How to keep your head (and job) during a banking panic
Is it a crisis? Maybe not, but it's certainly a bit panicked. European bank stocks fell 6.4% this morning; trading in BNP Paribas shares was halted; Credit Suisse shares fell 24% after Saudi National Bank indicated that it was turning off the funding spigot; its credit default swaps indicate a 38% possibility of default. The C-word rides again: contagion is making a comeback.
So too are people with experience of banking crises past. Nouriel Roubini says the contagion is "already severe" and that there's a risk that falling bank stocks in Europe could become a global phenomenon.
However, there are also steadier voices urging steadier thinking.
Daniel Davies, a senior research advisor at Frontline Analysts and former banking analyst at Cazenove, Credit Suisse and BNP Paribas (and writer of Morning Coffee) was at the coalface in 2008. In times like this, he says it's all about "optimism of the spirit and pessimism of the wallet." Credit Suisse bankers should take solace in the thought that this will most likely pass, he adds: Deutsche Bank and UBS have also had their moments in the headlights and have lived to tell the tale.
And while the panic proliferates? One New York-based investor who worked for a major US bank during the financial crisis, says it's all about information sources. At times like this, he says the news cycle speeds-up and can become overwhelming. "When the information flow accelerates, you need to be able to triage that information," he says. "It's about establishing where you will find the most reliable signals - the people who really understand what's happening from the fundamentals."
What does this mean for banking jobs? It's too early to say, but the effects may not be immediate. As the chart below, from the New York State Comptroller makes clear, job cuts in the 2008 financial crisis didn't happen immediately but a year later. Banks are less trigger-happy than their reputation suggests.
Nonetheless, naysayers read bad things into today's tea leaves. Rupak Ghose, another crisis era banking researcher, says this is likely to spell a categorical end to the bull market in banking jobs and that banks that had been holding off making deep cuts to their investment banking divisions, will finally get real. "There will be a shakeout," he predicts. "Banks have been waiting for the market to come back, but this is not going to happen." Last year, universal banks were able to cross-subsidize underperforming investment bankers with revenues from consumer banking divisions, he adds, but as the cost of deposits rises this will no longer be an option.
The prognosis may be better for jobs in markets divisions. Speaking yesterday, Morgan Stanley co-president Ted Pick, said that although sales and trading revenues are down on Q1 last year, clients are "engaged," and that "volatility is good until it's not."
And when it's not? "It's almost cheaper to panic than to remain in denial," admits Davies. And even in times of panic, there is perspective to be had: "No one's health or life is at stake."
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