Morning Coffee: Who wanted to buy Credit Suisse's investment bank last summer? Will Bloomberg GPT kill your banking job?
With USB reportedly planning to cut 30,000 jobs from the combined Credit Suisse-UBS entity, the bulk of which are likely to come from Credit Suisse and from Credit Suisse's investment bank in particular, 'What if?,' is likely to have particular potency in the coming year. What if Michael Klein's CS First Boston spin out had worked? What if that purchaser of Credit Suisse's in summer 2022 had actually proceeded?
Until the weekend, there had been no mention of the potential summer rescue of Credit Suisse's investment bank, and even then the possibility was only referred to towards the end of the Wall Street Journal's latest article on Klein and CS First Boston. 'Over the summer, banks and asset managers approached Credit Suisse, and at least one party wanted to buy the bulk of the investment bank,' says the WSJ, without providing any further information on who the party was.
The implication, then, is that the whole CS First Boston confection prevented Credit Suisse's bankers and traders from finding a happier marriage elsewhere. Had they not been so seduced by Klein's promises of partnership at a 'deal making and advisory business valued at as much as $6bn,' there might have been a union with an entity interested in genuine synergies. Admittedly, Klein's plan wasn't disclosed until late October, but the board was presumably focused on it long before, and more questions may have been asked about its viability internally had everyone not been swept along on the fervour of partnership promises.
Could the mystery suitor still come forward? UBS presumably wouldn't be averse to selling the chunks of Credit Suisse it doesn't want, but Credit Suisse's investment bank no longer exists in the way that it did last summer. The securitized products group has gone to Apollo, with salespeople and some traders going to Mizuho. Tens of senior investment bankers have left (Citi is one of the new big buyers), the European credit trading business has been hollowed out (by Deutsche Bank), and there are rumours of big team moves in US leveraged finance. There's a lot less left to buy.
Unfortunately for Credit Suisse people, this summer is likely to be very different to last. Michael Klein won't be rescuing the business anymore, and nor will the other mystery suitor. If they can't get hired elsewhere, UBS is the only bet.
Separately, just as Vacslav Glukhov, JPMorgan's former AI research director proclaimed that ChatGPT might not take as many banking jobs as it thinks it will, Bloomberg has launched its own iteration which sounds more dangerous.
Bloomberg GPT is described a 'large language model, purpose-built from scratch for finance' with $50bn parameters and a talent for finance-specific 'sentiment analysis, named entity recognition, news classification, and question answering.' In the research paper accompanying its launch, Bloomberg's research scientists offer more detail on BloombergGPT's talents: it can accurately respond to a question on who the CEO of Citigroup is; it can create headlines for articles based on a chunk of text; and it can generate Bloomberg query language to extract data in the Bloomberg cloud. Unless you're answering questions about CEOs, writing headlines, or extracting Bberg data, you may be safe for a while yet. - But as Andrew McLennan, Goldman's CTO for strats and tech observed in a social media post on Bloomberg GPT, this is likely to be the most disruptive release of generative AI yet and is only the start.
Speaking last month, Goldman Sachs CIO Marco Argenti, said the current phase of generative AI is like "the beginning of the internet." Goldman's developers are already autodeveloping code from prompts and some coders are saying that they can develop 20%-40% of their code automatically, said Argenti. At the same time, machines are generating test code. "It will never substitute developers, but it will definitely make developers more productive," he added.
Sergio Ermotti says UBS and Credit Suisse won't be too big: “Even putting together UBS and Credit Suisse, we won’t be at the top of the ranking by size of international banking groups.” (Bloomberg)
Banks need to mediate between the need to reduce costs dramatically and to protect franchises they have painstakingly built. The pressures will become more acute, and the choices more unpalatable, the longer that activity stays in the doldrums. (FT Alphaville)
UK dealmaking is off to its slowest start in a decade. Deals with any UK involvement are down 60% year on year. (Evening Standard)
It's been a bad start for hedge funds. Macro and trend-following hedge funds dropped 3.2% in March through to the 29th, while algorithmic commodity trading advisor funds (CTAs) dove 6.8%. Those funds are down 2.7% and 6% for the year through March 29, respectively. (Reuters)
Hidden costs of the work ethic: High blood pressure. Alopecia. Binge drinking. 15 years of 6 hours of sleep. Grinding all the enamels off of my teeth. (RadReads)
Wherever you sit in a bank’s capital stack, make no mistake: a higher authority sits above you. (Netinterest)
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