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From iconic city headquarters to WeWork deals, here's how financial giants are thinking about the future of their real estate (WFC)
Some financial firms are evaluating their post-pandemic office needs. Wells Fargo is not renewing its lease...Some financial firms are evaluating their post-pandemic office needs. Wells Fargo is not renewing its lease in a 750-person WeWork space in Charlotte, N.C. Citi meanwhile has signed a lease for a roughly 100-person WeWork space that's not in a major city. UBS is pushing ahead with working with WeWork remodelling a large space in New Jersey, now incorporating a social distancing-geared design. Charlie Morris, head of Avison Young's US Flexible Office Solutions practice, said he's seen financial services remain "active" in the flex-office market, and that his firm's consulting with a "very large" player on committing a large percentage of space to flex-office. Visit Business Insider's homepage for more stories. Big financial firms now have had the experience of operating largely remotely for the first extended period of its kind. Many of these companies' plans for fully returning employees to buildings are up in the air — particularly in the US — as the coronavirus pandemic's path changes by the day. Some are taking this opportunity to reevaluate their office needs. But there's no industry-wide consensus yet on how it will shake out. Of the 400 chief human resource officers, chief information officers, and chief operating officers across US-headquartered banks, insurers, and capital markets firms polled in an Accenture survey published on Tuesday, 51% expected to keep their real-estate footprints, and 42% expected reductions. Here's a look at some of the biggest financial firms' real estate and flex-office plans: Wells Fargo is leaving a 750-person Charlotte WeWork space In Charlotte, N.C., a big financial-services hub, Wells Fargo has chosen not to renew its lease in a prominent WeWork location in the city, according to a person with direct knowledge of the matter. The bank, headquartered in San Francisco with a large presence in Charlotte, had a 24-month lease for the 750-person space at 128 South Tryon Street starting in September 2019, according to this person. A clause in Wells Fargo and WeWork's contract provided the bank the option to exit the lease after one year, this source said. WeWork has touted the seven-floor, 130,000-square feet location inside the First Citizens Bank Plaza building as its largest office in the Southeast US when it opened, the Charlotte Business Journal reported. A spokesperson for Wells Fargo declined to comment. A spokesperson for WeWork also declined to comment. Wells Fargo, meanwhile, is planning to keep more than 200,000 employees working from home until at least September, according to a second-quarter earnings call transcript on the investment research platform Sentieo. For Wells Fargo, reducing expenses was a key objective for Chief Executive Charlie Scharf even before the pandemic hit. On the earnings call with analysts on July 14, Scharf said he found some $10 billion in expenses Wells Fargo would need to cut. He said he expected the bank to start taking action in the second half of 2020, and that could mean consolidating branches, field offices, and corporate sites. It's likely the bank will have to house fewer employees, regardless. Wells executives are drafting plans that could cut tens of thousands of jobs starting this year, Bloomberg News reported in early July. The bank reported some 263,000 global employees as of March. TIAA has moved out of a temporary Midtown Manhattan WeWork space it rented while its headquarters are being renovated The $1.1 trillion manager TIAA moved into four of WeWork's five floors at 575 Lexington Avenue in Manhattan as temporary space while its nearby headquarters undergoes renovations. TIAA didn't renew its WeWork lease and moved out as originally planned in June. Employees will work remotely until renovations wrap up. In 2018, WeWork leased five floors at the location totaling 117,000 square feet. According to July marketing materials from WeWork viewed by Business Insider, the coworking giant is currently looking to fill one 20,070-square-foot full-floor space on the 16th floor, as well as 12,000-square-foot and 10,000-square-foot partial spaces on the 15th floor at 575 Lexington. TIAA's real-estate subsidiary, Nuveen, was WeWork's second-biggest US landlord last year, based on CoStar Group data, Business Insider reported in August. Nuveen leased more than 600,000 square feet of space to WeWork in the US as of last June, per CoStar, which declined to provide more recent figures. Nuveen does not own 575 Lexington Avenue. That building's trio of private owners put the property up for sale earlier this year, The Real Deal reported in January. Others are adding flex space, and more deals could be in the future Citi and Mastercard are among the companies that have signed new leases with WeWork recently, according to a July 12 report in the Financial Times. The lease agreement Citi signed with WeWork is for a small office intended for some 100 people, and is not in a major metropolitan US area, a person