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One invitation to start: Join DD’s Kaye Wiggins next Thursday, October 22 for a discussion on private equity and the Covid crisis. She will be joined by Blackstone’s Lionel Assant and EQT’s Christian Sinding. Register for the free virtual event here.

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Morgan Stanley’s shift over the past decade

For those who follow the top Wall Street banks, there’s no rivalry more intense than that between Morgan Stanley and Goldman Sachs. (Cue groans from JPMorgan Chase bankers as they read this line).

Their constant tug of war may become a thing of the past, however, as the banks transform their businesses and diversify away from traditional investment banking operations into new frontiers.

That’s partly thanks to the success of players like JPMorgan (you’re welcome). 

As Wall Street’s everything bank, JPMorgan’s success in recent years has forced rivals to think about their own businesses and find new sources of growth.

For Goldman, that means new ventures into cash management, credit cards and retail savings accounts. 

And as we covered in DD last week, Morgan Stanley boss James Gorman recently struck his latest deal by agreeing to buy asset manager Eaton Vance for $7bn just days after closing a $13bn takeover of ETrade, the online brokerage.

The deals highlight a shift in the balance of power at Morgan Stanley, which was spun out of JPMorgan in the 1930s, the FT’s Laura Noonan writes in this feature

Morgan Stanley’s investment banking arm, which has long been described as the “DNA” of the 85-year-old institution, would have contributed just 42 per cent to 2019’s pre-tax profits, based on the combined accounts of Morgan Stanley, ETrade and Eaton Vance.

Column chart showing Morgan Stanley's revenue by business segment in billions of dollars from 2010 to 2019

The acquisitions haven’t helped elevate Morgan Stanley’s share price, however, which sits at about $50, a slight discount to the value of the group’s assets. 

A business mix transition like that unfolding at Morgan Stanley can lead to competing factions. “People can see who’s in the ascendancy,” said an executive at a rival bank. “At the margin, people do care about these things.”

The bank’s challenge, as a result, will be to present a united front against its competitors.

Jet-setting bankers’ lockdown dilemma

Whether waiting out the first wave with family abroad or enjoying a luxury lockdown in far-flung holiday villas, many in The City have taken the term “remote working” quite literally.

But as employees adjust to a new normal — which, for the luckier ones, includes trading small talk over mediocre coffee in fluorescently lit quarters for poolside happy hours — banks are facing hefty tax and regulatory burdens.

Lenders are beginning to call back the thousands of staff who have leapt for greener pastures since the pandemic first struck as the potential financial consequences of hosting large portions of their workforces abroad mounts.

Employees who relocated might be considered to have a “permanent establishment” in their new country, exposing companies to a number of international taxes, Renáta Ardous from the accountancy firm Mazars explained to our FT colleagues.

“We’re asking people to come back,” said a senior executive at Citigroup, adding that staff were expected to remain in the UK, whether returning to the office or continuing to work remotely, unless there were exceptional circumstances. 

Credit Suisse has also issued similar orders, according to people familiar with the company’s decisions. One executive at the Swiss bank said he reminds his subordinates “the tax liability will be their own. That’s usually enough of an incentive without ordering them home.”

Deutsche Bank said most of its UK staff had already returned, while Goldman Sachs did not set a deadline but said most of its employees had come back by the end of summer. 

DD readers, it might be time for some of you to pack your bags.

Amazon: fashion purgatory

“Can you please spell Gabbana?”, Anne Hathaway’s character in The Devil Wears Prada asks into the phone, cluelessly, before the line goes dead.

© 20th Century Fox

Exiled from the good graces of her omnipotent editor-in-chief Miranda Priestly, played by Meryl Streep, the fledgling assistant doesn’t stand a chance in the cut-throat world of high fashion.

Facing a similar plight is Amazon, which, despite its position as an ecommerce titan, is struggling to break into luxury’s exclusive inner circle.

The retail group’s recent forays into US groceries and healthcare were met with fear by competitors. However, its newly unveiled Luxury Stores experience, an invitation-only shopping platform for US Prime subscribers siphoned away from its main site, has done little to shake the fashion industry’s well-heeled elite.

