Anniversaries are poignant. In September 2008, the financial world came close to collapsing. As Lehman Brothers flailed and AIG floundered, most of us watched and waited, powerless but petrified. A year later the phrase ‘you’ve never had it so good’ echoes around bank boardrooms and trading floors, regulators ruefully bite their lips and central bankers wonder how they are going to stuff the genie back in to the bottle. It looks like the end of the world is off the table. Whether there will be a new normal or the usual boom and bust, I don’t know. But occasionally, I cast my mind back to those who were trampled underfoot in the rush for the exit: obviously the deposed bank chief executives but also all those infantrymen who were culled in round after round of savage job cuts. The phrase reversal of fortune is in some cases too true. A mole reports meeting Dick Fuld recently and asking how he was doing. "How the hell do you think I’m doing after losing $1 billion?" the former Lehman Brothers chief executive rasped.
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Ken Lewis, the chief executive of Bank of America, has been both a winner and a loser in the crisis. He’s a winner because he still has a job but a loser because he has been stripped of his chairman title and his supportive ‘good old boy’ board has been diluted. Euromoney has consistently probed the probity of bank boards, starting in May 2006 when we expressed disbelief at the anaemic composition of the Lehman board (half the board were sprightly septuagenarians).
The composition of Bank of America’s board was a muddle. Indeed it was not obvious that this was the board of a financial company. According to the 2008 annual report, a retired general and a retired admiral were juxtaposed with North Carolina dignitaries such as Meredith Spangler, Temple Sloan and Robert Tillman. Since then, there has been rapid turnover in board members: 10 of the old guard have stepped down. Did you know that Tommy Franks, the US general who led the Iraq and Afghanistan campaigns in 2003 was a member of the Bank of America board until June?
Nevertheless, I still have concerns. Walter Massey, the 70-year-old chairman, an academic and an administrator, is a long-serving Bank of America director. My instinct is that he will side with Lewis on important decisions. Frank Bramble, former executive officer of MBNA, and Charles Gifford, former chairman of Bank of America Corporation, are still on the board and will be powerful allies of Ken. It will be interesting to see therefore how new members with financial credentials such as Susan Bies, William Boardman, Donald Powell and Robert Scully line up.
The new BofA board intrigues me because I wonder how much longer Ken will survive as chief executive and, if he steps down, who will succeed him? In a way, the fate of bank chief executives is now tied to the economy. If we see a strong recovery, Ken-slayers will dwindle. His mistakes (overpaying for Merrill Lynch and Countrywide) will shrink in the rear-view window. If we face a double-dip, it could be a double-barrelled shotgun for King Ken. Bank of America has a mound of nasty worms squirming below the surface: consumer banking (Bank of America), credit card debt (MBNA), mortgage foreclosures (Countrywide) and toxic investment banking assets (Merrill Lynch). It is also exposed to American corporate lending and commercial real estate. Yet, should the US economy bounce back, the firm has the potential for strong earnings growth, albeit that it still has to repay over $40 billion in Tarp funds. "You could be looking at a $55 stock in a few years," a financial institutions specialist told me. It is ironic that Ken’s fate probably lies not in his own hands but in the hands of the Democratic administration and the Federal Reserve. If Obama overplays his hand on healthcare, if Ben Bernanke’s soothing soundbites lose their lustre, we could all be looking in to the abyss again. And that includes Ken.
Bank of America however has been at pains to assure the world that it has a stalwart succession plan in place. In August, a memo from Lewis announced changes that "position a number of senior executives to compete to succeed me at the appropriate time". Brian Moynihan, who had been running half of Merrill Lynch following John Thain’s brutal ejection, is himself ejected and moves to become head of consumer banking. This means that Tom Montag, a former Goldman Sachs trader who was rumoured to have received an enticing $90 million to join Merrill Lynch in August 2008, will now have sole charge of Merrill Lynch. So is this a promotion or a demotion for Moynihan, whom one source describes as a "feisty Irishman"? Although Moynihan may be the shortest-ever serving CEO of an investment bank (having lasted a mere six months at messy Merrill), my sources say he could be well positioned to take over from Lewis.
