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Monday, 18 December 2017

Follow my leader in investment banking

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  • Keith Mullin, Editor-at-large, IFR

Are we facing a leadership crisis in global investment banking? That’s the question on a lot of people’s minds. While some firms have seen relative stability in their management ranks, it’s all change at a host of others. All of a sudden, succession planning has become very topical as a bunch of new faces emerges.

Bob Diamond’s elevation to the top job at Barclays, gossip about whether Anshu Jain will succeed Joe Ackermann at Deutsche Bank, what Jamie Dimon has up his sleeve at JP Morgan, whether James Gorman is up to the job at Morgan Stanley, if Tom Montag is going to cut it at Bank of America Merrill Lynch, what UBS can do to keep its investment bank intact – issues such as this have taken the succession issue beyond a popular conversation topic at industry dinner parties to one that’s hit the radar screens of investors and regulators.

One key issue is whether people with a background in trading or investment banking are cut out to run brand-name broad banking franchises that span retail, consumer and small business banking as well as investment banking and global markets. Banks are part and parcel of the social fabric and framework of the communities they serve, and that brings with it a range of responsibilities and accountabilities that are unknown in investment banking or trading.

I’m not sure if it’s a good fit. It’s early days for Bob Diamond. An extremely charismatic individual, Diamond by the same token doesn’t suffer fools gladly and is not a man of unlimited patience. His career of over 30 years in the business has been spent in the rarefied confines of wholesale/institutional trading at Morgan Stanley and CSFB before Barclays Capital, a cut-throat dog-eat-dog world that has defined his world view. It didn’t take long for MPs to puncture his cheerful demeanour with their relentless baiting at the Treasury Select Committee hearing in January. He inhabits a different world now and it’s by no means certain if he’ll put up with it or if it will put up with him.

In similar vein, no matter how much Anshu Jain may feel he deserves the CEO slot at Deutsche Bank – not least because he’s been responsible for generating the bulk of group profits over the past few years – I just can’t see him interacting well with Germany Inc, the union involvement, the shareholder committees and the political dimension; or getting turned on by small business lending in Germany; or putting up with the supervisory board’s obvious distaste for investment banking and trading. For a bank that makes most of its profits outside Germany, through Jain’s London-based CIB, Germany still has a powerful hold over the running of the bank.

The issue is not just that Jain doesn’t speak German; one has to wonder whether he has the sort of personality and inclusive leadership qualities that running a broad banking business require. Jain is not a small-talker and, like Diamond, has an attention-span that veers towards the short end. Not to be dismissive of this as a quality in the world they occupy, but their milieu is the trading floor and the cut-and-thrust and intrigue of markets.

Jain may crave the power that comes with the CEO slot, and the supervisory board should do everything in its power to keep one of the industry’s greatest talents on-side. Installing him in a new position of president, or making him CEO but then appointing a chairman with political connections and home-country clout might be workable compromises.

This has worked well at Credit Suisse, where Hans-Ulrich Doerig’s position as chairman has allowed Brady Dougan to focus on business strategy and operational management, facilitating his development from derivatives trader to group CEO.

So what next?

So what happens to investment banking franchises when the current generation of flamboyant CEOs moves up or away? You have to wonder if some incumbent chiefs have been too focused on sustaining their own cult of personality and sense of empire at the expense of proper leadership planning.

It looks as though some have adopted a divide-and-rule approach to organisational structuring one layer down through contrived co-head or other types of shared arrangements, creating internal rivalries that super-charge revenues but which prevent anyone having the time to vie for the leadership.

The issue of who takes over from industry titans such as Diamond and Jain is hotly debated. Jain has long split functional responsibilities beneath him into asset class lines with multiple and extremely competitive rival divisional heads, but no obvious successor.

Diamond has left Jerry del Missier and Rich Ricci to co-run BarCap. The industry word on the arrangement is “uninspiring”. Del Missier, with a background in derivatives, is one of the most accomplished traders of his generation and has been a long-time confidant of Diamond. But he’s what people like to call a trader’s trader. He’s blunt, straight-talking and taciturn. Ricci is an operations guy. Competent they may be; Bob Diamond they’re not.

Uninspiring or uninspired is a word used a lot to describe industry leadership appointments elsewhere in the industry. Whether it’s Jes Staley as CEO of JP Morgan’s investment bank, or James Gorman as president and CEO of Morgan Stanley, the industry is fairly dismissive. Few believe that Gorman has the credentials to run a shop like Morgan Stanley. He has never run a major global business line in investment banking, capital markets or trading. His appointment is still met with puzzlement by industry watchers, especially when the firm has long-serving industry veterans such as Walid Chammah, Ken deRegt, Colm Kelleher, Paul Taubman and, more recently, Greg Fleming on the payroll.

Ditto Staley. Jamie Dimon is only 54 and has repeatedly said he’s not going anywhere any time soon. As a consequence, he is doing whatever he can to make sure that no one emerges to take his crown. His firing of Bill Winters as co-CEO of the investment bank – a doyen of the industry with 30 years’ service – was widely seen as such a stunt. Dimon’s appointment of Staley, who like Gorman has spent most of his career away from major investment banking product lines, has the industry confounded.

It’s a similar story across the industry. At this difficult point in its convoluted history, investment banking needs leaders with the right backgrounds who can not only carry the day with staff, but who also have the backing of other stakeholders, including regulators. The current industry view is: we’re not at the place we need to be.

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