The company faces stiff competition from e-retailers such as Farfetch, Yoox Net-a-Porter, MatchesFashion and MyTheresa (a great story from team DD on that last one here).

Bar chart of % of items sold showing Markdowns on various luxury e-retailer websites

DD readers will be all too familiar by now with the wolf in cashmere, LVMH chief Bernard Arnault (pictured below). The wolf, however faltering on his engagement to Tiffany, has always stood resolutely with fellow luxury gatekeepers Kering and Hermès in keeping Jeff Bezos off the list.

“We’ve been asked several times to participate in these businesses, and I’ve always said no,” Arnault said of online players during a conference in January, adding his concerns are partly due to counterfeiters’ use of sites like Amazon to sell fakes.

Underscoring rivals’ lack of concern over Amazon’s luxury debut is the fact that it’s only managed to snag one high-end designer for its launch: dressmaker Oscar de la Renta. High-end brands like Joseph Altuzarra, La Perla, and Roland Mouret have joined since.

“If they decide to have a real go, they may get somewhere given they have so much talent, capital, and logistics and delivery expertise,” said Felix Capital founder Frederic Court. “But if you don’t have Gucci, Saint Laurent, Prada and Dior, then it’s hard to be a real destination for luxury shoppers.” 

Though the invite-only platform’s own invitation to luxury’s upper echelons never arrived, the Covid-19 retail climate is playing to its advantage. Customers are purchasing more online than ever before, even €10,000 handbags.

Luxury industry market dynamics

Will the big tech stalwart ever gain entry past luxury’s golden gates, or spend eternity shivering on the sidewalk? Go deeper with the FT’s Leila Abboud.

Job moves

  • British Airways chief Alex Cruz has stepped down as the airline continues to struggle through the coronavirus crisis. He is replaced by Aer Lingus boss Sean Doyle. Cruz will remain the airline’s non-executive chairman for a transition period until Doyle takes over. 

  • Ayman Asfari will retire as chief of oil group Petrofac. He is replaced by the former executive vice-president of Royal Dutch Shell’s upstream joint-ventures business, Sami Iskander. More here.

  • Squarespace hired Marcela Martin as its new finance chief. She joins the software company in its quest for a public listing from Booking Holdings

  • Edward Bonham Carter has stepped down from Jupiter Fund Management’s board to pursue a new role focusing on the company's stewardship and corporate responsibility efforts. 

  • Värde Partners promoted Jon Fox as its new president and Andy Lenk as deputy chief executive. Fox was previously head of the group’s New York office, while Lenk was most recently a partner in Minneapolis.

  • KPMG named Alfonso Marone as UK head of deal advisory in the technology, media and telecoms sector. 

Smart reads

Ulrich, Kevin Ulrich. The hedge fund manager holding the largest stake in James Bond franchise owner MGM must hatch a secret agent-like escape plan from his $1bn investment in the studio, as the newest instalment’s continually delayed release dwindles odds of a big payday. (WSJ)

Epstein’s golden ticket After he’d been abandoned by his most lucrative client, retail billionaire Leslie Wexner, Jeffrey Epstein continued to float his advisory business and lavish lifestyle on millions in fees from one of Wall Street’s most powerful financiers, Apollo’s Leon Black. (NYT)

What trade war? Wall Street banks are doubling-down on their Chinese operations, even as economic tensions between Washington and Beijing grow continually icy and a “New Cold War” threatens to freeze over manufacturing and tech. (FT)

News round-up

Billionaire financier Leon Black paid $50m to Jeffrey Epstein (FT)

Vatican sells charitable assets to repay €242m Credit Suisse loan (FT)

Twilio to acquire customer-data firm for $3.2 billion (WSJ)

Neles board backs Alfa offer over Valmet (Reuters + Lex)

OECD drafts principles for $100bn global corporate tax revolution (FT) 

Neuberger’s Dyal extends deal streak with Veritas Capital stake (P & I)

EQT is said to explore takeover of $11 billion carrier KPN (BBG)

TikTok rival Triller explores deal to go public (Reuters)

Pearson shareholders set sights on departure of chairman (FT)

US companies rewrite bonus plans to prop up executive pay (FT)

NCB/Samba: bigger not better (Lex) 

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com

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