It’s an unfortunate secret of the trading world that accounting for profitability is rathe more of an art than a science. Trades happen as part of portfolios, they have funding costs and collateral requirements, and recognition of the P&L is only rarely a straightforward matter of selling the position and counting the cash. There’s always scope for “Hollywood accounting”, under which the question of whether something made a load of money or barely broke even depends on who’s asking.
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It’s rare to see quite as big a gap as the one evident in the current Jane Street litigation, though. According to Jane Street, two young traders, Douglas Schadewald and Daniel Spottiswood cost them $150m in lost profits for the months of February and March alone when they went to Millennium. The 26- and 30-year old prodigies regard this as “reckless speculation” and “not only wrong but impossible” and say that for the year to April, they’ve only made $4m, actually.
Obviously one side has the incentive to maximize the pair’s profitability, while the other has the immediate incentive to minimize it. But it’s possible that they might be more consistent than they look. Simply by adding a bit of price competition, it’s possible that the trade itself has become much less profitable now that it’s no longer a monopoly. So it might be the case that the main effect of Schadewald and Spottiswood’s move has been to hand $146m back to Indian retail options traders….
Separately, if you want to know where banks are really making money now, don’t listen to what they say, watch what they do. In particular, look for the places where banks are doing things which they usually really don’t like to do.
On that basis, there are a lot of data points stacking up for one market in particular. It’s a place where Goldman Sachs has just made two senior lateral hires, and both JP Morgan and Citi have made bid-back offers for Managing Directors. After many years in the shadow of Southeast Asia and Greater China, India seems to be having its moment.
It’s not coincidental that all the job moves described above – Sunil Khaitan and Kamna Sandhi going from Bank of America to Goldman, and JP Morgan bidding back Abhinav Bharti because Arvind Vashista had been persuaded to stay at Citi – are in the advisory space and particularly in equity capital markets. The Indian stock market has been doing well this year, making it one of the few markets in the world where IPOs are regularly happening.
In fact, in 2023 there were more IPOs by number in India than any other market in the world. The amount raised wasn’t necessarily so big – at just shy of $8bn, it was actually slightly down on 2022 – but it was more than Hong Kong and just under a quarter of Shanghai. And margins on deals are better and costs much lower than in either of those centres.
And the big banks seem to believe that the favourable trends will continue. Big banks really don’t make these kind of undignified scrambles for talent unless they’re genuinely afraid of being left out of a gold rush. BoA’s head rates trader thinks that the market is much too pessimistic about local rates cuts, which would tend to add fuel to an ongoing bull market. When a population as large as India starts to develop an investment culture, money can keep flowing for years if not decades.
So ambitious bankers might be well advised to take a look at a career option that has historically been something of a backwater; not so many expats have chosen to be posted to India, while domestic talent has usually felt like it had to leave in order to develop. This won’t be the case in the future.
Meanwhile …
It seems that this results season has been a good one for CEOs rather than their critics. Colm Kelleher has brushed off any complaints about Sergio Ermotti’s pay package … (Bloomberg)
… while both David Solomon and Brian Moynihan have won shareholder votes against corporate governance types wanting their firms to split the roles of Chair and CEO. (NY Post)
However, compensation for US bankers isn’t entirely escaping attention – Federal regulators are beginning to look at bonuses and risk incentives. Although the likelihood of an EU-style cap is very small, there is some chance of more regulation on deferrals and clawbacks. (Forbes)
Although the consulting industry as a whole is dealing with the “emotional reality” of needing to make redundancies, BCG seems to be bucking the trend; CEO Christoph Schweizer says they will be adding 2,000 headcount this year, same as last year. Already, 20% of their fee income is related to AI consulting, with plans to double that. (Bloomberg)
Having just broken through the 10,000 employee barrier, Revolut plans to grow its workforce by a further 40%. A lot of the hires will be coming in compliance and financial crime areas, as the company gets ready for its UK banking licence. (Finextra)
It’s not exactly risk free business, as we found out with Archegos, but prime broking is still a very profitable activity, with the overall revenue pool up 25% in the last decade to $12.4bn. The market is very top-heavy, though; Goldman, JPM and Morgan Stanley have a combined market share of 40%, leaving the economics of the smaller players more questionable. (Financial News)
The “snoafer” – a cross between a sneaker and a loafer – is the latest push at the boundaries of business casual wear. (WSJ)
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