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At the end of the day, all of the frenzied whispers in the press about Deutsche Bank CEO Christian Sewing’s sweeping restructuring hardly did it justice. Instead of moving slowly, the bank started herding hundreds of employees into meetings with HR, first in its offices in Asia (Hong Kong, Sydney), then London (which got hit particularly hard) then New York City.

By some accounts, it was the largest mass banker firing since the collapse of Lehman, which left nearly 30,000 employees in New York City jobless. Although the American economy is doing comparatively well relative to Europe, across the world, DB employees might struggle to find work again in their same field.

According to Bloomberg, automation and cuts have left most investment banks much leaner than they were before the crisis, and the contracting hedge fund industry, which once poached employees from DB’s equities business, isn’t much help. Some employees will inevitably find their way to Evercore, Blackstone – boutique investment banks and private equity are two of the industry’s top growth areas – or family offices, which, thanks to the never-ending rally in asset prices (and the return of bitcoin), are also booming.

Oh, and of course, there’s always crypto. Some evidence has surfaced to suggest that many young bankers are already looking to make the leap.

For the highest-paid employees being let go this week, many will need to get used to lower pay. Some 1,100 ‘material risk takers’ have been let go. On average, they earned $1.25 million, with almost 60% of that in cash.

“A lot of these people are going to have to get used to less compensation,” said Richard Lipstein, managing director at recruiting firm Gilbert Tweed International, in a telephone interview. And “the percentage of compensation in cash is lower than it used to be.”

Many will need to leave the street, and possibly whatever city in which they are currently living, to find work elsewhere.

“A lot of the people coming out of DB are going to be very challenged to find jobs just because of the sheer change in the equity business,” said Michael Nelson, a senior recruiter at Quest Group. “When you are dispersing that many people globally, some of those people might have to leave the business.”

But although banking headcount has never returned to its pre-crisis levels…

…at least one major Wall Street institution is looking to hire some Deutsche people: Goldman Sachs.

While BBG’s piece on the layoffs focused on the difficulty these employees may face in finding new work, Reuters described the scene outside these offices, where one insider had warned about “Lehman-style” scenes.

Some presumably fired workers could be seen outside, taking photos with colleagues and splitting cabs, presumably to go to the nearest pub and quaff liquor, beer and prosecco.

Staff leaving in Hong Kong were holding envelopes with the bank’s logo. Three employees took a picture of themselves beside a Deutsche Bank sign outside, hugged and then hailed a taxi.

“They give you this packet and you are out of the building,” said one equities trader.

“The equities market is not that great so I may not find a similar job, but I have to deal with it,” said another.

After weeks of looming dread, employees were called into auditoriums, cafeterias and offices, handed an envelope with the details of their redundancy package, and shown the door.

It looks like Reuters’ reporters followed some of the employees at DB’s London office to the nearest pub.

Few staff wanted to speak outside the bank’s London office, but trade was picking up at the nearby Balls Brothers pub around lunchtime.

“I got laid off, where else would I go,” said a man who had just lost his job in equity sales.

Job cuts were limited to the offices in the bank’s main financial centers. Reuters discovered that even some employees in Bengaluru had received envelopes.

A Deutsche Bank employee in Bengaluru told Reuters that he and several colleagues were told first thing that their jobs were going.

“We were informed that our jobs have become redundant and handed over our letters and given approximately a month’s salary,” he said.

“The mood is pretty hopeless right now, especially (among)people who are single-earners or have big financial burdens such as loans to pay,” he added.

Sewing’s grand restructuring plan involves shutting down Deutsche’s entire lossmaking global equities business, cutting 18,000 jobs (roughly one-fifth of the bank’s total headcount) and hiving off €288 billion ($322 billion) of loss-making assets into a bad bank for sale or run-off. The goal of the restructuring is to reorient DB away from its troubled institutional business and more toward commercial banking and asset management.

As a JP Morgan analyst pointed out, questions linger over DB’s ability to grow, its “ability to operate a corporate franchise without a European equity business.”

Investors were also taken by surprise, which is probably why DB shares sold off again on Tuesday. Closing the bank’s European equity business as a radical step that few anticipated. Most of the leaks to the media seemed to suggest that the cuts would focus on its foreign business, particularly the troubled US equities unit.

But without an equities business, some clients might lose faith in DB’s ability to win business from large corporations. Then again, there’s also the sheer enormity of what the bank is trying to do: substantially grow revenues while cutting a huge chunk of its staff and closing whole businesses, some of which are synergistic with other businesses that will remain open.

As Daniele Brupbacher of UBS pointed out, the odds of success seem low: “Cutting costs by one-quarter while increasing revenues by 10 per cent over four years in the current market environment, while undergoing massive restructuring, could be seen as ‘challenging.'”

Restructuring costs are also probably weighing on shareholders’ minds: the restructuring is expected to produce a full-year loss.

