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Morning Coffee – Banker who left Centerview on bad terms has the last laugh. Analysts keep getting worse and worse news

They say that living well is the best revenge, but for bankers there’s nothing sweeter than winning a deal away from your former colleagues, particularly if you parted in less than a perfectly amicable manner.  David Handler, of Tidal Partners, on that basis, has scored one of the great wins of the year – possibly of all time.

Handler left Centerview last year to form Tidal Partners with David Neequaye.  The circumstances of his departure have been the subject of some fairly aggressive litigation.  So far, that litigation has mainly been seen by the industry as a horrible cautionary tale about getting things in writing – it turns on a possible verbal partnership agreement, a contract that was never signed, and an apparently particularly lucrative deal whereby Handler was to be paid a percentage of all the deal fees he generated.

Well, now Tidal Partners have been named as the sole advisors to Cisco Systems on the $28bn acquisition of a company called Splunk.  The fees haven’t been disclosed, and might not be quite at the usual percentage of transaction value, but they are going to be substantial, and as the co-founder of an even smaller boutique, Handler is going to be getting a much bigger percentage of the total than at his previous employer, while Centerview gets nothing. Ouch.

Particularly “ouch” because it’s clear that things had got pretty nasty at the time of the resignation.  Centerview has accused Handler of “shameful” actions in forming Tidal while he was still employed by them.  For this part, Handler has suggested that CEO Bob Pruzan was badmouthing him to colleagues, accusing him of “winding down, retiring, not working that hard, messing around”. 

Bankers often fear that when a colleague gets involved in legal proceedings outside of work – either a divorce, or something affecting their personal finances – that they’ll lose their edge.  Lawsuits tend to be all-consuming time and attention sinks, capable of distracting anyone from the kind of client contact and attention to detail that’s necessary to be a successful coverage banker.  That doesn’t seem to have happened in this case; David Handler was the Tidal partner who had historically been close to Cisco management, so it looks very much like he individually brought this deal home.

This is likely to go down in the banking history books as an example of the fact that it is almost impossible to overpay a really good M&A rainmaker; they can always generate more revenue than you would have thought possible.  It’s also another reminder that it’s important to be nice.  People at senior levels rarely leave jobs in order to make more money – they leave because they don’t feel like they’re being sufficiently respected.  The money that Centerview saved by not making David Handler a partner must seem pretty expensive to them right now.

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Elsewhere, is there any part of the investment banking industry quite as cursed as equity research?  About five years ago, the Markets in Financial Instruments Directive (MiFID) rules on “bundling” research payments with trading commissions were passed, and the revenue pool fell by as much as 50%.  Now, in the UK at least, the MiFID rules are going to be repealed, and consequently clients intend .. to spend even less?

The analysts can’t catch a break.  Although in principle it will be easier to pay for more research, according to one industry expert, “when you open the fees discussion, it rarely ends well”.  Fund management firms are feeling broke themselves, and nobody wants to be the first to move.  As a result, only the very biggest sell-side firms are really able to support their cost base.

Equity analysts will never go away – they are too useful to other parts of the banks, as demonstrated by the fact that Deutsche Bank kept its research department even when it stopped trading equities at all.  But once upon a time, they could hold their heads up high and say that they were a revenue creator rather than a cost centre.  Those days don’t likely to come back in the near future, so for the time being, every earnings announcement is still likely to have slightly fewer voices saying “great quarter guys”.

Meanwhile …

Deutsche Bank trading revenues are going to fall again, by about 5% for the third quarter.  CFO James von Moltke is calling it a “normalisation” after a very strong 2022, which doesn’t sound like the sort of word you’d use if you were planning on reacting with big staffing cuts.  But the Deutsche principle of “only feed success” is clearly still in operation – the investment bank won’t be allocated any more capital. (Bloomberg)

There is, economically speaking, no point in having two good analysts covering the same stock – either they’ll disagree with each other, or one of them is redundant.  Consequently, we can expect more scenes like those apparently going on at UBS Hong Kong, where 70% of the Credit Suisse research department has been let go. (Reuters)

When a bank gets out of a business for ESG reasons, it creates a gap in the market.  Javelin Commodities, set up by two Goldman Sachs traders when the bank got out of trading coal, has turned into a $1bn company by becoming one of the biggest players in a commodity that nobody else cares to be associated with. (Bloomberg)

Ukrainian President Volodymyr Zelensky has had a meeting with Bill Ackman and Ken Griffin (Reuters)

The exodus of staff from Swiss financial regulator FINMA continues, as more and more bank supervisors decide that the stress is just too great. (Finews)

Short seller Victor Bonilla (or “Jehosophat”) describes an interesting career story.  He started out posting ideas on a website, then got hired by a hedge fund on the condition that he couldn’t post any more.  He then worked for a number of different companies, but decided he could no longer bear the strain of not telling anyone about his ideas, so started his own fund. (Institutional Investor)

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AUTHORDaniel Davies Insider Comment
  • Ni
    Nigerian Prince
    23 September 2023

    Markets in Financial Instruments Directive (MiFID) rules on “bundling” research payments with trading commissions were passed ---- this should be unbundling

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