Morning Coffee: JPMorgan decides to get tough with Jane Street. Former hedge fund manager and BoA banker might be the next Jamie Dimon

Investment banks often have a funny kind of “frenemies” relationship with that part of their client base which consists of other financial institutions.  It is possible to make a lot of money out of dealing with them, but there is often quite a lot of overlap between the clients’ business, and things which the bank would like to make money out of itself.  This tension has to be managed quite carefully; in prime brokerage, financial sponsors and several other areas, the banks want to help their clients do well, but maybe not to do too well.

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An important recent example of this might be the growth of market making firms like Citadel Securities and of proprietary trading firms like Jane Street.  In a short period of time, they went from useful counterparties, to being serious competitors, to taking dominant share in a corner of the market (cash equities trading) which the banks had previously considered their own. So when Jane Street started to move into fixed income, this understandably raised concerns.

The Financial Times is reporting that JPMorgan (and possibly other banks – nobody is willing to talk on the record) has significantly reduced the amount of lending that it is prepared to extend to Jane Street, and to other market making firms like Citadel Securities.  There might be all sorts of reasons for that, but it is noticeable that the move came shortly after Jane Street began to offer quotes in US Treasuries, and after Citadel Securities poached JPMorgan's head of high touch trading and then Jamie Dimon mentioned the firm as a significant competitor in his shareholder letter.

“People familiar with the situation” suggest that there had been “internal tensions” at JPM, with the trading desks getting unhappy that other parts of the bank were financing an attempt to eat their lunch.  Since JPM apparently provided about 5% of Jane Street’s total leverage, it’s hard to say that this was the only thing going on, but they might have had a point.

Under Jamie Dimon, JP Morgan has made something of a habit of being the first of the bulge bracket to stand up and defend the franchise against client-competitors.  He led the way, for example, in putting an end to the practice of “on cycle recruiting”, whereby private equity firms effectively used the sell side as a free training program for their analysts.  At the time, this was seen as a courageous move, which might have damaged JPM’s relationship with the important and lucrative financial sponsors client base.

If the rest of the Street follows JPM’s lead, then although the proprietary trading firms are unlikely to go away entirely, they might at least be slowed down in their growth. Sometimes the most important role of a market leader is to provide leadership.

Elsewhere, when Jamie Dimon finally retires and the definitive biography of his career is written, one of the most important chapters will detail how he built his reputation as a loyal lieutenant (of Sandy Weill), and then cemented it after leaving to turn around a troubled bank (Bank One).  It’s quite a story.  And even more interestingly, it’s one which appears to be repeating itself, as Mike Lyons takes over the CEO role at Truist.

Lyons started his career at Fleet Bank, on the strategy team of its then CEO, Brian Moynihan.  After leaving that job to join Morgan Stanley, and then spending some time as a hedge fund manager at Maverick Capital, he returned to work with Moynihan as head of corporate strategy at Bank of America. He left BoA in 2011 to help build PNC Bank into a midwestern powerhouse.

And now he is being given his first major banking CEO role, at Truist, the biggest bank in the Southeast USA, but a perennial underperformer that needs a bit of firm management after two previous “decisively nice” leaders.  If the story continues in the same way, we should probably expect to see him coming back to Wall Street in triumph some time around 2030.

Meanwhile …

There is a lot of coming and going in the FX derivatives market; HSBC have hired Pierre Viandaz, formerly an MD at Goldman Sachs.  Goldman also recently lost Andrei Kazantsev to Citigroup, but have hired Simon Costello from Balyasny. (Financial News)

It’s not particularly common for portfolio managers to leave Bluecrest, but Ben Atlas did it last year. As his non-compete comes to an end, he will be managing $1bn for ExodusPoint, who are also allowing him to give his pod the undeniably cool name of “Atlas Capital”. (Bloomberg)

“If the number of hours they’re working on a matter has come down because of AI . . . our expectation is for costs to come down significantly per transaction”.  Banks are asking law firms to pass on some of the savings, and presumably hoping that cllients don’t start thinking in a similar way about the bankers’ fees. (FT)

The “millionaire factory” at Macquarie wants to open a new production line in metals trading.  As well as hiring, it is also looking to acquire physical metal trading firms. (Bloomberg)

According to various sellers of creatine-enhanced smoothies and “nutrition brands”, bankers are looking to funny tasting drinks full of mushrooms and yerba mate, to give them a “competitive edge” (FT)

For any junior bankers who want a career change and feel like they might be good with a pair of pliers, the labour shortage for Australian data centres is so acute that they are offering A$200,000 (US$143,000) for junior electricians. (AFR)

If you’ve been working on a structured finance deal in the renewable energy sector, and can’t help thinking you recognise one of the bankers from Excelsior Capital Partners, it’s because he used to play Nick Moore in the hit 80s comedy “Family Ties”. (Parade)

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