Morning Coffee: Barclays and BNP Paribas want to go where other banks fear to tread. The performance hacks that are better than Adderall

“Financial history is littered with examples of firms that have entered new markets in a rather Looney Tunes style, surrounded by a cloud of dust, only to be flattened to a pancake by a large anvil marked counterparty credit risk”.  Nobody could accuse Rebecca Jackson, of the Bank of England, of lacking an arresting term of phrase, particularly by the standards of financial regulators.

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She was talking about the prime brokerage industry, in which investment banks boost the profitability of their trading businesses by providing credit to their hedge fund clients, through margin accounts.  Done right, prime brokerage is a dreamy business, generating fee income with very little capital employed.  Done wrong … well, there’s a reason that it’s been described in the past as “picking up pennies in front of a steamroller” or “eating like a chicken then going to the bathroom like an elephant”.  There’s something about prime brokerage which moves people to colourful metaphor.

But this is where the latest big expansion plans – and, consequently, the hot hiring markets – are likely to be.  In recent years, the prime brokerage industry has been dominated by the big Wall Street banks, but several European players think that they can find a profitable niche. Ashley Wilson, the head of global prime services at BNP Paribas, has the ambition to add $40bn of balances before the year-end, while Mike Webb at Barclays has steered their operations to global fifth place by market share.

There is one sure way to grow in prime brokerage, of course, which is to offer cheaper funding than the incumbents and take on more risk.  There are even two versions of this specific growth strategy – you can do it on purpose, or by accident.  Both BNPP and Barclays want to be very clear that this is not what they are doing. According to Webb, Barclays has been targeting new hedge fund launches, which the bigger players sometimes don’t bother with because they don’t generate enough fees to justify the onboarding expense.  Wilson says that he has a competitive advantage from a brand-new computer system that makes it much simpler for clients to make a single easy margin payment, rather than calculating separate cash flows for each individual trade.

And although they don’t mention it in the interview, they are also likely to be using the other growth strategy in prime brokerage, which is less certain to deliver growth, but also less certain to blow up.  That’s the model of “hiring relationship managers”.  European prime brokerage is a well paid and competitive market already (Ashley Wilson allegedly got a fairly significant bid-back offer himself a couple of years ago when he was ready to move to UBS).  People in that market are very well aware of their personal franchise, and usually quite good at monetising it.  So whether it’s a new revolution in industry structure, or just another sack of pennies thrown in front of the steamroller, some people are likely to get rich in the near future.

Elsewhere, the stereotype of a young investment banker keeping sharp through ninety-hour work weeks by popping Aderall is a cliché by now.  If you’re really interested in the subject of “white collar performance-enhancing drugs”, though, here’s a frighteningly comprehensive guide to which ones work the best, feel the nicest and have the worst hangovers. (It also appears to be advocating faking medical conditions in order to get prescribed them, which seems bad and silly, so don’t).

What’s interesting, though, is that by way of a controlled experiment, the author also tried a non-chemical intervention, by doing the things that wellness influencers tell you to do – less social media, better sleep discipline and a cold shower in the morning.  And the effect on their alertness and concentration was pretty equivalent, particularly when they were working on something that they actually found interesting. So it’s quite likely that there are “straight-edge” bankers out there, keeping up with the productivity of their chemically enhanced colleagues, but just using Powerpoint and Excel as a natural high.

Meanwhile …

The banker is good, but their clients are bad? The new boss of Julius Baer (and the chairman, former HSBC CEO Noel Quinn) is beginning a crackdown on wealth managers whose franchise is based on “high risk” clients.  As they say, “we will be very focused on the quality of net new money”. (Bloomberg)

An extraordinarily deep dive into the strange subculture of finance bros who show up at the office wearing golf course merch.  In a world where you’re not really allowed to ask someone directly how rich they are, people become alert to subtle cues from the logos of really prestigious clubs which don’t often allow non-members to play.  Of course it’s meaningless, since there is apparently nothing but an honour code preventing you from buying the polo shirts on eBay. (Business Insider)

The world of family office investment management can be surprisingly volatile for a long-term and dynastic industry.  Alexander Godwin spent 18 months managing the fortune of Peter Green’s descendants, then boomeranged back to his previous job at Hasma Capital, investment vehicle of the Saudi Arabian Juffali family. (Bloomberg)

Another data point in the recovery of Japanese investment banking, as Citi’s APAC head of investment banking, Jan Metzger, announces that they intend to expand headcount by 10-15% there. (Reuters)

Jonathan Lieberman usually spends his days inspecting consignments of shrimp and checking the dry ice, in his job as a customs broker specialising in the shellfish industry. Since the tariff war wound up, though, his workload has resembled that of the financial kind of broker, with client calls stacked up one after the other, and having to answer questions while in bed.  He’s still allowed to use WhatsApp though. (Bloomberg)

London bankers will be dismayed to hear that there is still no viable solution for making the Tube less oppressively hot in summertime. A competition was launched in 2003, then shut down two years later because it kept being deluged with silly ideas. (WSJ)

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