familiar with the matter told Business Insider. A spokesperson for Mastercard said the company could not comment on specific real-estate deals. WeWork Chairman Marcelo Claure told the Financial Times that the office company was on track to be cash-flow positive in 2021, thanks to aggressive cost cutting and strong in-demand from companies seeking flexible-office arrangements because of the pandemic. Charlie Morris, head of Avison Young's US Flexible Office Solutions practice, said that he's seen financial services remain "active" in the flexible-office market, and that for some firms, the pandemic has been an accelerator. He said that his firm has been consulting with "one very large financial-services firm" on committing a large percentage of its office space into flexible-office in the future. The plan pre-dated coronavirus, but he said that the firm is "definitely involved more so post-COVID." Read more: WeWork is leasing a big new office in Jersey City to house the headquarters of a planned spin-off from pharma giant Merck UBS say it's thinking about flexibility UBS Chief Executive Sergio Ermotti told analysts on a Tuesday earnings call that the Swiss bank has already been looking at its global real-estate footprint. "There is an acceleration that more and more you will have a situation in which people don't have necessarily their own desks, but they have a space in which they need to share. And that creates a lot of flexibility in the way we manage our real-estate footprint," he said. Last month, the firm's chief operating officer, Sabine Keller-Busse, told Bloomberg News that she could envision about one-third of UBS's workforce of some 70,000 people permanently working remotely. Ermotti largely reiterated that outlook on Tuesday. UBS, with North American regional headquarters in Midtown Manhattan, is working physical-distancing design plans into a previously instated renovation program in conjunction with WeWork for 100,000 square feet of UBS's Weehawken, N.J. office, according to a person familiar with the matter. Morgan Stanley looks to keep its presence in big cities For some firms, the prestige and appeal of big cities could be hard to let go. "I think headquarters will always be in these iconic cities, and the symbol of that — it's kind of the Mecca of the finance industry," said Jocelyn Kung, the founder and CEO of organization development consulting group the Kung Group, referring to New York City. "I would think that symbol will never go away." "But the way that work happens and transactions occur more and more through electronic transfer and remote work — that is not just in the finance industry, but all over it's happening," she said. On a call with analysts last week, Morgan Stanley CEO James Gorman said having 90% of the bank's total workforce working remotely has given management a chance to rethink office strategy — but shot down the notion the New York-headquartered bank would meaningfully cut back in big cities. "We're committed to the major cities in this world where we have our headquarters: here in New York, where I am today with [finance chief Jon Pruzan] although socially distanced; London; Frankfurt, which we've moved and consolidated, is our European headquarters; Tokyo and Hong Kong. That doesn't change. Morgan Stanley will remain a major player in the commercial real-estate market globally," he said. In wealth management, Morgan Stanley's force of some 15,400 financial advisers have been gradually returning to offices in some areas of the US where local mandates allow, a person familiar with the matter said. The wealth business had already been trimming branches — it had 584 through June 30, down from 591 in March. But that was planned pre-pandemic, this person said, and those offices could wind up with even smaller footprints in the future. Read more: Facebook is eyeing offices in cities like Dallas, Atlanta, and Denver to act as 'hubs' to support 50% of its workers staying remote — and it's a move that could upend Silicon Valley and NYC real estate A startup that uses AI to scan Wall Street chats is flagging more people for cursing and complaining — and it could be a sign of bigger compliance issues while people work from home Wall Street is starting to return to the office — but not everyone is heading back. Here's which finance jobs are the most likely to remain virtual.SEE ALSO: LEAKED DOCUMENTS: WeWork is looking to fill 2 million square feet of vacancies in New York City, its biggest market. Here's what's sitting empty. SEE ALSO: Wall Street's disaster playbook never included work-from-home trading. Insiders explain how banks rapidly adjusted during one of the most chaotic markets in history. SEE ALSO: IBM is ditching a big WeWork office in NYC, revealing the risks of the popular flex-space model as the pandemic prompts Blue Chip companies to rethink real estate Join the conversation about this story » NOW WATCH: How waste is dealt with on the world's largest cruise ship
JPMorgan Chase, Citigroup and Wells Fargo said that as long as the economy behaved according to...JPMorgan Chase, Citigroup and Wells Fargo said that as long as the economy behaved according to their forecasts, they were braced for more pandemic-induced pain.