Moynihan is a lawyer who used to work for FleetBoston, which Bank of America purchased in 2004. At BofA, his initial role was president of global wealth and investment management. He now broadens his experience with retail banking. The consumer division is a key business for Bank of America, contributing more than $58 billion, some 80% of total revenues, in 2008. Any future chief executive will need to understand the drivers of this business. The good news is that Moynihan will be based in Boston not Charlotte, North Carolina. Although the two cities are a hop apart on one of the bank’s private jets, anything which makes Bank of America less parochial is fine with me. Is it appropriate to have a major global financial institution headquartered in Charlotte? A Bank of America spokesperson said: "Brian lives in Boston. The reality is that his new job has him in various markets every day: this week he will be in Charlotte, Wilmington Delaware, San Francisco and Los Angeles. This is the nature of the consumer business at Bank of America – very hands-on. Bank of America has branches in 30 states."
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My point is that Bank of America can sometimes appear very US-centric. Indeed on the Overview – Corporate profile page of the investor relations section of its website, there is a map of the US with a bold red title: "Coast to coast footprint". A mole reports that during a lengthy conference call concerning the Merrill integration, a Charlotte-based Bank of America executive halted proceedings. "Excuse me," said the American, "Could someone please clarify for me what sterling means? Obviously we have US dollars and UK dollars but I’m not familiar with the term sterling." Although I apply a discount factor to this telling tale, I don’t dismiss it altogether.
Does Sallie Krawcheck know what she is getting in to? In August, Krawcheck was appointed to run Bank of America’s global wealth management business. In my June column, I predicted that Krawcheck would be one of the first senior executives sitting on the bench to find a new seat at the banking table. I wish Ms Krawcheck well in her new role.
Banking on talent
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It’s ironic that despite the resurgence in the banking business, one continues to hear wailings that there is a lack of talented individuals to take over top roles. The higher the title, the weaker the talent pool, it appears. Indeed some positively bizarre appointments are appearing in the office of the chairman. Most people were underwhelmed when Sir Win Bischoff, former Citi chairman, was appointed as chairman of the Lloyds Banking Group to replace Sir Victor Blank. Bischoff never seemed to get to grips with Citi’s problems and gave the impression of hobbling along behind the bus rather than sitting upright at the steering wheel. I was also mystified when it was announced that tobacco company BAT was appointing the former governor of the Bank of Ireland, Richard Burrows, as chairman. The Bank of Ireland had a very bad crisis and was bailed out by the long-suffering Irish taxpayer. Why are these individuals tainted with failure being recycled? A bright businessman told me: "I no longer trust the individuals running public companies. They’re all rewarded through stock options and they will manipulate the numbers to boost whichever valuation suits them. As for non-executive directors, in this crisis they’ve turned out to be decorations on the Christmas tree: everyone has them but they serve no purpose."
Someone whom you could not level such an accusation against is Robert Benmosche. In early August Benmosche stepped down from the Credit Suisse board of directors and stepped up to the role of chief executive of AIG. Benmosche inherits one of the toughest jobs in finance but his experience as chairman and chief executive of MetLife equips him well for the challenges which lie ahead. It is interesting that, unlike his predecessor Edward Liddy, Benmosche will not hold both the chairman and CEO titles at AIG.
Benmosche is now part of the powerful Credit Suisse alumni network that I wrote about in April. We can also add Jack DiMaio to this list. DiMaio recently joined Morgan Stanley as head of interest rate, credit and currency trading. Another senior Credit Suisse refugee is Sadeq Sayeed, who is chief executive of Nomura in Europe and the Middle East.
In August, I went to meet Mr Sayeed at his office on the 30th floor of the former Lehman building at Canary Wharf. I first sat in that office in May 2006 when I called on charismatic Jeremy Isaacs, the former European and Asian CEO of Lehman Brothers. It is ironic how often offices outlive their occupants. Indeed it is as if the financial world has been hit by a neutron bomb. The buildings remain but the people are destroyed: think about Stan O’Neal’s office, which survived Stan but buried John Thain, O’Neal’s successor as Merrill chief executive.
Sadeq, silk-tongued and slender, explained to me that the integration with Lehman Brothers in Europe and Asia had been successfully executed and that he was very pleased with the acquisition. In July, Nomura had the largest market share in trading UK equities on the London Stock Exchange. Sadeq also said that the firm would be selective in the States and build steadily there. For example, in July Nomura hired Ciaran O’Kelly to run its US equities business. But the aim is not to take on US domestic firms head to head in their home market.
