Deutsche Bank’s next move.
I like this theory that Deutsche Bank might exit retail banking (as my Bloomberg View colleague Leonid Bershidsky discussed yesterday), focus on asset management and investment banking, and try to become Goldman Sachs. We talked about this when Credit Suisse hired Tidjane Thiam to jump-start its own restructuring: The era in which every big bank tried to compete in every area is mostly over, and each bankneeds to decide what sort of bank it will be. But that doesn’t mean they all need to be boring retail and wealth-management banks. The institutional- only, trading-driven, high-risk-high-reward approach has perhaps the highest degree of difficulty, but it has some key advantages. (High reward, more fun for bankers than retail is.) Not everyone can do it, butsomeonehas to, and there’s been an after-you-no-after-you-no-I-insist air to some of the big banks’ efforts to get out of investment banking. If Deutsche Bank manages to be the last big European bank to get out of investment banking, it might find that there are good reasons to stay.
Elsewhere in banking, Houlihan Lokey is preparing to go public, and the Royal Bank of Scotland has sold $3.2 billion worth of Citizens Financial Group shares.
High-frequency trader registration.
The big news in the world of high-frequency trading isthat the Securities and Exchange Commission is planning toamend Rule 15b9-1 to “require that broker-dealers trading in off-exchange venues become members of a national securities association.” Meaning that high-frequency traders wouldregister with the Financial Industry Regulatory Authority, and “would be required to open up their records for routine compliance examinations.”
And then what? Presumably Finra would inspect them and make sure that they’re not causing flash crashes or front-running orders or whatever. SEC Chair Mary Jo White says that”This model of regulation enables the Commission to better leverage its resources, draw on extensive market expertise, and build an oversight program that is deeper and broader.” I don’t know what that means. (Does Finra actually have extensive expertise in regulating high-frequency prop trading firms?)
Sometimes it feels like the SEC looks around at the high-frequency trading landscape, feels the need to do something, and then does a minimal symbolic thing. (This is not necessarily bad!)
Here is SECCommissioner Michael Piwowar:
This is a proposal aboutregulatorystructure, not market structure. In my many years as a market microstructure researcher, I have not seen one research paper on Rule 15b9-1 or requiring FINRA membership for proprietary trading firms, and I have never even heard it come up in a discussion of market structure. And, since I have been a Commissioner, I have received countless suggestions for enhancing our current market structure; this rulemaking has not been on the list. The document we are voting on today also does not articulate any link between the proposal and equity market structure. We need to be mindful that the opportunity cost of this rulemaking is the valuable time that we could have spent on issues that are more clearly related to, and impactful on, market structure.
Investment management.
I love this point from Victor Haghani, now of Elm Partners, formerly of Long-Term Capital Management:
My LTCM experience is a constant reminder that investment managers have much less control over returns than we would like, Haghani, 53, says. We do, however, have complete control over what we charge, and setting fees that are fair over the long term — both in good times and bad — is a pretty safe bet.
There is a reductio ad … something of that argument, which is: If you can’t control your returns, and you can control your fees, you should chargenothing, and not manage money. Obviously that is not fair to him, and not quite what he means. Still.
Elsewhere in investment management news, hedge funds that launched in 2014 drew $34.1 billion in investments, the most for new hedge funds since 2004. Josh Brown is skeptical of unconstrained bond funds. Andunlisted REITs are still terrible.