A JPMorgan trading desk pulled in $700 million — triple its 2019 performance. The volatility haul helped it outflank rivals in a year of massive swings and diverging fortunes.
Markets have produced bizarre and historic results in the first half of 2020, creating stark swings...Markets have produced bizarre and historic results in the first half of 2020, creating stark swings and diverging fortunes for traders. That's especially true in the world of equity derivatives and the traders that bet on volatility, where some investment funds have flamed out spectacularly while many Wall Street banks have minted hundreds of millions in revenues. JPMorgan Chase's flow volatility team has racked up $700 million in the first half of the year — nearly three times what it brought in last year, sources told BI. A trio of French banks, on the other hand, absorbed $1.5 billion in losses earlier this spring when structured derivatives tied to corporate derivatives went up in smoke. Overall trading numbers in Q2 are expected to come in strong compared with 2019 — KBW is predicting a 15% increase year-over-year in stock trading across the big-5 US banks. Visit Business Insider's homepage for more stories. This week marked the end of the first half of the fiscal year for most banks. For one equities-trading desk at JPMorgan Chase, they've already eclipsed their revenue haul for the entirety of 2019 — nearly three times over. The market convulsions amid the COVID-19 pandemic have produced bizarre and historic results, and created stark swings and diverging fortunes. There is perhaps no clearer example of it than the world of equity derivatives and the traders that bet on volatility. In aggregate, performance is expected to suffer at Wall Street banks as the economy struggles to right itself in the face of the coronavirus — KBW is predicting earnings to fall 25% year-over-year at the median universal bank in the second quarter. But sales and trading desks have provided a robust buffer against declining interest income and loan loss reserves. Big banks, by and large, have seen stunning results from their derivatives squads, especially the flow derivatives teams — which specialize in complex directional trades betting how much stocks, indexes, or other macro products will move — that have been in the trenches amid record surges of volatility. None moreso than JPMorgan. The firm in the first quarter eclipsed $1.1 billion in equity derivatives revenues, on par with what it made in all of 2019, with a little less than half of the tally coming from its flow derivatives traders, according to people familiar with the numbers. Though the shocks have been mild by comparison to those of March, volatility in the second quarter has remained elevated, and JPMorgan's equity derivatives number is expected to land at around $1.3 billion for the first two quarters. The global flow team will finish the first half of 2020 with more than $700 million in revenues, nearly three times as much as the roughly $250 million the group earned in all of 2019, the sources said. Other banks posted monster equity derivatives numbers in the first quarter as well, with several eclipsing $200 million from their flow desks. Globally, flow derivatives trading was up 200% in the quarter across the banks. But even as volatility calmed, JPMorgan continued to press its lead in the second quarter, and there isn't a runner up in flow derivatives — Goldman Sachs and Morgan Stanley have dominated the space in recent years and are said to be next in line — within $100 million of first place, the sources said. JPMorgan, Goldman Sachs, and Morgan Stanley declined to comment. Diverging fortunes But volatility trades that have minted fortunes for banks have upended investment funds that took the opposite side and bet the cards would fall differently. During the meltdown in February and March, financial assets across stocks, bonds, currencies, and commodities hit watermarks, either in terms of how far or how fast they plunged. For instance, the CBOE Volatility Index, known as the VIX, swung violently and set multiple records — the two largest ever single-day VIX spikes came in mid-March, and the 82.69 close on March 16 is the highest ever. As Business Insider reported in March, some flow derivatives desks had put on protection trades that provide a substantial but usually long-shot payoff if intense volatility strikes. Investment funds that took the opposite side of those trades, collecting small premiums to insure the banks against massive losses, ended up in a world of pain. In an autopsy of the carnage, Institutional Investor last week detailed how in one type of trade, Wall Street banks