Morning Coffee: JPMorgan and Goldman Sachs want to hire a new species of trader. The new “culture filter” for Credit Suisse bankers at UBS
In a downturn, it’s even more important to spot the growth markets so you can reorient your career in the direction of skills that are likely to be in demand. The news, therefore, that both Goldman Sachs and JP Morgan are planning to create new desks for secondary trading of private credit loans ought to have all sales and trading staff in areas remotely adjacent to that segment pricking up their ears.
An immediate question that strikes the mind is that if “private credit” is being traded actively on a secondary market with two bulge bracket banks, then isn’t that just … publicly traded credit? It does seem to be the case that a number of players on the buy side are sceptical as to whether the new market will take off, simply because the private credit funds will be reluctant to give up the advantage of not having to mark their holdings to market.
That suggests that the kind of traders who will get jobs at the new desks will be those who demonstrate an ability to handle illiquid markets, where trading is sparse, spreads wide and where two-way quotes might not exist at all. It’s going to be the very opposite of high-frequency trading; a private credit trade could stay on the books for weeks or even months, with the trading desk bearing the P&L consequences of whatever happens to it in the meantime. Bankers who go into private credit loan trading will be likely to get very familiar with the sound of their risk management department’s voices.
However, it's the wide spreads and significant opportunities for proprietary gains are what makes the market attractive to the sell side. But what’s in it for the clients? It seems that the answer is “the opportunity to get out of positions they don’t want any more”, which is likely to be a growing industry as monetary policy tightens and the economic outlook gets worse.
Of course, the fact is that a credit buying a loan from the person who originated it (and therefore probably knows a lot more about it than you do) is one of the most dangerous things you can do in the market. It’s probably not a coincidence that JPM and Goldman set up their own private credit origination teams first, to get some handle on the issues. They’re also both quite big in trading secondary participation in the private credit funds themselves, which will be another source of information; when a client is selling an asset, it’s useful to know whether it might be because something’s happened to the asset or something’s happened to the client.
This can be seen as another stage in the maturity of the private credit lending industry; when things are as big as the $5.5bn Carlyle loan concluded last year, it’s hard for them to realistically stay private or not to develop a secondary market. The overlap with the more specialized end of the high yield market should underpin that part of the credit trading industry for the near term.
Elsewhere, Colm Kelleher of UBS has warned Credit Suisse bankers that there will be a “culture filter” applied to the process of deciding who is going to be kept on after the merger, “to make sure that we do not import something into our ecosystem that causes issues”. It feels like the elegant phrase “culture filter” may be calibrated to Swiss sensitivities, but refer to the same process that Rich Handler of Jefferies and Bob Diamond (once of Barclays) called the “No Jerks” rule and for which Paul Purcell of RW Baird had an even more pungent name. We noted last week that collegial and amiable UBS bankers were worried about the sharp-elbowed reputation of their counterparts.
On the other hand, it might be something a little more serious. A Senate Committee yesterday published allegations that Credit Suisse bankers had breached the terms of a previous plea deal and continued to do business with US clients accused of avoiding tax. If these turn into further fines or settlements, it will be UBS that ends up paying them – so perhaps Colm Kelleher’s “filter” is going to be more tuned to filtering out people who might be compliance problems of the future.
Meanwhile…
Some workers in consultancy and quant firms are spending all day playing with ChatGPT. Well, some workers in every industry are spending all day on ChatGPT, but specialized “prompt engineers” are doing so as their job. At least one job has been advertised with a maximum salary of $335,000, but that’s being described as “ridiculous” by most employers in the field, and it looks like the big money is being earned by people with the rare ability to demonstrate an actual track record of useful applications rather than a big archive of rap parodies. (Bloomberg)
In an innovative and disruptive business model, Greg Fasano promises that if you can pay him $140,000 a month to stay in his short-term lease properties in New York, you can have “the lifestyle of a rich person in New York”. Huge if true. (WSJ)
High-performing CS bankers who don’t fancy subjecting themselves to the “culture filter” seem to be finding plenty of bids elsewhere – Citi has hired Maarten Swart to be co-head of EMEA retail and consumer sector capital markets & advisory and Sophie van Kleef to be an MD covering food and beverage companies. (Financial News)
Citi is also hiring (although not giving numbers) to grow its sterling rates desk. This might not be an unmixed sign for the UK market, since the reason for doing so seems to be that they made a lot of money out of volatility last year and hope to do the same again. (Bloomberg)
“Wall Street versus Main Street”. Except that most Main Streets in America have at least one bank on them, while Wall Street is gradually being taken over by luxury apartments. (Bloomberg)
Possibly significantly in the context of the “culture filter”, UBS Hedge Fund Solutions’ head of trading, Claire Tucker, has given an interview about the importance of work-life balance and the supportive environment of UBS, even on the trading floor. (Financial News)
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