If they can make that collaboration work well across businesses, higher revenues and profits should follow. Bank chief executives and shareholders want to see that.
But making that work well is extremely difficult, and few global banks have cracked it in the way that many CEOs and shareholders in their banks would want.
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| Why would you put
designer handbags between potatoes and tomatoes and run these businesses identically
Andrea Orcel |
A fragmented culture, complex product and business siloes are just some of the many reasons why it can be difficult to breed collaboration and teamwork across divisions. Lack of leadership and coordination at the very top of a bank can undermine it too.
More fundamentally, there are those who believe the combination of commercial and investment banking activities can be destructive, and particularly to an investment banking franchise. Take Andrea Orcel, chief executive of UBS investment bank and former executive chairman of Bank of America Merrill Lynch.
Orcel tells us this month: “Commercial banking is similar to Wal-Mart but investment banks should be more like Louis Vuitton. Sure, supermarkets make more money and some are dominant in their markets, but if you get the luxury goods sector right the returns can also be phenomenal.”
He adds: “It is a risk to merge the two without being very careful not to mix the different DNAs – why would you put designer handbags between potatoes and tomatoes and run these businesses identically?”
Orcel makes a fair point, which speaks to the deep restructuring UBS – Euromoney’s best global bank – has undergone. But for his previous employer and the other universal banks, there is no other option than to make the best out of the businesses they have.
And frankly, large multinational corporate clients need a full-service offering, from potatoes and tomatoes, right up to the designer handbags, on occasion.
Inculcating the right culture and a willingness and ability to collaborate across businesses for the benefit of corporate clients is critical for this, and is something that is beginning to take shape among some universal banks.
Bank of America Merrill Lynch, for example, appears to be doing pretty good job so far. Paul Simpson, head of global transaction services, says his colleagues on the investment banking side have helped deliver some 25 deals to his business in the past year. There has been as much deal flow in the opposite direction.
It’s no coincidence that BofA Merrill scores a notable first in our awards this year, as the only firm ever to win Euromoney’s awards for both best investment bank and best transaction services house. Citi, HSBC, JPMorgan and Deutsche Bank could probably point to a similar flow of business between their divisions.
How? The co-chief operating officer Tom Montag, who oversees all wholesale and securities businesses globally, has helped drive a more collaborative culture within the firm, and many of the product and business siloes have been torn down.
Cold reality
On top of that, the cold reality helps too.
“Every single year the edict from up top is that you need to be selling annuity based businesses because they really help to pay the bills, and you’ll never pay all the bills through M&A alone,” says BofA Merrill’s Simpson.
“Basically, if you don’t do it – you don’t get paid.”
What connects UBS and BofA Merrill is that they were two of the biggest victims of the financial crisis. Both institutions went through dark days when their franchises were threatened.
Out of that chaos, new leadership teams came together, often unencumbered by affiliations to past glories, and sought out a new way of doing business. For UBS, that is to have an investment bank that operates only in areas where it can either be a leader or where there are clear synergies with its global wealth management franchise.
For BofA Merrill, the strategy is slightly harder to define. It is one of very few remaining banks stacking its shelf with most of the available products, from dietary staples to luxury goods. But it’s focusing on getting the highest spending customers into its store – that is, the biggest clients – and getting them to spend more.
The question, as always, is which model is likely to work the best over the long term. The good news for clients is they have a choice. And the likely answer is there is a role for both – at the end of the day, we have to eat, but we all need a little luxury every now and again.