Available CEO talent pool runs shallow

15 min read

My rather scurrilous piece at the end of last week about Credit Suisse (or more specifically about Tidjane Thiam) got some very good traction. Among other things I received some very interesting invitations to join LinkedIn networks off the back of it. Mind you, given how blunt and targeted my piece was, it struck me that some of those invites might have been based on that fabulous line from The Godfather Part II: “Keep your friends close but your enemies closer”.

Anyway, skating ever so briefly over the fact that CS stock fell another 5% or so on April 5 and looked like it was headed back to that mid-February low, I’d pondered in my piece how difficult it might actually be for banks to source credible ready-made CEOs in the current climate. I’d noted that eight G-SIBs (Barclays, BBVA, Credit Agricole, Credit Suisse, Deutsche Bank, Mizuho Bank, Nordea and Standard Chartered) had appointed CEOs in the past two years. I missed Santander, so that makes nine.

I got to thinking, what if I broadened my research to some of the large internationally active banks and broker-dealers (D-SIBs and the like)? And given IFR’s focus on investment banking, why don’t I include banks that have appointed new blood to run their corporate and investment banks too? So I set about the task (fascinating, if a little tedious) of trying to put a quantum around it. The results are illuminating.

Check out the accompanying table below. It’s by no means exhaustive but I’ve got the most obvious shops covered. By my count, in the past two years, 16 large international banks have appointed new chief executives. I also logged an additional 29 super-senior hires at the ‘C minus 1’ level over the same period in the CIB space or, if banks didn’t have CIBs per se, in the division or set of activities most closely associated with it. (I included the vacant head of CIB slot at Barclays as it’s such a high-profile position, even though it’s currently … vacant). In total my search took in a universe of 28 banking groups. I think the results I ended up with are pretty amazing.

No travelling circus

If you follow the unfolding narratives at certain other banks, more CEOs will retire or fall and be replaced in short-to-medium order. The thing is, as individual banks adopt strategies and business profiles that are increasingly idiosyncratic and focused, the notion of a band of willing CEOs-for-hire or CEO pretenders who can travel light and hit the ground running is much less credible that it was during the ‘identical-strategies-and-globalisation-for-all’ era of banking before the global financial crisis.

And as banks set about the huge task of rewiring their strategic engines and trying to optimise their business profiles in the quest to create shareholder value and hit cost-plus returns on equity, the short to medium-term upside of coming in to run a bank is less obvious than it once was. They say timing is everything, but in banking today it’s EVERYTHING. Coming in as CEO in the midst of someone else’s turnaround plan has got to be tough.

It also occurs to me, while I’m on this subject, that at the very same time as activist shareholders demand the heads of what they perceive to be underperforming CEOs (think BNY Mellon and UniCredit), doing so is not as simple as it sounds. It’s certainly a lot more than moving pieces around a chess board. I do wonder exactly what the incentive might be to an outsider to throw themselves into what, by the dint of their very hiring, is already a negative-sum game.

Not all it’s cracked up to be

When all’s said and done, the pool of available banking CEO talent is actually not that deep, especially if you assume that those 16 CEOs I referenced above are going to stay put for the time being (well, most of them anyway). That’s why whenever there’s a whisper of a CEO retiring or being fired, the same phantom shortlist crops up time and time again.

Here’s another thing: you’d think being CEO of a large bank is the height of achievement for any aspiring banker. But a toxic combination of political interference, ideological animosity, over-bearing regulatory and supervisory scrutiny, populist odium, and yes, compensation caps have cast a thinly disguised veneer of unpleasantness over the banking industry and changed the landscape in the current cycle.

I was chatting to an IFR colleague the other day who’d been talking to a senior executive who was potentially in the frame for the CEO position at a bank that’s immersed in active succession planning. Incredibly, he said he wasn’t sure if he wanted the job – for many of the reasons I listed.

In the UK, to take a specific example, the regime that forces senior executives, among other things, to sign written attestations that personally confirm their firm’s compliance with regulatory requirements was enacted purely to facilitate regulatory enforcement at a senior level. Accountability is one thing but the new regime is the net present value of a witch-hunt for all the wrong reasons and hardly an endorsement to those seeking to climb the career ladder.

This is also acting as a deterrent to executives from outside the strict confines of banking from looking to gain an entrée. In a highly regulated, tough industry to manage (think about the ‘too big to manage’ or the ‘impossible to manage’ epithets that have been ascribed to banking), it’s unlikely anyway to be a sensible strategy but in specific situations you never know. (Not to flog a dead horse but the insurance-to-banking experiment that’s playing out at CS is unlikely to act as a blueprint for others to follow.)

It’s noteworthy that of all the execs captured in my table, only half a dozen of 45 appointments were external: Jes Staley at Barclays, Thiam at CS, Jeff Urwin at Deutsche Bank, Geoff Coley at Mitsubishi UFJ Securities, and Bill Winters and Simon Cooper at Standard Chartered. With the exception of MUS, they’re all banks battling hard to find a way forward. In this context, who the next head of CIB will be at Barclays will be interesting beyond who it is, if you get my drift.

banks management senior head

To finish, I’ve jotted down some situations that could lead to changes in leadership. Some may involve external candidates; others are logged here purely on an FYI basis.

