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Morning Coffee: Bank of America doubles up on a bloodless way of cutting heads. How it feels to be wooed by a top hedge fund

Hiring people is expensive – as well as the headhunter’s fee, you will typically be paying market rate plus a small premium to attract people away from wherever they’re currently working.  Added to which, finding a suitable candidate takes time and there’s usually a further delay as they serve out their gardening leave.  Given that, it’s perhaps surprising that banks don’t make more use of an already pre-qualified labour pool that can be put in place immediately with no commission and no pay increment – the pool of people who are being made redundant from another part of the same bank.

Bank of America seems to be trying to do this at the moment – about 40 people in the Asian business have been asked to “look for jobs in other divisions” according to Bloomberg, while last month the head of investment banking wrote a memo encouraging bankers to look at vacancies in its “EGRC” (emerging growth and regional coverage) group, working on mid-market deals. 

The company isn’t commenting on the reasoning behind the move, but it’s not hard to understand - in a big global bank, there is always some business unit that’s hiring, in all but the very worst conditions, and maximising the use of internal candidates allows the growth businesses to grow while the cost-cutting areas cut costs.

It isn’t always easy to execute, though.  For one thing, although it might be considered a nice and employee-friendly thing to do, people are not always particularly keen to take the offer.  Investment bankers tend to have quite a lot of very specific human capital, in the form of technical knowledge and client relationships which relate to their own particular product area and geography, and moving to another division will often involve throwing a lot of that hard won personal franchise away. 

Because of this, you tend to see internal moves happening at either very junior levels (where the sunk costs are smaller), or at very senior ones (where people feel like they need to get more varied experience to develop themselves for top jobs).  Bankers at the VP and Director levels in between will often prefer to stay in their niche and take their chances on the market.

Unfortunately, this fact has a further consequence – because the decision is related to the perceived value of the banker’s human capital, there’s a risk of adverse selection.  When there’s a choice between an internal move or redundancy, the people who choose redundancy might be doing so because they’re more confident of their chances of being hired elsewhere. 

This can mean that internal candidates have a similar kind of stigma on them to that attached to people applying from a position of unemployment.  In a business where confidence is such a large part of the game, some bankers will always prefer to hire someone who’s currently in successful employment at a competitor, even if it means paying up to do so.

But there’s also a strong reason to emphasise the option of internal moves in tough times, in terms of their effect on corporate culture.  Simply making the offer and giving the impression of trying to look after people sends a strong message to the workers as a group.  And since finance is a small world in which today’s redundant employee can be tomorrow’s important client, the way in which departures are handled can be important for the business in the long run.

Elsewhere, one of the many great things about lawsuits, considered as a form of entertainment, is the way they give you a glimpse of how the other 0.01% lives.  As the trade secrets litigation between Jump Trading and Damien Couture continues, we get another example of what might be called the “restaurant paradox” in financial hiring.  Which is to say that the relationship between how important you are and how good the restaurant they take you to is non-linear.  Good bankers get taken to good restaurants; great bankers get taken to great restaurants.  But if you’re the very best of the best, and they’re as keen to hire you as Jump was to hire Couture in 2015, you get invited to … a BBQ at the chief operating officer’s house.  Even for quant traders, personal relationships are what make the industry work and the ultimate expression of seriousness is the gift of something which can’t be expensed.

Meanwhile …

Potentially significant strategy changes at HSBC, which has historically made a big thing about being on the ground nearly everywhere in the world.  As many as a dozen smaller markets might be exited in order to concentrate resources on Asia, according to CFO Georges Elhedery (Reuters)

It is by no means uncommon in investment banking for the chief executive not to be the best-paid employee.  But Jamie Dimon must have been at least slightly surprised, in the aftermath of acquiring First Republic Bank from the FDIC, to find that thanks to its extremely aggressive incentive compensation scheme for mortgage bankers, at least one employee of FRB earned more than he did. (Bloomberg)

Prop trading firms are one of the few European finance segments not to have clustered in Paris – they tend to locate in Amsterdam for proximity to the exchange servers and because the banking bonus cap doesn’t apply to them.  But a bunch of other European regulations do apply to them, and it’s getting so onerous that many are considering leaving Europe entirely. (TheTrade)

Among the worst things about being married to a millionaire crypto bro in Dubai are “too much food” and “too many first class flights”, apparently (and perhaps more seriously “being scared of getting robbed”).  The list of best things is more vague, but presumably includes long evenings talking about crypto all the time.  (NY Post)

Revenge is a dish best served cold, and it appears that when it comes to Carl Icahn’s troubles, Bill Ackman is savouring it slowly. (Financial News)

Investment banking retirement dreams don’t come much more wholesome than that of Rollin Amore, who spent 35 years in European and Asian capital markets, but now makes artisanal ice cream.  Among the flavours he sells is “Szechuan pepper, peanut and chilli oil” which sounds potentially strangely delicious. (Arlington Daily Voice)

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AUTHORDaniel Davies Insider Comment

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