Morning Coffee: Citi tries a French approach to eliminating employees. The biggest new pod shop in town is ready for its hiring push
In a normal market, it’s not actually all that difficult for a bank to get rid of even quite a large proportion of its employees. Turnover in the industry is high, so simply not replacing people as they leave (unless they’re in vital or strategic roles) will do a lot of the work. However, in a downturn for the industry, people become more reluctant to move, and there are fewer outside offers for them to go to. Consequently, banks like Citigroup who are planning to shift a comparatively large number of senior bankers find themselves making incentive offers (AKA offering voluntary redundancy) to try and get people to move again.
These kinds of deals are more usually seen in European banks (like SocGen), as a way of coping with the reality of a large proportion of staff on contracts which make compulsory redundancy a long and difficult process. In Citi’s case, though, the offers seem to be targeted on specific ranks and business units, rather than being extended as an offer to anyone who wants to take it.
Which makes it sound more like a nice way to be let go than anything else. Citi’s offer is for a “partial bonus” to be paid in December, plus keeping all your unvested deferred compensation. If you don't take the offer, there's a possibility that you might be fired between now and the payment date in March anyway, in which case the partial bonus wouldn't be available. If someone calls you into an office and hands you a letter with that kind of deal on it, most bankers would surely take the hint.
From Citi’s point of view, it’s a smart idea. There are two big problems for managers who want to cut staff. The first is that you can’t be too nasty. What goes around comes around; the highest levels of finance are a small world and today’s redundant sellsider is often tomorrow’s new buysider. Every trading desk and banking team has stories about particular clients that can’t be monetised because a key decision maker there bears a grudge.
On the other hand, you can’t be too nice, either. If a bank tries to do everything by offering generous voluntary terms, then the people who will take them first are likely to be those with other opportunities to move to. And, in general, the employees that can easily find a job somewhere else are the ones that you want to keep, not lose.
So Citi’s compromise is to target the “voluntary” offer on areas and ranks where they hope people will take it, but not to make the offer too sweet and to continue to insist on the full gardening leave period. Fundamentally, there isn’t a nice way to do a nasty thing, but given CEO Jane Fraser’s ambition to delayer management and get rid of a lot of successful and senior bankers, this feels like it could be successful in achieving the goal while minimizing the number of enemies made.
Elsewhere, the market for successful “pod shop” hedge fund managers is notoriously tight, and it’s very unlikely to get any less so while the “Jain Train” is getting ready for departure. More details are coming out about the forthcoming launch of Jain Capital, and it’s clear that it’s going to be a big operation in personnel terms, as well as potentially the biggest ever fund launch ($10bn) at inception.
When fully deployed, Bobby Jain intends to have up to 70 different investment strategies (Eisler Capital has 60 after nearly a decade), with allocations to equity, arbitrage, macro and credit. Interestingly, Jain apparently only intends to have a small quant team; with the majority of its pods apparently dedicated to fundamental stockpicking, it’s going to be quite an “old school” approach to the hedge fund business.
And Fortress Investments has just bought into the multi-strategy space and hired Jeff Runnefeldt (formerly of Citadel and Balyasny). Although owners like Paul Marshall complain about managers being paid football star money, it looks like the price of admission to this particular game is only going to keep getting more expensive.
Once upon a time not so long ago, the hottest thing in banking tech recruitment was “alt-data”, the handling of quirky datasets compiled for other purposes in order to generate tradeable signals for quant models. That fad seems to have more or less come and gone, but it left behind a small number of players who were able to generate sustainable franchises. One of them was M-Science, owned by Jefferies, and it’s just managed to demonstrate that it’s a real business by doing the hardest thing known to finance – put through a price rise on asset management customers. (Business Insider)
Top students who turned down post-internship offers because they didn’t want to relocate or thought they’d get something better are regretting it. Even if they managed to keep their political views private, big tech firms, financial institutions and consultancies just aren’t hiring. (Bloomberg)
XTX Markets CEO Alexander Gerko has been playing around with the Dall-E picture generation system, and appears to have found that it has some deep-seated racially prejudiced assumptions about the ethnicity of finance quants at Citadel. (Twitter)
Bernard Looney, the former CEO of BP, is making a stiff challenge for the “loss of deferred compensation” world record – the $40m of unvested share awards that are being clawed back after an investigation into his relationships with colleagues is not quite as much as Christian Bittar of Deutsche Bank ($53m) but it might rate a podium place. (NY Post)
Cantor Fitzgerald have decided they want to build up an investment banking franchise in the tech sector, and have hired Cole Bader and CJ Muse to head it up. (Financial News)
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