Morning Coffee: Bad news for traders as 2017 unravels. Goldman luminaries party till the early hours
Total trading revenues for the five largest U.S. investment banks exceeded $21.3bn in the first quart of this year – around 15% higher than the previous and year-ago quarters. In fact, this was the best period for these banks in terms of total trading revenues since Q1 2014 – with J.P. Morgan leading the way. However, that positive momentum is already winding down and by some measures has started moving in the wrong direction.
Corporate-debt trading volumes dropped 20.4% in April from the prior quarter, with that month's credit-trading volumes coming in lower than those in the month a year earlier. Since the end of the first quarter, company-bond trading has fallen 16% to $23.7bn a day on average, below the daily average of $25.2bn in the same period last year, according to Bloomberg.
The trading volumes of other types of debt, such as municipal bonds, Treasury and agency-backed mortgage-backed securities markets, have also dropped off, part and parcel of the lack of volatility, suddenly slowing corporate-debt issuance and growing fears of investor complacency.
This reduction in trading implies that the largest banks can expect significantly less robust earnings at their bond-trading units compared to recent months. Debt-trading revenues are a classically fickle stream of business for the biggest banks, and the great first-quarter bond boom appears to be starting to fade.
Traders might be better off taking their summer vacation early while the low volatility persists, putting a few hedges in place to ensure peace of mind while they’re sipping cocktails while lounging poolside.
Separately, for Goldman Sachs partners past and present, this past weekend was all about Woody.
Current and former Goldman executives congregated at the steak-and-game restaurant 34 Mayfair in London to say goodbye to Michael “Woody” Sherwood, the co-chief executive of the bank’s international business who is “retiring” at age 51.
Top New York-based Goldmanites made the trip across the pond, including CEO Lloyd Blankfein and presidents Harvey Schwartz and David Solomon. During an interview with the BBC a few hours earlier, Blankfein warned that the City “will stall” due to the risks of Brexit.
The celebratory dinner was organized by Woody’s former co-head Richard Gnodde and ex-Goldman stars like Jim “BRICS” O’Neill and Peter Weinberg, founder of M&A boutique Perella Weinberg Partners, were among the 40-plus people who attended, according to the Financial Times.
When it was time for the after-party, Woody led half a dozen or so Goldmanites around the corner to Loulou’s, the glamorous nightclub beneath Mayfair members’ club 5 Hertford Street that has been known to attract models and Hollywood stars, where the bankers lived it up until the wee hours.
Despite promises not to talk shop, inevitably they ended up chewing the fat about the reshuffle in the bank’s investment banking division, the biggest in at least a decade – Goldman promoted Gregg Lemkau and Marc Nachmann as two new co-heads of investment banking and relieved another co-head, Richard Gnodde, of the title.
Treasury Secretary Steven Mnuchin has the Volcker Rule squarely in his sights. (Bloomberg)
The U.K.’s Labour Party has proposed a financial transaction tax on derivatives trades, bond sales and market makers. (FT)
J.P. Morgan is buying property and will be creating jobs in Dublin thanks to – you guessed it – Brexit. (The Irish Times)
Deloitte’s “apprenticeship model” – hiring thousands of entry-level employees at the bottom of the pyramid to do grunt work expectating that most of them will bust their asses, then leave after they’ve learned a thing or two – is under serious threat from artificial intelligence. (Quartz)
Bank of America will unveil an artificially intelligent digital assistant named Erica, a chatbot that customers can communicate with through voice or text message via the bank’s mobile app, the first of various uses for AI that it is testing. (WSJ)
Bank of America Merrill Lynch will stop paying the big upfront bonuses that Wall Street brokerages have long used to lure talent, ending a costly practice following a similar move by UBS, which could lead competitors like Morgan Stanley and Wells Fargo to end the practice as well. (Reuters)
Barclays CEO Jes Staley, who’s dealing with an avalanche of criticism for trying to find out the identity of a whistle-blower, responded to emails from an impostor pretending to be Chairman John McFarlane. (FT)
Recently fired FBI director James Comey found Bridgewater Associates’ culture difficult when he worked there, admitting that he was initially taken aback at being questioned aggressively by hot-shot juniors, although he did part on good terms with Ray Dalio. (New York Times)
Tipping point: The number of market indexes now exceeds the number of U.S. stocks. (Bloomberg)
This is what it's like to work for Facebook's technology team in Boston (a video). (Bloomberg)
Get yourself a head transplant. (Discover Magazine)