In Europe, Nomura’s fixed income and equity trading businesses have performed well. In the quarter ending June 2009, for the first time ever Nomura’s global markets business was larger in revenue terms internationally than in Japan. In fact, the European division broke even earlier than Sayeed originally anticipated and was profitable in Q2. I will watch the Nomura story with interest. Two things will be key: a focused strategy executed by a cohesive leadership team and meshing the conservative culture of the Japanese with the individualistic, risk-romping Lehman ethos.
Banker friends and foes
German chancellor Angela Merkel may have courted controversy by hosting a dinner party for Deutsche Bank’s chief executive Jo Ackermann. But President Sarkozy of France has made it clear that he does not want to be friends with bankers. In late August, Sarko summoned senior French bankers to the Elysée Palace and insisted on a series of measures to moderate banker bonuses. "We will not work with banks that do not apply the rules," saturnine Sarkozy fulminated
Jean-Pierre Mustier is one of France’s best-known bankers. He was responsible for building Société Générale’s excellent equity derivative franchise. I first met Jean-Pierre in June 2007 when he was the chief executive of SG’s investment bank. I liked him immensely, immediately. He has a combination of charm, intelligence and self-deprecatory humour that is rare in a senior financier. Mustier was caught up in the fall-out from the Kerviel fraud. There were mutterings that controls in the investment bank were not strong enough. A source mused: "While the controls may have been unsatisfactory, you have to remember there was constant pressure on SG’s traders to make money." In September 2008, Mustier moved from the investment bank to run SG’s investment management and services division. He negotiated a joint venture with Crédit Agricole for the two firms’ asset management businesses and this deal will close in October.
However, in early August the AMF, France’s markets regulator, announced it was opening proceedings for insider trading against Mustier, and he resigned from SG. The charges relate to Mustier’s decision in August 2007 to sell his personal share portfolio including half his holding in Société Générale. Mr Mustier vigorously denies the allegations. While I cannot comment on the details of the investigation, the allegations astound me. There is a whiff of the scapegoat about the AMF’s actions. I hope Mustier will be cleared in due course. This incident illustrates the pitfalls for highly placed insiders selling company stock: each transaction will be scrutinised by shareholders, colleagues and regulators.
This summer, banker’s spirits have been high, which is reflected in the fact that senior bankers have once again been taking holidays. Remember that in 2007 and 2008, financiers’ summer holidays were spoilt by simmering cauldrons threatening to boil over. One senior banker emailed me this August: "In Greece. Last two weeks of holidays!" This short message implying an abundance of beaches, bacchanalian evenings and beautiful women captured the essence of August. September however may be more sombre as markets stumble from the year’s highs. And I’m already nervous about October, which will see the chattering crowds carousing in Istanbul at the annual IMF and World Bank meetings.
Speaking of which, I heard a story the other day that ought to serve as a warning to all bankers attending the IMF in Istanbul. A little while ago, one of the world’s top debt houses was holding a client event for frequent borrowers in the Turkish city. Later in the evening, things moved on to a bar of questionable repute. As the evening wound its way to a hazy conclusion, one senior banker was the last man standing. He went to the bar to ask for the bill only to be told it was $20,000. Taken aback, but realising the heavies behind the bar would brook no argument, he offered his credit card. Only to be told that the bar would not accept a card, only cash. Now even senior bankers rarely carry that much cash around with them. So, with the sun rising on the Bosphorus, beleaguered banker was frogmarched between the ATMs of Istanbul by two burly companions. When the cash had reached $3,500, he was allowed to leave. More about the IMF festivities in my next column.
Finally, in early September we received the sad news that Paul Calello, head of Credit Suisse’s investment bank, has been diagnosed with cancer and is taking a leave of absence from his job. Eric Varvel, the CEO of Credit Suisse in Europe, Middle East and Africa will act as temporary chief executive of the investment bank. The talented Mr Calello joined other senior bankers and Euromoney directors at the 40th anniversary EuromoneyAwards for excellence party in July. On that occasion, Credit Suisse was named Euromoney’s best investment bank for 2009.
It is hard to imagine someone as brimming with energy as Paul Calello ill, even for an hour. Everyone at Euromoney wishes him the speediest of recoveries. And we look forward to having him back at his desk, chastising us for our caustic coverage of the capital markets!
How was your month? Please send news and views to abigail@euromoney.com.
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