Morning Coffee: HSBC MD discovers extremely cheap method of travelling to office. M&A bankers reminded that deals are difficult things

In the world of investment banking, “doughnutting” is something you don’t want to happen to you; it’s slang for giving someone a zero bonus.  And apparently, in the world of train travel, it’s also a bit of a dirty word, describing the practice of buying two tickets, one for a short journey starting at your local station, and another for a short journey ending at your destination. This allows you to fool the ticket barriers at both ends while leaving a ticketless “hole” in the middle of your commute.

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Over the course of a year, Joseph Molloy, the former head of passive equity at HSBC Global Asset Management, managed to save £5.9k ($8k) in fares by using this technique to journey from his £2m home in Kent to the office in Canary Wharf, before being caught. Molloy has now been given a suspended sentence and a community service order, as well as being banned from Southeastern Trains for a year. (That would be pretty inconvenient now that HSBC is asking its Managing Directors to come into the office four days a week, but fortunately, Molloy retired from the job last year).

There’s a terrible kind of irony to this crime.  As an index portfolio manager, Molloy would have been responsible for risk analysis and optimisation all the time in his day job.  And at the same time, he seems to have identified a systematic source of alpha and worked through considerable difficulties in execution (he had to give two false addresses to register smartcard keys, as well as benefiting from a discount usually given to the unemployed).  He made a profit, but was then undone by a risk which could have been called a “black swan”, except that it's the obvious one of being caught.

Molloy, who is reportedly an upstanding individual in every other way, now very much regrets what might have seemed like a fantastic trade at the time. He even changed his clothes and jumped over a wall to try to avoid being spotted leaving the court.  It’s unlikely that he will work in finance again.  The downside appears to have been substantial, and the risk/reward ratio must have been terrible.

Of course, when someone with plenty of money does something so obviously wrong over a comparatively trivial sum of money, there might be other things in the background.  Molloy’s lawyer suggests that his balance of mind was disturbed by stress and bereavement.  But whether it was an act out of character or just a catastrophic failure of common sense, there’s a cautionary tale for all quants here; the risk that does the damage is almost always the one which wasn’t in any spreadsheet.

Elsewhere, the Warner Brothers deal has now reached the “put up or shut up” stage, with Paramount being given seven days to come up with a “best and final” bid in opposition to Netflix.  Bankers who had their Christmas ruined working on this deal might be forgiven for wondering why nobody thought of asking this question earlier on in the process and saving a lot of time and hassle.

The answer is, of course, that you can’t save time and hassle in big M&A deals.  The expense, inconvenience and drama are what keeps everyone honest.  If the advisors had asked for “best and final offers” back in December, the offers they received would not only not be the best, they wouldn’t be final.  (Netflix has said that their current bid is final, but we’ll see whether that’s true if Paramount tops it).

As the saying goes, ninety percent of the work in an M&A deal is done in fifty per cent of the time allowed, while the remaining ten per cent takes another ninety per cent. There are always false conclusions, head fakes and final opportunities, and the skill of a top M&A banker is to understand when it’s actually time to bring things to a close. 

Meanwhile …

Matt Simonette, a commodities trader who has just moved from ExxonMobil to BlueCrest, is also a coffee afficionado who founded a chain of gourmet cafes in Texas. (Financial News)

The Indian tech center trade is by no means at an end – Julius Baer, Sumitomo Mitsubishi and Vanguard are all setting up new global capability centres, and hiring as many as 1,000 workers between them. (Bloomberg)

A blow to the image of the Abu Dhabi global financial centre, as their flagship annual conference suffered a cybersecurity failure which leaked the passports and identity documents of attendees including Alan Howard, Anthony Scaramucci and the CEO of Binance. (FT)

Prediction “markets” are currently regulated by the CFTC in the USA, but they’re coming under increasing pressure from state gambling regulators who think that the majority of “traders” don’t seem to “invest” in any “contracts” that aren’t to do with sports events. (Bloomberg)

McKinsey has launched “tens of thousands” of AI agents, and is currently engaged in a project to find out whether they are adding value in terms of allowing the consultants to generate more revenue.  Unfortunately, the usual management consultancy research techniques cannot be used in this case, as the rest of the industry doesn’t know either, and you can’t find the right person to ask at the client. (Business Insider)

Jeffery Epstein claimed to “hate” the World Economic Forum, and it’s not clear whether he ever actually went there, but this didn’t stop him claiming to be a “Davos concierge” and trying to put together meetings between people who would presumably now rather forget about them. (Bloomberg)

The acquisition of Schroders by Nuveen means that the name “Cazenove Capital” may have a new owner. This once-storied local champion now only lives on as part of the branding of JP Morgan’s London operation, but it might be worth something to a sentimental bidder. (Bloomberg)

Some banker somewhere has almost certainly done this.  Marx Arriaga, the Mexican government official responsible for producing school textbooks, has refused to accept his dismissal and keeps coming to the office. (FT)

The bankers’ commuter paradise of Potter’s Bar is now the scene of a planning battle over a massive datacentre. (WIRED)

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