JP Morgan, Citigroup, Wells Fargo, and State Street will all kick off Q1-24 banks’ earnings season on Friday (or today for those of us based in Asia like me) before US #stocks cash trading opens.
As I mentioned in my article earlier this week (link), for Q1-24 banks are already expected to report an -18% YoY drop in earnings. Well, this is not what I would call starting on the right foot. However, after talking to many of my friends who are still working in investment banks, the feedback I gathered pictures a situation that is even worse than the poor one already expected by Wall Street analysts (sorry if I don’t call them “research analysts”, but I promise I will start doing it when they begin publishing actual research).
Feedback 1 – Mr. “10cents fee”
10cents: Man, the situation here is ridiculous. Do you remember the big reorganization plan announced 3 months ago? Now it’s toilet paper. None of the management assumptions materialized. Trading volumes, M&A volumes, IPO volumes, they did not get a single one right. 3 weeks ago they had the job cuts list ready, then they looked at the final numbers for Q1 and they doubled the cuts.
Feedback 2 – Ms. “Mayfair Brunch”
MB: Q1-24 would have been more profitable for the bank if they had sent everyone on leave and turned off the lights of the building to save electricity. The whole floor is now a PowerPoint factory, everyone pretends to be busy and chasing prospects just to have a better chance to clip the next pay slip.
Feedback 3 – Ms. “Sichuan Hot Pot”
SHP: Believe me, there are days you can drop a pen on the trading floor and everyone around you will hear the sound of it. Quiet is an understatement, we cannot even entertain clients anymore because of budget cuts.
Dario: What are your clients doing all day long?
SHP: Portfolio reviews over and over again, they hardly pull the trigger on any trade. I thought our situation was awful, but then this asset manager told me they would shrink their whole operation to just 2 execution traders for the whole of Asia, a bunch of PMs would be spared and BDs would only be kept in Singapore for the region. His competitors? Apparently even worse. Not only did they cut people big time, but those who stayed had to take a pay cut.
Feedback 4 – Mr “Tokyo Dream”
TD: You know what’s my situation, the equities business is leaking cash left and right. If you don’t do the trade we lose business here, if you don’t do the trade we lose business there. Our competitors are printing money in the street, we must step up. Don’t upset my client, yada yada yada. Do you think it’s different for everyone else in this bank or in another place? Of course not, every time it’s the same story. Someone in London comes up with a great “structured” idea, the first bank that prints it makes a buck, then the client puts them in competition on the street and the P&L in the second trade shrinks to the bare minimum. On the third trade then you have the Japanese or French banks that start putting money on the table just to get the flow and from there everyone chases the flow, instead of the profits, to not lose market share in the league table. 3/4 of the street loses money for every 1$ they move, of the remaining ones 50% at best break even and only the usual 2-3 can still run a decent business.
Dario: What about the rates people?
TD: You were one of them mate lol, you know better than me.
Dario: So everyone is stuck in their ultra-long duration bonds we sold in buckets before COVID-19 and they just roll the coupons?
TD: Those who have spare cash left after paying off their outflows maybe. Some days when I feel sad I just look over to their desk 10 meters away and their depressed faces remind me at least I do have something to do ahaha.
Feedback 5 – Mr. “AC Milan”
ACM: All I do here since I came back from Hong Kong? BOT (Italian T-Bills) expires, take the cash and buy BOT. Then take the BOT and repo at the ECB, take the cash, and buy more BOT. If a week we have more retail deposits I buy more BOTs, otherwise, we have to sell some from inventory. Month end as you know we repo out all we can move, asset managers love it and I love it because my month-end LCR ratio looks so good and my boss is happy. This is all that’s happening, besides the Treasury, everyone else is hanging dry.
I can continue for a while here since I talk a lot with my network every single day, but the message across the board is pretty much in unison: things are so bad I am just collecting my monthly salary till it lasts.
During the last banks’ earnings season we saw some incredible shenanigans at play, the most incredible ones:
- MORGAN STANLEY – BIG BALANCE SHEET LOSSES HIDDEN BEHIND EXOTIC DERIVATIVES CURTAINS (AGAIN)?
- WHAT ARE THE CHANCES HSBC IS INSOLVENT AND FIGHTING A LIQUIDITY CRISIS? – EPISODE 2
- WHAT ARE THE CHANCES $HSBC IS INSOLVENT AND FIGHTING A LIQUIDITY CRISIS?
- DID CREDIT SUISSE BAIL OUT $UBS?
- GOLDMAN SACHS – A BIG EPS BEAT ENGINEERED TO HIDE LIQUIDITY STRUGGLES AND A QUESTIONABLE LOAN BOOK?
- WELLS FARGO – A CASE OF TOO MUCH WINDOW DRESSING AND TOO LITTLE COLLATERAL?
- BANK OF AMERICA WENT “CRAZY” IN Q4 (LITERALLY)
Now that the FED pulled the BTFP (WITHOUT THE FED BTFP, BANKS WILL NOW HAVE A HARDER TIME TO “HIDE TILL MATURITY” THEIR LOSSES) I expect banks to become even more creative to find ways to hide their troubles under the carpet. The small problem is that carpet now sits at the top of Mount Everest and it’s kind of difficult to hide such a tall mountain…