Morning Coffee: Morgan Stanley’s new CEO is doubling down on his safe space. Citi’s JP Morgan reunion is official now that summer’s done

There’s a saying, attributed to Napoleon, that if you want to understand somebody, you have to consider what the state of the world was when they were 20 years old.  A similar approach is often useful when trying to get under the skin of senior bankers.  Like racehorses and characters in fantasy drama series, CEOs have a lineage, and their priorities when they’ve reached the top will reflect the things they learned on the way up.

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Ted Pick, for example, has a long history in Morgan Stanley’s institutional securities trading business.  So it shouldn’t have been a surprise that in looking at strategic priorities as he moved into the CEO’s office, one of the first things the Financial Times says he spotted was that MS had given up a lot of market share in equities trading, particularly to Goldman Sachs, and that it was time to do something about it.

It's fair to say that MS equities trading has had a few problems in recent years; it had a long and painful investigation (now settled) into its block trading operation, and caught its share of the Archegos losses.  Having battened down the hatches and significantly tightened up risk controls, potentially losing share as a result, it now seems that Pick has decided it’s time to get back on the front foot.

But in the course of the FT's long and well-sourced story, there’s no mention at all that this new push might involve hiring traders and salespeople. It seems that Morgan Stanley’s path back to the top will instead mainly involve restoring its risk appetite to pre-Archegos levels, being a little more generous with allowing leverage to hedge funds and generally wooing back the prime brokerage clients that it had previously been turning away.

And the reason for this, of course, is that equity sales and trading isn’t really about sales, or trading, any more.  Electronic market making firms like Citadel and Jane Street, both of whom are on track for record revenues according to recent filings, dominate the turnover in large-cap US equities, and continue to make inroads into other markets.  When a bulge bracket bank talks about “equities trading”, they are really talking about ancillary revenues – block trading, prime brokerage, Delta One, bespoke derivatives and so on. 

Some of these areas require people, but some just require a bit of balance sheet capacity, plus a really on-the-ball risk management function.  Which suggests that the beneficiaries of Ted Pick’s ambitions might be in the back or middle office rather than in higher profile roles.  In order to make money in equities (and in a lot of other areas of investment banking), the first step is to avoid losing it.

Elsewhere, one of the year’s least unpredictable job moves has happened as predicted.  After leaving JPMorgan in April “to pursue opportunities outside the firm”, Achintya Mangla has arrived at Citi, working for his old boss Vis Raghavan. 

The move seems to have come with a promotion – Mangla is going to be “head of financing for investment banking” after having briefly been the mere global head of ECM at JPMorgan.  The new role combines the headships of equity capital markets, debt capital markets, syndicate and private capital markets; it feels like he’s going to be on a par with the heads of sales & trading and of M&A and advisory.

“Getting the band back together” is a common strategy for bankers who suddenly find themselves in leadership roles at a new employer.  Citi is making big demands of Vis Raghavan in terms of driving growth and revitalising the franchise, while keeping costs under control.  In order to concentrate on solving that problem, it’s natural for him to want to put the day to day management of some big business units in the hands of a known quantity.

The trouble with this approach is, of course, that it’s in danger of creating cliques.  If it’s felt that the management of an investment banking business is in the hands of someone else’s alumni network, this is bound to affect morale, and it creates a serious danger that people outside the inner circle will be ignored.  Hopefully, Vis will be able to follow the advice of the song and make new friends while keeping the old.

Meanwhile …

There’s diversification, and then there’s this – Ryobi Holdings, a company which runs public transport routes in rural Japan, has noticed that its customer base is aging and shrinking, and sooner or later won’t be riding buses any more.  So it’s hired former SocGen quant Kyosuke Suzuki to spearhead its new venture, an AI-driven hedge fund. (Bloomberg)

The latest Jefferies Leadership Letter has dropped.  It’s possibly a sign of where we are in the business cycle that there’s not so much general philosophy and homespun wisdom as usual – just a direct statement that Rich Handler and Brian Friedman are expecting a lot of volatility but a lot of new business and expect everyone to get their game face on. (Jefferies)

Georges Elhedery has held his first townhall as CEO of HSBC.  He told employees in the Asia-Pacific region that they need to continue to focus on costs, but said that “it’s more about spending wisely than spending less”.  Maybe this will apply to the rumoured clearout of excess management layers. (Bloomberg)

Deutsche Bank has overhauled the art on display in its London office.  The new installation has images of Wales, Korea and the Amazon hung across different floors, and there’s an installation of butterflies on the staircase. (The Art Newspaper)

Jasper Street Partners, a US boutique, is launching an “activist defence” business, hiring Duncan Herrington from Moelis and Peter da Silva Vint from Barclays (Reuters)

If you’re worried that your boss will intimidate you into staying – or you want to send a message to your colleagues that you don’t think they’re even worth saying goodbye to – there are firms in Japan called “quitting agencies” who will take on the job of delivering your resignation.  Some of them offer a 50% discount for repeat business. (WSJ)

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