Cross-divisional solutions: the new IB mantra

6 min read

The theory of cross-fertilising your senior cadre is relatively new as a core theme in investment bank management – expanding skill-sets by parachuting managers into different divisions in an attempt to find the “One Bank” internal synergies or growth model you’re working to.

We’re not really talking here about deepening the obvious linkages between, say, sector coverage, advisory and financing; or between corporate coverage, origination and corporate banking – a BIG focus for certain banks – or loan and bond origination bankers moving away from their traditionally competitive approach to working with clients to create solutions; or merging or aligning the syndicate function across loans, high-grade and high-yield capital markets. Or offering private banking services to CEOs of IPO clients.

The conversation today is axed around working cross-divisional relationships where banks believe that delivering holistic solutions creates value over and above any compartmentalised approach. It’s altogether a tougher proposition.

I got to thinking about this in the wake of Morgan Stanley’s decision to give veteran investment banker and global capital markets co-head Raj Dhanda what the firm considers a critical role in Greg Fleming’s Wealth Management division as head of investment products and services. And the jump over the wall of Andy Saperstein, a WM specialist (and long-time James Gorman associate from their time together at McKinsey and Merrill Lynch) into Colm Kelleher’s Institutional Securities Group as co-COO alongside Clare Woodman. These both struck me as among the more overt examples of this new focus being acted out.

Of course the iterations of client-centricity standards we’ve seen over the years have led to some internal role migration but that has not been the focus. Now that banks have espoused the notion not just of creating internal cost synergies but actually driving revenue growth out of more tangible internal touch points, I suspect we’ll start to see a lot more of these sorts of executive shifts.

Particularly, you’d imagine, at banks such as UBS, Credit Suisse, or perhaps Deutsche Bank, where the pressure either has been – or still is – on shrinking investment banks (to neutralise earnings volatility and lift poor group returns) and run them in closer partnership with or as support complements to private banking or asset and wealth management divisions.

Morgan Stanley is split right down the middle between ISG (housing IBD and the sales and trading organisation), and Wealth and Investment Management. The focus is no longer on right-sizing ISG – that’s essentially been done – but on creating value from the divisional cross-overs.

“Cross-pollinating key leaders across our major businesses further knits the Morgan Stanley culture and enhances our ability to deliver the entire Firm for the benefit of our clients,” chairman and CEO James Gorman noted in his internal memo on the Dhanda/Saperstein moves.

Being human

Beyond the theoretical, intellectual or target business benefits, the human element in this is important. As senior managers migrate from one division to another, their support structures naturally follow, facilitating collaboration and certainly helping diffuse latent conflict or tension.

Fleming has spent most of his career as an investment banker but mostly away from MS. You’d imagine Dhanda’s 26 years of service in capital markets at Morgan Stanley and the deep internal relationships he’s built will go a long way to helping the collaborative process. (His move, incidentally, also pushes him a step closer to the top of the tree: he now reports directly to Fleming whereas in ISG Franck Petitgas and Mark Eichorn, co-heads of IBD, stood between him and Kelleher.)

On Gorman’s one-firm point, Mo Assomull, the man who took Dhanda’s position as co-head of GCM alongside Dan Simkowitz, is well versed in the integration story. When the former global head of equity syndicate became co-COO of ISG at the beginning of 2013, facilitating integration between investment banking and sales and trading was a key part of the role and a topic close to Kelleher’s heart. This puts him in a good position to continue plying the theme in his new role.

And Gorman’s cultural point is certainly an interesting one, too. But at the same time it’s a little fuzzy. Talk to the guys on the front line and they’ll tell you the mantra is all about driving revenues higher.

New-era banking

MS specifics aside, though, I do wonder how much revenue or other value metrics banks realistically think they can derive from driving closer co-operation and how much of the talk is industry rhetoric and spin about cultural refinements,.

How much time should senior divisional managers spend working internally in the hope that it’ll squeeze out bigger revenue opportunities? Is there an opportunity cost – i.e. might it weaken the more traditional eat-what-you-kill approach of out-manoeuvring competitors to garner a bigger share of available wallet?

Put another way, can this sort of exercise ever be any more than paying lip-service to a grand idea? Cross-divisional collaboration is a great idea on paper and one that has long exercised the minds of bank CEOs, strategists and management consultants. And of course, giving managers a very wide set of business experience as they climb the greasy pole has long been a staple of management thinking in Japan.

But it’s become one of those buzz-themes that banks talk a lot about at conferences and drop into their earnings statements. I’ve asked several banks off and on over the past several months to supply me with specific examples of cross-divisional business they’ve won from collaborative endeavour. Let’s put it this way: I’m far from being killed in the rush.

Keith Mullin