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Morning Coffee: An unfortunate mistake occurred at Bank of America. Goldman Sachs' M&A descent

Someone at Bank of America possibly deserves to lose their bonus or their job, and that person is very senior.

The Financial Times reported yesterday that Bank of America is nursing a loss on paper of $100bn versus comparable losses of $40bn at JPMorgan and Wells Fargo and just $25bn at Citi. 

It's the result of an error of judgement three years ago. 

During the pandemic, when consumers everywhere were unable to spend money as freely as usual, banks received a rush of new deposits. At JPMorgan, Wells Fargo and Citi, a larger proportion of that money was parked safely in cash. At Bank of America, things were done differently.

At BofA, the rush of new consumer savings was instead invested in bonds, which were then trading at historically high prices and low yields. But as bond yields have since risen and bond prices have since fallen, BofA's investment has also fallen in price. At the end of the first quarter, the Federal Deposit Insurance Corporation said US banks as a whole had unrealised losses of $515bn on their investments. Bank of America accounted for 20% of this. 

Who's to blame for the mistake? Veteran bank analyst Dick Bove thinks the board needs to look into it and that whoever was responsible needs their career prospects crimped. The ill-planned investment was made before Alastair Borthwick, BofA’s current chief financial officer, took the position in 2021; his predecessor, Paul Donofrio, is currently vice chairman. Bove thinks the responsibility lies at a senior level. BofA is doing well operationally, he says. “But if you look at the bank’s balance sheet, it’s a mess.

The bank's best bet is simply to hold onto the bonds to avoid crystallizing the loss. As the bonds - most of which are highly rated government debt - mature, the underlying loans are likely to be paid back in full and the loss will eventually be avoided. This, it seems, is the plan. 

Separately, Goldman Sachs is no longer the top bank globally for M&A; JPMorgan is.

For the first time in five years, Bloomberg reports that Goldman Sachs ranked second and not first for advising on M&A deals in the first half of the year. Financial News reports that Goldman Sachs' fees from dealmaking fell 33% in the first six months of 2023, more than any other major bank. 

Part of the problem is that the mega deals Goldman specializes in simply aren't happening. The firm may yet make amends for 2023 as a whole - Bloomberg says there have only been three times in the past two decades when it wasn't top for the full year.  

Meanwhile...

Tom Wipf, a vice chairman at Morgan Stanley, is departing after almost four decades to join UBS where he will help lead the integration of Credit Suisse's business in the Americas. (Bloomberg) 

Wipf is UBS chairman Colm Kelleher's old friend from Morgan Stanley. Kelleher was CFO during the financial crisis and Wipf was one of the people in the crisis room keeping the bank afloat. (FiNews) 

UBS has made some generous offers to retain Credit Suisse bankers in areas like technology and pharmaceuticals in the US and Asia-Pacific. (Financial Times) 

David Wah, a 30 year veteran of Credit Suisse who was mostly recently global head of investment banking, has quit UBS.  (WSJ) 

Jefferies has added 21 managing directors in investment banking since the start of its 2023 fiscal year and thinks that the slump is over. Senior recruits have come from Barclays and Credit Suisse. (Financial Times) 

Jefferies hired financial sponsors banker Erkin Yildiz from Credit Suisse. (Bloomberg) 

Binance co-founder Yi He is in a relationship with other Binance co-founder CZ Zhao and they have children together. She says it's not the same as Sam Bankman Fried and Caroline Ellison. "“There is a significant distinction here: Caroline was an employee, whereas I am a partner. The relationship between co-founders requires much more than what a dating relationship does. A co-founder relationship is about comradeship, a dating relationship is about chemistry. The former is based on shared beliefs and goes beyond gender, the latter is based on physical attraction and selfish desires. ” (Bloomberg) 

Bill Gates' private office stands accused of asking women bizarre interview questions including whether they had extramarital affairs, what kind of pornography they preferred or if they had nude photographs of themselves on their phones. Some were allegedly asked if they'd “danced for dollars.” (WSJ) 

At Citadel and Citadel Securities, the median wage for interns jumped roughly 25% to $120 an hour this year. (Bloomberg) 

There were no train services between Heathrow Airport in west London and Abbey Wood in south-east London yesterday because of a swan on the tracks. (Guardian) 

The idea behind “rage applying” is to channel anger at your current role into a burst of résumé submissions, then gloat when companies line up with attractive offers. (WSJ)

Have a confidential story, tip, or comment you’d like to share? Contact: +44 7537 182250 (SMS, Whatsapp or voicemail). Telegram: @SarahButcher. Or, email editortips@efinancialcareers.com. Signal also available  

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Photo by David Pupăză on Unsplash

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AUTHORSarah Butcher Global Editor
  • An
    Anon1234
    30 June 2023

    The WSJ article on Bill Gates' office is subscription only so not possible to read the whole thing. It isn't clear whether men were also asked the same questions. What the summary above omits, which is key, is that the questions were asked for security reasons, i.e. to ascertain whether applicants might be subject to blackmail. Whether or not this is justified, it does at least provide vital background as to why the questions were asked.

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