Bank of New York Mellon

BNY Mellon has been under pressure from activist hedge fund Marcato Capital Management, which is calling for heavy job cuts and a change in CEO and senior management; its position was baldly laid out in its March 10 2015 letter. Trian Fund Management, which upped its stake in the bank in February, has been less vocal than Marcato but Ed Garden, the fund’s CIO, has a seat on the board and won’t stand idly by if targets are missed.

Headhunters Spencer Stuart were reported last year to be unofficially circling for candidates to replace Gerald Hassell. Greg Fleming’s name is supposed to be top of the list but he may be tempted elsewhere, given how fluid the industry seems to be at the moment. JP Morgan’s Mary Erdoes and Comcast CFO (and former JP Morgan and Carlyle man) Mike Cavanagh are also on that list, I read.

BPCE

BPCE chairman François Pérol was acquitted last September by a French court of abusing his position as an aide to former French President Nicolas Sarkozy to get his job at the bank at the time of the merger of the Banques Populaires and Caisses d’Epargne co-operative networks to form BPCE. If nothing else Perol’s appointment has to be seen at best as a matter of poor governance, since he was advising Sarkozy at the time on the merger even though he said he didn’t play a direct role in negotiations.

The Paris prosecutor’s office, which I gather had been seeking a two-year suspended sentence, a €30,000 fine and a ban on holding public office, has appealed the ruling. Pérol’s lawyers say there’s little chance the ruling will be overturned but their contention that the appeal has no bearing on Pérol remaining in his job is arguably wide of the mark.

HSBC

HSBC openly launched its succession plan in February. Chairman Douglas Flint is expected to retire within a year while CEO Stuart Gulliver is expected to stay until the end of 2017 to see the bank’s strategic plan through to its conclusion.

General speculation about who could take over is rife. If the new chairman is an outsider (almost a given in light of governance codes), the new CEO will be an insider. Unless – extraordinarily – Matthew Westerman, a long-time advisor to Gulliver, is being groomed for greatness and gets the nod, as some gossip has it.

Mizuho Bank

Yasuhiro Sato, then-president of Mizuho Bank, and Takashi Tsukamoto, chairman of Mizuho Financial Group (MFG), were forced to step down in November 2013 following admissions that the bank did deals with people allegedly linked to organised crime.

Even though Sato resigned his position at the banking unit and was replaced by Nobuhide Hayashi in April 2014, he retained his position as group president and CEO. Does that represent good governance? No. It’s been that way for two years now but I log it here anyway.

Nordea

Christian Clausen stood down as CEO of Nordea last August after eight years and was replaced following an Egon Zehnder search by the head of wholesale banking (and former Goldman Sachs partner) Casper von Kuskull in November 2015.

The jolt the bank suffered when the Swedish regulator exacted a SKr10m fine last May for deficiencies in managing anti-money laundering requirements had been mentioned as a catalyst for Clausen’s departure. However, it appears that the highly regarded former CEO had made clear his intention to stand down last February.

I mention that situation here more in passing, given that Nordea was forced to issue a statement on April 4 in the wake of the Panama Papers leak. The bank denounced tax evasion in the wake of media speculation about Nordea International Private Banking in Luxembourg as a provider of tax structures for customers.

“Compliance is the bank’s absolute top priority,” von Koskull said in the statement. “Our tax advice policy and ethical standard [sic] are clear: we do not encourage or facilitate tax schemes of our customers that are regarded as tax evasion. We help our customers to pay the tax they should by reporting to the authorities. However, we regret that we didn’t have these procedures already earlier.”

SMBC

Takeshi Kunibe, CEO of Sumitomo Mitsui Banking Corp, admitted at the same time as his peers at Mizuho that his bank also did transactions with suspicious groups. He remains in situ.

UniCredit

UniCredit’s board continues to back CEO Federico Ghizzoni despite the call from shareholders – fronted by Leonardo del Vecchio, chairman of Luxottica Group – to change leadership in order to secure a more drastic rehabilitation plan and to lay to rest growing disquiet around its lagging performance vis-à-vis smaller rival Intesa Sanpaolo. Several domestic and international shareholders are believed to support del Vecchio.

There’s been long-standing conjecture that UBS chief executive Sergio Ermotti, UBS’s investment bank head Andrea Orcel or Marco Morelli, EMEA vice chairman of Bank of America Merril Lynch and Italy CEO are on a shortlist to replace Ghizzoni.

Wells Fargo

At John Cryan’s favourite bank, chairman and CEO John Stumpf effectively sealed the bank’s succession in November by appointing Tim Sloan as president and COO. Sloan, a 28-year veteran of the firm, has spent the past 18 months as head of wholesale banking, a portfolio he has retained. Before that, he was CFO, was a former CAO and served stints in commercial banking, commercial real estate and specialised financial services.

There’s something about Wells at the moment that smacks of impending rapid expansion. The timing of Sloan’s appointment could be far more than coincidental. At the same time as maintaining its conservative demeanour, Wells has been systematically picking up assets and businesses over the years, such as BNP Paribas’s reserve-based lending operation in North America and US CRE loan portfolios from Bank of Ireland and the failed Anglo-Irish Bank.

Wells was aggressive around General Electric’s huge asset disposal programme, both in its own right and in partnership with Blackstone. More recently, Credit Suisse is transitioning its US private banking business to Wells Fargo Advisors, and there was of course that rumour earlier this year that Wells was in negotiations to buy all or chunks of Credit Suisse’s investment bank so unloved by Thiam.

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