Will corporate bank head Stefan Hoops succeed in doubling GTB’s pretax earnings to €2 billion over the next 2 years, and make a tangible return on equity of 15% by 2022? We guess it’s possible. We suppose it’s possible. But is it likely

via ZeroHedge News https://ift.tt/2XD2HcK Tyler Durden

Authored by Daniel Lacalle,

The appointment of Christine Lagarde as president of the ECB has been greeted with euphoria by financial markets. That reaction in itself should be a warning signal.

When risky assets soar in the middle of a huge bubble due to a central bank appointment, the supervising entity should be concerned.

Lagarde is a lawyer, not an economist, and a great professional, but the market probably interprets correctly is that the European Central Bank will become even more dovish. Lagarde, for example, is a strong advocate of negative rates.

Lagarde and Vice President De Guindos have warned of the need to carry out measures to avoid a possible financial crisis, proposing different mechanisms to mitigate the shocks created by excess risk. Both are right, but that search for mechanisms to work as shock buffers runs the risk of being sterile when it is the monetary policy that encourages excess. When the central bank solves a financial crisis by absorbing the excess risk that the market once took it does not reduce it, it only disguises it. 

Supervisors ignore the effect of risk accumulation because they perceive it as necessary collateral damage to the recovery. Risk accumulates precisely because it is encouraged. 

Draghi said that monetary policy is not the correct instrument to deal with financial imbalances and macroprudential tools should be used. However, it is the monetary policy which is causing those imbalances when an extraordinary, conditional and limited measure becomes an eternal and unconditional one.

When monetary policy disguises and encourages risk, macroprudential measures are simply ineffective. There is no macroprudential measure that mitigates the risk created by negative rates and almost three trillion of asset purchases. More than half of European debt has negative returns and the ECB must maintain the repurchase of maturities, injections of liquidity and even announce a new program of quantitative easing in the face of the lack of sufficient demand in the secondary market for those negative yielding bonds. That is a bubble.

Risk builds up slowly and happens instantaneously. That is what the central planner does not seem to want to understand and the reason why stress tests and macroprudential measures fail in the midst of monetary stimuli. Because they start from a fallacious base: Ceteris paribus and that the already accumulated imbalances are manageable.

When most Eurozone countries finance themselves at negative rates for up to seven to ten years, there is no reason to maintain current rates and stimuli.

The central planner can say that bond yields are low due to market demand, but when the Central Bank supplants the market by injecting, repurchasing maturities and announcing more monetary stimuli, the placebo effect in the real economy is imperceptible and the risk in financial assets is huge. The huge injection of money supply goes to other risk assets in search of a diminishing yield.

The eurozone has been in stagnation for several months, with many leading indicators worsening, and it is not due to lack of stimulus, but due to excess. 

1. 64% of the sovereign debt of the eurozone hs negative yields. Five trillion euros . Completely unjustified looking at solvency, liquidity or growth ratios.

2. Junk bonds are at the lowest yield in thirty years, while the rating agencies warn that the solvency and liquidity ratios have not improved. The BIS warned of the increase of zombie companies, eternally refinanced at low rates despite not being able to cover their interest expenses with operating profit. Meanwhile, companies on the verge of bankruptcy are financed at rates of 3.5-4%.

3. The multiples paid for infrastructure assets have soared in little more than half a decade and now no one is surprised to see 19 times EBITDA paid for assets driven by low rates and cheap debt.

4. Excess liquidity reached 1.2 trillion euros. It has multiplied sevenfold since the launch of the repurchase program.

5. The debt of non-financial companies in the eurozone remains above 78% of GDP, according to Standard and Poor’s, above the cycle maximum of the fourth quarter of 2008.

Many say that nothing has happened yet, although it is more than debatable, according to bankruptcies of financial entities and increase of zombie companies. However, the fact that there has not been a massive financial crisis yet does not mean that the bubble is not being inflated. And when that bubble is in several assets at once, there are no macroprudential measures to cover the risk.

The problem of central planners is one of diagnosis. They think that if credit does not grow as much as they think it should grow and investment and growth are not what they estimated, it is because more stimulus is needed. Many ignore the effect of overcapacity, excess debt and demographics while carrying out the greatest transfer of wealth from savers and the productive economy to the indebted.

Calls for prudence and risk analysis measures would be much more effective if misallocation of capital was not encouraged by the policy itself. We must be aware that lower rates and more liquidity will not improve the economy, but they may generate a dangerous boomerang effect on risk assets.

via ZeroHedge News https://ift.tt/2JobL0Y Tyler Durden

Facebook activity among Britons has crashed by more than one third over the past 12 months, according to the analytics firm Mixpanel, first reported by The Daily Telegraph.

Since June 2018, several months after news of the Cambridge Analytica scandal was revealed, activity on Facebook’s mobile app in the UK dropped 38% through June 2019.

User clicks on web links or adverts inside the Facebook app declined in seven of the last 12 months, with an average monthly drop of 2.6%.

The alternative data outlines an entirely different story from Mark Zuckerberg, the chief executive of Facebook, who recently said Europe’s monthly active users continued to rise.

