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Morning Coffee: Deutsche Bank increased graduate hiring 72% in three years and has no regrets. JPMorgan’s champagne problems

As the cheers for Juergen Klopp finally fade away from the streets of Liverpool, it might be worth looking at another inspirational German leader who took on a storied franchise fallen on hard times, and who similarly managed to use a bit of investment, a bit of strategic nous and a lot of team spirit to take it back to glory.  We’re of course talking about Christian Sewing of Deutsche Bank. Four or five years ago, a headline saying that Deutsche was “well-positioned for an IPO rebound after a hiring spree” would have been almost unthinkable; now it’s pretty much what you’d expect.

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The forecast of rebounding revenue was made by Henrik Johnsson, Deutsche’s co-head of European investment banking and chair of the UK business Deutsche Numis.  He notes that while some big banks were cutting back during the deal drought, Deutsche “did the reverse of what people did. We actually hired people and completed on Deutsche Numis”.  Despite some back-office rationalisation, Deutsche therefore ended last year with 6% more total employees, and 14% more client facing staff in the European investment bank.

Also like a good football manager, Johnsson makes a particular point of emphasising the youth team as a driver of long term success.  He says that “We had two very large graduate classes and a third one coming in shortly”, and this is true – the Deutsche Bank class of 2020 had 727 members, but the most recent one was 1,127 young people strong.  This leaves them well staffed for the upturn in European IPOs that’s begun this year, which Johnsson expects will soon also reach the UK.

Importantly, according to Johnsson, “Our churn has been very low”.  This means that the analysts recruited over the last three years will have had a chance to build working relationships with a stable population of vice presidents and MDs, and so they’ll be able to add value. Turnover is one of the least remarked but most important drivers of success in a people business like investment banking – just like in football, war or any other group activity, a team that knows how to support each other is so much more efficient than a similarly sized group of recent recruits. 

Of course, it’s easy to grow and keep churn low when nobody else is hiring, and the next big challenge for Deutsche’s franchise, particularly in the UK, will be to hold on to its advantages when market share is something worth competing for. But it looks like the building blocks are there, and they have a right to be at least slightly confident. Investment banking really is like football management, in that the ability to have a plan and stick to it in the face of sometimes painful results is as crucial as it is sadly rare.

Elsewhere, JPMorgan and Jamie Dimon seem to have now reached a status not far off that of Berkshire Hathaway and Warren Buffett, where even the more ornery analysts can only ask questions that sound like “how come your company and you personally are so fabulous, sir?”.  At the most recent results meeting, Jamie had to calm them down – as all the spreadsheet wizards kept on saying that he could manage an even bigger share buyback than the one that’s actually going on.

Dimon’s stated reasons for leaving cash on the balance sheet are a bit inscrutable, particularly as JPM doesn’t seem to be growing hiring very much.  He says “It’s earnings in store. It doesn’t go away. You haven’t given up on a future opportunity by letting it sit there.” But perhaps he’s being a little more clever than he lets on.

Although it appears that the worst regulatory risks of the “Basel Endgame” look like they’ll be mitigated, and the worst fears for the US economy and consumer probably won’t come to pass either, there’s always a risk. Dimon has always prided himself on maintaining a “fortress balance sheet”, and he knows that it’s a lot easier to hang on to capital now and pay it out later than to pay it out now and then ask for it back when things go wrong.  As he slowly but inexorably moves toward succession, the last thing he would need would be a sudden unforeseen crisis out of left field requiring a capital issue and spoiling his legacy.

Meanwhile …

It’s not just Deutsche – Bank of America also thinks that its investment in capacity is going to pay off, and also sees European mid-size IPOs as potentially the sweet spot for the rest of the year. (Bloomberg)

Tom Hayes has been refused permission to appeal his conviction to the UK Supreme Court, but has had it confirmed that his case raises “an important point of public law” and so … he can actually appeal it, just by a different process. (FT)

There’s a law firm in Houston that specializes in helping wirehouse brokers sue firms like Morgan Stanley in disputes over whether deferred compensation is forfeit or not when they move jobs.  According to partner John Edwards, “If I could describe their mood, they’re pissed”. (Business Insider)

According to hedge fund founder Sanjay Shah, the main reason that he’s currently in a Danish prison cell (giving evidence in a London trial relating to the Cum-Ex scandal) is that he bought himself a Ferrari for his birthday and that “there was a lot of jealousy” in Dubai, where Ferraris are notoriously rare. (Bloomberg)

“Sleep is the new coffee”, according to longevity influencer Bryan Johnson, although it might be more accurate to say that “coffee is the new sleep”, in the sense that some of the most boring people in the world are telling us all how they do without it. (WSJ)

Be a problem-solver, work out the informal dress code and “raise your hand for extra tasks”.  Also, don’t get drunk at events; the guide to a successful internship. (Business Insider)

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AUTHORDaniel Davies Insider Comment

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