paid funds to effectively cover unlimited losses in the event of a severe market crash — in part to unload risk from their books and pass muster with regulators — which counterparties were happy to do since they presumed the contract would never pay out. The result: Malachite Capital, Ronin Capital, Parplus Partners, and Allianz's Structured Alpha hedge funds were wiped out, while Canadian public fund AIMCo lost more than $1.5 billion and the Canada Pension Plan Investment Board was burned to the tune of $515 million. Stock-trading results have been mixed this year at the banks, too, even within product subsets. In the first quarter, equities revenues at the 12 largest banks increased just 3% from last year to $11.2 billion, despite the substantial increase in trading activity and strong showing in flow derivatives, according to a quarterly report from Coalition. That's in part due to weaker prime brokerage performance as hedge funds took hits, but also because while volatility was spurring some desks, other banks "reported significant write downs" thanks to structured derivatives products that went awry, according to the report. Those writedowns are alluding to losses at French banks BNP Paribas, Societe Generale, and Natixis, which saw complex equity derivatives tied to shareholder returns go up in smoke after an unexpected and "sudden cut in corporate dividends," S&P Global said in a report last week. That erased around $1.5 billion in revenues between the three firms, according to a report from Bloomberg. Read more: Inside Wall Street's coronavirus-fueled trading frenzy, where historic shocks of volatility are creating massive paydays Echoes of 2018 The last time banks made such eye-popping trades from their volatility desks was during the VIX spike back in February 2018. Prior to the frenzy earlier this year, the 116% rise in the VIX on February 5, 2018 — which followed a long stretch of unprecedented market calm — was the largest single-day increase on record. The flow derivatives teams at Wall Street banks raked in hundreds of millions in the process. That year, Goldman Sachs led the field with about $650 million, followed by Morgan Stanley with about $550 million, according to sources familiar with the numbers. In the aftermath, a poaching war ensued, and many of the standout traders cashed in their chips that spring and summer for promotions and raises at other firms, resulting in dozens of seat changes. At JPMorgan, global volatility trading is now run by Rachid Alaoui, a 15-year company veteran who took over the role after Fater Belbachir left for Barclays in early 2019. Other roles have turned over since 2018 as well. Senior US flow traders David Kim and Seok Yoon Jeon decamped for Bank of America and Citigroup, respectively, amid the hiring frenzy in 2018. That summer, JPMorgan in turn poached Borzu Masoudi — who was instrumental in Goldman's $200 million trading day during the February VIX spike — to run volatility trading in the US, where much of JPMorgan's derivatives trading gains have come this year. As markets recovered in April and May of this year, volatility fell from the meteoric heights seen in March but remained at historically elevated levels. Overall trading numbers are expected to be strong compared with 2019 — KBW is predicting a 15% increase year-over-year in stock trading across the big-5 US banks — but equities revenues are expected to fall about 14% compared with the first quarter. Very little has been predictable about 2020, and with coronavirus cases on the rise again in the US, it's unclear how the economy and markets might respond in the second half of the year. The record numbers produced by derivatives traders at Wall Street banks could still significantly increase — or decrease — if conditions devolve and American businesses suffer deeper losses, sending more sudden jolts of volatility into the markets. Read more: 'I've never seen it like this in 10 years': How the VIX blow-up led to a talent raid on Wall Street trading floors Equity is the new debt, with Corporate America selling record amounts of stock to stockpile cash. Here's what prompted the sudden shift. Wall Street's disaster playbook never included work-from-home trading. Insiders explain how banks rapidly adjusted during one of the most chaotic markets in history. SEE ALSO: 'I've never seen it like this in 10 years': How the VIX blow-up led to a talent raid on Wall Street trading floors SEE ALSO: Inside Wall Street's coronavirus-fueled trading frenzy, where historic shocks of volatility are creating massive paydays Join the conversation about this story » NOW WATCH: Why Pikes Peak is the most dangerous racetrack in America