 

If you’ve been around in banking for a while, you’ll have heard the “business as usual” speech a few times.  It’s the sort of thing that no manager would need to say if it was remotely true, but business has almost never been as unusual as it is at Silicon Valley Bank right now.  Nonetheless, according to the new CEO in a letter to clients and employees, it’s business as usual. (Business Insider)

Congratulations to Amit Rajpal, veteran portfolio manager and former Asia CEO for Marshall Wace, who has been promoted to partner.  He’s also in charge of the Global Financials long-short strategy, so he might have been a bit too busy to celebrate properly this week. (Financial News)

Wells Fargo is investing heavily in quantum computing.  It seems slightly disappointing that the best thing they can think of to do with it is to “dramatically quicken” their AML and KYC processes. (Wells Fargo Stories)

There’s “repo” and then there’s repo.  An unnamed “New York based hedge fund” has shown up at airports in Canada and repossessed four aeroplanes from a budget carrier which presumably owed them money.  Distressed debt investing can sometimes get very real indeed. (Business Insider)

Being accused of insider trading can be very expensive even before the trial begins.  Brijesh Goel (accused of passing tips on Goldman deals to his squash partner) is apparently not being covered by Goldman’s legal insurance, and his lawyers are asking questions about the $4 million bill that’s already been run up. (Bloomberg)

A major obstacle to the UK government’s attempts to get over-50s back into the workforce appears to be the fact that, as most bankers who took early retirement will tell you, it is pretty sweet.  Long walks, gardening, further education and, of course, wine, are among the things that you can enjoy. (New York Times)

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AUTHORDaniel Davies Insider Comment
  • Ro
    15 March 2023

    "So it’s an airship or balloon, with engines, at the top of a triangle, flying around full of people in tribal outfits getting ready to use their dry powder. This is going to be a fantastic movie."

    This is why I read this newsletter. Brilliant.

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