Morning Coffee: How Goldman Sachs and JPMorgan are winning the trading war. Where Gen Z want to work instead of banking and tech
Things have changed since pre-COVID times. While the pre-pandemic, pre-Ukraine war days of 2019 may seem like a time of innocence and unlimited central heating, they were also a time when investment banks' global sales and trading revenues were comparatively widely spread.
Post pandemic, a few banks have pulled away from the pack. They are the American banks. Two US banks in particular now reign supreme: JPMorgan and Goldman Sachs.
This new reality is highlighted by International Finance Review. In 2019, JPMorgan was the biggest bank for sales and trading revenues, followed by Citi and then BofA, Morgan Stanley and Goldman Sachs, whose salespeople and traders all generated roughly the same amount. During the first nine months of this year, JPMorgan was still in the lead, but JPM revenues were 46% higher than three years ago. And in the first nine months of 2022, Goldman Sachs had soared into the second spot after its revenues rose by over 50%. The leading European banks for sales and trading - Barclays, BNP Paribas and Deutsche Bank - generated less than half the revenues of the two market leaders.
While welcome, Goldman's bumper trading revenues are awkward for CEO David Solomon, whose tenure has been marked by an attempt to reorient the firm towards more stable things like consumer banking and wealth management. Instead, Goldman's global markets business generated 56% of revenues in the first nine months of this year, compared to 39% in 2019. A tolerance for risk in volatile markets seems to be driving Goldman's success: in the first nine months of this year, it generated over $100m on 85 trading days, compared to 47 in 2021 and just 10 in 2019.
Goldman's markets business is unquestionably thriving, but it's JPMorgan's business that IFR focuses on. Marc Badrichani, JPMorgan’s head of global sales and research, says "competition has never been this tough" and reiterates that JPMorgan wants to be in the top three in all traded products. Where it's not in the top three, the bank will "double down" and correct them, he adds. Eight years ago, this meant investing in a successful push to become a top equities trading house. Today, it means investing in things like the electronic trading of corporate bonds.
Success begets success in sales and trading: the more successful you are, the more you can invest in electronic trading infrastructure and the more successful you become. One thing Badrichani says JPMorgan won't be doing, though, is reinvesting in commodities sales and trading - even though commodities trading desks at Goldman are having an exceptional year. “We didn’t like the risk-reward of a lot of that business,” he says, adding that JPMorgan is investing in renewables and will participate in an "efficient carbon market" instead.
JPMorgan is also all about spending on operations staff and researchers. "The post-trade is as important as the trade itself: ensuring that everything goes smoothly after a client trades with you," says Badrichani. And the new world is one in which research content is imperative. This research content must be presented in an accessible format. - JPMorgan has been consulting with journalists about how to engage people online: “You can have the best content in the world, but if it’s in the wrong format, people are not going to read it,” Badrichani reflects.
Separately, now that technology jobs are disappearing by the tens of thousands and junior investment bankers don't have much to do, ambitious 20-somethings are focusing on venture capital instead.
Spotting winning investments in this market isn't exactly easy, but the Sunday Times profiled various young people convinced they can do it. They include 24-year-old Cecilia Zhao, an influencer and former analyst at Centerview Partners in London who relinquished the firm's notoriously generous pay to work for Kinnevik, a Swedish firm specializing in digital consumer businesses. Being both an influencer and "digital native" helps, avows Zhao. It's “a value add, not just on paper, but also in terms of insights.”
More than half the millennials earning over $250k a year have nothing left at the end of each month. (Bloomberg)
Tiantian Kullander, a former Morgan Stanley trader who co-founded digital-asset trading platform Amber Group, has died in his sleep aged 30. (Bloomberg)
Bad luck if you work in leveraged loans at BNP Paribas or Deutsche Bank: the European Central Bank is imposing higher capital requirements on some European banks because of leveraged loan risks. (Bloomberg)
The private equity industry has quietly espoused collateralized fund obligations which 'diversify risk by parceling up the companies providing returns' and sound distinctly similar to the structures that proliferated before the financial crisis. (Financial Times)
Predictions on the sustainability of Twitter from the chief security officer of Facebook: "Eventually, there will be an issue that has to be addressed by SREs [site reliability engineer] or it will cause a cascading failure. Question will be if the right team exists at that point to stop the cascade." (Semafor)
If you don't get a big bonus this year you could always go about collecting Dabloons on TikTok, although hyperinflation means you might need more than four if you want an invisibility cloak. (Guardian)
“In real life, things fluctuate between pretty good and not so hot, but in the market, things go from flawless to hopeless,” he says. “Nothing’s ever flawless and nothing is ever hopeless, but when people reach those extremes, it’s a good opportunity for the contrarian.” (Financial Times)
Workers who downshifted have no regrets, despite rising living costs. “I was obsessed with the job. In retrospect, why was I emailing my co-workers at 3 a.m.?” (WSJ)
It's not easy doing crypto PR. “I've been working three jobs as a community and project manager across 3 blue-chip DeFi protocols. Two of them are explicit scams, the third not particularly promising. But say that to my $8,000 per month paycheck for sitting on my arse all day.” (Decrypt)
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