Morning Coffee: Bankers nervously trying to keep their roles in the biggest deal so far. Goodbye once more to big bonuses in London

Equity capital markets bankers are famously some of the most highly strung people in the industry, and they have good reason to be.  The fees on initial public offerings are often huge, but the workload is intense and the scope for making mistakes is very small indeed.  And although an IPO might be just one more deal for the bankers, it is one of the most important moments in a company’s history.  So the clients tend to be quite demanding.  If the client is Elon Musk – not the easiest person to deal with at the best of times, the stress must be off the charts.

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The SpaceX IPO, for which the prospectus is expected to be filed next month, is the biggest in history – aiming to raise $75bn at a valuation of $2trn. That’s a lot of money even by the standards of the US equity market, and it seems that SpaceX might be sucking the oxygen out of the room; overall IPOs are down 37.5% for the year to date, partly as investors and issuers wait for this deal to get out of the way.

So it’s incredibly important to the bankers to be in the deal, and the syndicate is pretty huge, with 21 banks involved. In order to stay in Elon’s good books, they have apparently had to agree to subscribe to Grok AI. (As well as a defence contractor and satellite network, SpaceX is an artificial intelligence company and owns the social network which used to be called Twitter.  Good luck to the analysts trying to come up with a sum-of-the-parts valuation).

And the inconvenience doesn’t stop there.  As well as trying to get along with an irreverent chatbot, the bankers need to keep track of a retail allocation which is going to be about three times the size of a normal IPO.  Reports suggest that institutional investors will need to be persuaded to agree to a significantly longer “lock up” period than normal, and the marketing period will involve everyone having to make trips to Austin to meet management and see the factories rather than a conventional roadshow.

This is all going to be pretty exhausting. The way that IPO bankers manage their stress is to keep everything working along standard timelines and processes.  Any change to the execution plan means a lot of work for everyone, to make sure that no detail is missed which might cause problems later.  A client who is determined to keep ordering off-menu is a nightmare.  And this is only the beginning; there haven’t been any in-jokes, tantrums or funny numbers yet.

It all feels like an even more difficult version of the Aramco IPO, which bruised a number of banker egos on the way to the market.  We shouldn’t feel too sorry for capital markets bankers – they are very well paid. But sometimes, they really do have to work for their money.

Elsewhere, London bankers might have celebrated a bit when the cap on bonuses was removed a couple of years ago.  But in order to really benefit from it, you’ve got to actually make money for your employer.  And it seems that might be a bit more difficult than anticipated.

Under new European regulations, it is going to be significantly more difficult for branches of non-EU banks to provide core services to European clients, and non-EU institutions are also likely to be shut out of all the deals taking part under the “Safe” defence spending initiative.

All of which means that, despite some signs of a return to profitability in the British domestic market, global firms are likely to maintain their trend of increasing the size and staffing of their Paris and other EU offices, rather than trying to run things out of London.  So ambitious global bankers will still be thinking about role-based allowances and higher base salaries, rather than trying to max out the variable compensation.

Meanwhile …

“Down 5%” is the new “killing it” for global macro funds, with a number of big names like Brevan Howard, Taula and Jupiter doing somewhat worse than that in March.  The only players that have been able to cope with the chaotic environment of war and rumours seem to have been the tightly managed quant funds, with DE Shaw and Capital both up last month. (Bloomberg)

Although there are plenty of organisations which work in teams, it always seems to be the Navy SEALs that CEOs use as the example, even though the SEALs hardly ever write powerpoint slides.  Jamie Dimon is the latest, in his letter to investors where he says that the secret of competitive success is to delegate jobs to small groups of highly motivated people. (Business Insider)

If you have had as much fun as you think the UAE can provide, and if you are properly rich (rather than just “influencer rich”), the latest destination is apparently Milan. It’s not a cheap place to live, but the Italian tax regime is quite favourable. (Guardian)

“As our private bank’s performance has strengthened, expectations for colleagues have risen accordingly”.  Citi’s wealth managers are reminded that the reward for a job well done is sometimes that last year’s superperformance becomes this year’s baseline expectation. (Financial News)

If you have been really good at guessing reality TV results and predicting Donald Trump’s tweets, you now have a problem. Nobody in the USA seems to know whether prediction market profits should be recorded on your tax return as short term derivatives trading, gambling winnings or something else. (WIRED)

Unfortunately, one of the worst jobs in accountancy is also the least likely to be replaced by AI. Part of auditing a company is checking its inventory levels.  That’s bad enough when you have to count thousands of nuts and bolts, but if the company has inventories of frozen fish, or pigs it can become uncomfortable or disgusting. (WSJ)

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