Let's start with the good news, which, this week, is two banks' plans to build bona fide investment banking businesses. Actual expansion plans to capture a perceived opportunity, not just managed decline and an unseemly scrap for every basis point of market share.
These are of course, Crédit Agricole CIB and Bank of China.
Under the reinvigorating leadership of Isabelle Girolami, who took over as head of global markets last year, the French bank has been hiring — just this week, Sebastien Domanico stepped up as head of global DCM, and the bank announced it had hired Gene Kim as head of international.
Now it also plans to reopen its equity derivatives business — seemingly an essential part of any French bank’s make-up today. Société Générale has long been a market leader in certain corners of the industry, while BNPP has been pushing hard to catch up.
In fact, BNPP actually bought a big portfolio from Crédit Agricole, taking on €12.5bn notional in 2013, as Cred Ag wound down its operations.
The traders who worked on the desk were scattered or let go, but the firm retained some of its expertise in its corporate-facing equity business, offering treasury solutions and convertible bonds (and keeping hold of the pricing system).
That’s why the new equity derivatives business will be a joint venture between banking and markets — the aim is to revive the investor-facing side of equity derivatives structuring, and the bank’s production of structured notes with equity underlyings.
But it definitely means hiring salespeople and traders (not that many; it’ll be an electronic effort as much as possible) and it’s a definite statement of intent by a bank which wants to get back in the ring (and has the capital to do so)
In Bank of China’s case, the targets are perhaps a little lower, at least in the short term. It has hired Kenneth Madill to start a bond syndicate operation in London, following hot on the heels of Viktoria Beromelidze, who joined in August as head of origination (EMEA). It’s already bearing some kind of fruit — the bank showed up on WPP’s 30 year sterling trade this week — but doesn’t necessarily need to be the biggest desk with top line capabilities on every trade.
The bank hasn’t sorted out how it wishes to communicate its London-based intentions yet, but we can make a few deductions. First, consider the $2.6tr balance sheet, and the lending capabilities it affords. While cheap lending never managed to catapult the Japanese firms into the investment bank big league, the abilities to write big tickets never hurt. If that doesn’t work, then there’s the huge flow of business to come as China opens up its capital account.
The highly symbolic Chinese sovereign issue on the London Stock Exchange, led by HSBC and Bank of China, might have been small in size (Rmb3bn, or $457m equivalent), but it’s a statement of things to come — flogging Chinese products outside China has to be a huge growth area in the next five years, if the Chinese state keeps steaming ahead with its bond market liberalisation.
Another piece of probable good news for DCM bankers is the return of Mauricio Noé to the market, as head of business development for Kroll Ratings in Europe. Selling for a rating agency isn’t exactly every DCM banker’s dream, but companies willing to commit to Europe and hire senior capital markets people are not to be sniffed at. Kroll has established a solid reputation in US CMBS, renewables, infrastructure and esoterics in recent years, and will be starting with these products in Europe (though Europe’s CMBS market offers slim pickings). Noé is a FIG banker by background, with stints working on ABS, covered bonds, and sovereigns, so should be able to start with a broad range of clients.
There’s also been plenty of movement in the more exalted ranks. The week started with news that Tim Throsby would be taking over as chief executive of Barclays corporate and investment bank, and president of Barclays’ international arm (which includes Barclaycard and Barclays Wealth). Since he was, by some counts, the seventh JPM alumnus in the senior executive ranks at Barclays, it prompted much chin-stroking about what it all means.
There’s little doubt that JPM is the most successful universal bank out there, and a mostly well-run institution to boot. But the idea that hiring Throsby signals that Jes Staley wants Barclays to become a “mini-JPM” is pure nonsense. He’s got a difficult execution task ahead, and wants people he knows he can trust in place to push it through. Yes, many of them have come from JP Morgan — but so what?
The very idea that a micro Morgan is possible also sticks out as pure nonsense. Part of what gives the bank its edge is that it is genuinely huge and genuinely global, a top tier house in nearly every jurisdiction where it operates. Many banks aspired to this status, but JPM attained it, which brings its own benefits. You can’t replicate that in miniature — the size and scope is intrinsic to the model.
And now onto the bad news. The abrupt removal of Monte dei Paschi’s chief executive Fabrizio Viola is….mildly terrifying for Europe. Given the double bind Italy is in over its inability to provide state aid (but the inability of its banks to handle their NPLs), the fate of Monte is the fate of the Italian sovereign which is the fate of the euro…so a CEO-knifing just before a vital and highly contingent €5bn rights issue and an audacious securitization which might never clear is not good.
Also not good, but for different reasons, is the defenestration of Tim O’Hara, Credit Suisse’s head of global markets. O’Hara got tinned with a nice enough note, thanking him for his contribution, but no real reason given. It’s not a belated attempt to hand out responsibility for the mysterious losses in leveraged finance and distressed, announced in March. And, despite the bank’s progress, it’s not a declaration of “mission accomplished” in reworking CS’s trading division.
David Rothnie has a much more accomplished discussion of the issue in Southpaw this week, but a little more disclosure might have been nice. After all, the bank should be trying to reassure staff that it has a solid plan to drive markets back to profitability — and the impromptu sacking of senior executives doesn’t do much to support morale. Still, Brian Chin, the new markets head, has a long CS pedigree, and came up through one of the bank’s best businesses — US securitization. The past year has meant some cuts to the franchise (the run down of the CLO trading book, shutting the European trading desk) but CS is still a force to be reckoned with there.
Finally, Goldman has also reshuffled its management team, following the retirement of its co-head of FICC sales Tom Cornacchia. In a characteristic Goldman play, it used the spare seat to switch its senior salespeople between divisions, and dish out internal promotions, rather than hunting external candidates that might fit. So the head of prime services takes Cornacchia’s seat, the head of equities takes over prime, while two geographical equities executive share the global role. It’s easy to pay lip service to the Goldman approach of rotating senior executives, but much harder to make it work in practice.