Investors have traditionally viewed the total number of users as a reliable metric of the social media company’s health, but with millions of fake accounts, many have turned to alternative data that shows a mass exodus of users started in the UK.

Last July, $120 billion was wiped off Facebook’s market value after it reported an unexpected drop in European users and shifted guidance about future growth lower.

Zuckerberg said last October that users in the US have plateaued and that future growth for the company would come from emerging markets. 

Mixpanel’s data, also, estimates how users open web pages or services on Facebook, provided another form of alternative data that serves as a proxy of user activity.

Matti Littunen, a social media expert at Enders Analysis, questioned the alternative data – didn’t believe the figures represented an accurate view of Facebook users’ activity across the UK, due to his belief that Facebook’s usage data showed an uptick. Instead, Mixpanel’s data could reflect changes in advertising tactics, he said.

Littunen said if usage does begin to fall – advertising prices will start to rise as firms compete for smaller audiences, leading advertisers to shift ad money elsewhere.

“Facebook has reached a very high level of user saturation in the core markets like the US and the UK, meaning that they have little margin for error before engagement drops from the peak,” he said.

“If Facebook usage were to drop by a third, Instagram would have to double in size to make up for it.

“No messaging app has supported a multi-billion dollar advertising business so far, so WhatsApp and Messenger would not be able to make up for a major shortfall.“

In a separate report, advertising research firm eMarketer said in May that users had spent an average of three minutes less on Facebook in 2018 than they did in 2017.

“On top of that, Facebook has continued to lose younger users, who are spreading their time and attention across other social platforms and digital activities,” eMarketer said.

Another Mixpanel report shows likes, shares, and posts have fallen 20% since April 2018.

The decline in Facebook activity by Brits coincided with privacy and hate speech scandals throughout 2018. In September, the company disclosed that a security breach exposed 50 million accounts – further deterring users from using the social media platform. 

via ZeroHedge News https://ift.tt/2FZG5Nl Tyler Durden

Authored by Raju Huidrom, Carlos Mulas-Granados, Laura Papi, and Emil Stavrev of the IMF Blog

The Czech Republic exports only a small number of cars and car parts directly to the United States, but it’s likely to suffer significant economic damage if that country were to impose tariffs on auto imports. The reason: the Czech Republic supplies parts that are used to build cars exported by other European countries.

Europe’s auto industry is one of many that are part of global value chains, in which different stages of manufacturing are dispersed among several countries. Because almost 70 percent of European exports are linked to value chains, tariffs imposed on products shipped by one country can affect many others. That is why, as we explain in a recent study, it’s important to view manufacturing through the prism of value chains when assessing the potential economic impact of tariffs or other economic shocks.

Two yardsticks

To do that, we need to distinguish between two yardsticks: gross value and value added. When a German resident buys a Volkswagen shipped from a factory in Bratislava, the purchase is recorded in gross terms as a Slovak export to Germany. But though that car was assembled in Slovakia, engine parts and other components came from third countries that provide a higher share of the value added to the final product than assembly does.

Distinguishing between traditional gross export measures and valued-added exports is especially important for Europe because the difference between the two is large; exports of other European countries to Germany are 8.3 percent of GDP in gross terms but only 2.9 percent of GDP in value-added terms.

To understand the importance of value-added measures, consider a scenario in which the United States imposes a 25 percent tariff on imports of cars and car parts. Gross exports of cars and parts from the European Union to the United States are 0.3 percent of EU GDP. The subsequent output loss for the EU is estimated at 0.1 percent of GDP, taking supply chain linkages into account. But only half the impact is in sectors and countries directly affected. The rest is transmitted via other sectors and trading partners along supply chains. Losses are distributed across more European countries than gross export data would suggest.

Let’s return to the case of the Czech Republic. Its direct exports of cars and parts to the United States are negligible in gross value terms. But in value added terms, the Czech Republic would rank fourth among European economies most hurt by car tariffs.

Our study also looked at how a big change in the pace of growth in the United States, China, or Germany—the three world trade hubs—would affect Europe through value chains. Our main conclusion was that growth spillovers from the United States and China are sizable, with larger effects on economies that are more exposed to them in terms of value-added exports.

On the other hand, we estimated that a growth shock that originates in Germany would have a smaller impact. This probably reflects the German economy’s smaller size relative to the United States and China. Also, Germany’s open and diverse economy is relatively resilient, so it was not a major source of independent shocks in the post-1995 period that we analyzed. Still, Germany could transmit shocks originating elsewhere, and its impact might be larger if growth were to be driven more by domestic demand. That was the case during the period around the reunification of East and West Germany in 1990.

These findings could be helpful for policymakers: measuring exports through value-added indicators gives a more precise picture of the distributional impact of potential trade shocks. And a better understanding of how trade shocks propagate through value chains could help formulate offsetting measures as well as policies to help the people who most likely to be affected.

via ZeroHedge News https://ift.tt/2xDaOLW Tyler Durden