Morning Coffee – Deutsche Bank finally kills its zombie nemesis. Goldman bankers are picking up the phone to headhunters for smaller banks.
As far as we know, Deutsche Bank doesn’t have any IT system called “Lorelei”. This might have been a good choice of name, though, because for many years, the bank’s complicated, duplicated, interlocking and dysfunctional processing and reporting systems were a rock on which the careers of many COOs, CFOs and even CEOs had foundered. However, the bank is now reporting that one of the bank’s most fearsome demons has been slain – the thirteen year-long, multiply-failed attempt to integrate the retail acquisition of Postbank.
The inside story from the FT is interesting reading in itself, including such details as the last-minute disruption caused by a techie opening a dishwasher mid-cycle and setting off the fire alarms. But for long term Deutsche watchers, it’s worth putting this big win in context, to see how far the bank has come over the last five years and what it might be capable of going forward.
Although credit for the Postbank integration goes to Karl von Rohr (Deutsche’s President and Deputy CEO), the seeds were arguably really sown when Deutsche brought in Bernd Leukert from SAP to be CTO and head up a newly formed Technology Division. Shortly afterward, the bank launched a “beauty contest” to find a cloud partner company, with a potentially huge contract that was eventually won by Google. Ever since then, they’ve been finding it easier to recruit top engineers and addressing their tangle of problems sequentially and largely successfully.
It's clearly been evolution rather than revolution – the “Unity” project which succeeded this month was jointly led by Stefan Peschke and Karsten Roesch, a veteran of the previous and largely disastrous attempt to unify the systems, called “Project Magellan”. And that in itself is interesting. Although Deutsche has been spending a lot more money on building up its technology function, this doesn’t appear to have happened by replacing all the old engineers.
Which implies that the problem was never the people – it was the structure that they worked in. And even more than that, morale is likely to have played a role. People working in unprestigious jobs get used to being treated as a source of problems, creating a situation in which it’s difficult to do anything other than live down to expectations. But when they get a few wins on the board, a bit of love from senior management and perhaps a little borrowed sparkle from a high profile investment, the same people start solving problems, coming up with new ideas and delivering the goods.
This is true for the whole of the banking industry, not just tech; it’s one of the main reasons why strong franchises tend to persist, but small stumbles tend to build up into big falls from grace. The team that managed to deliver Project Unity will have a significant victory to add to their resumes – and now they’ll be looking for some new dragons to slay.
Elsewhere, Bloomberg asks a delicate question of banking prestige – why are bankers from prestigious houses like Goldman Sachs, Barclays and Credit Suisse now prepared to let their resumes cross desks at firms they would previously have turned their noses up at, names like Jefferies, Evercore and PJT Partners?
The inclusion of Credit Suisse in the first list raises the possibility that the explanation is as simple as “because they have just been fired or are about to be”. And indeed, the inclusion of PJT in the second list raises the possibility that the explanation is as simple as “what are you talking about, senior bankers have always been happy to go to boutiques, this isn’t a new phenomenon at all”.
Indeed, the second obvious explanation is likely to be more of the story than the first. It’s true that the top firms had even more of a boom during the deals boom, and consequently recruited more aggressively and so are now more willing to let people go. But it’s more true that the hierarchy of prestige, while real, is a comparatively minor factor in most people’s career choices, and that someone who is working at Goldman who wouldn’t pick up the phone to Jefferies probably wouldn’t pick it up for JP Morgan either. People generally answer calls from recruiters because they’re unhappy, they’re insecure or they feel underpaid. And when you’re in one of those states, bulge bracket bragging rights are usually not what’s on your mind.
Meanwhile …
There’s more than an uncomfortable grain of truth in this assessment of the chain of events that led to Sculptor Capital being taken over by Rithm Capital for $639m (a fraction of its peak value). Certainly, if Dan Och still had his name on the business, might he have been less inclined to bash it so publicly? (Dealbreaker)
Not so much “kicking someone when they’re down” as “showing up to the wake to grab some canapes”. Practically all the employees and managers responsible are gone and the company has been taken over, but Credit Suisse (which is to say, UBS) still has to pay $388m in fines over the Archegos affair. It’s an expensive business, losing money. (FT)
Any attempt by elite institutions to define the British class system is likely to end up with an element of well-meaning comedy, but Slaughter and May wants to increase the proportion of working class lawyers, “defined by what job their parents had when they were 14”. (Financial News)
If you see some sharp Italian tailoring among the athleisure and tattoos in Shoreditch, it will be because Mediobanca has launched a joint venture with Founders Factory to provide incubator investments in 35 fintech startups in London (Fintech Finance News)
Being overweight is bad for your career – but New York State is going to make “weight discrimination” illegal. (WSJ)
Tarek Rizk has made the unusual step of leaving the Abu Dhabi Investment Authority – in a sign of how hot the Gulf finance labour market is right now, he’s been poached to head up the new Dubai office of Balyasny. (Financial News)
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