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Wednesday, 26 September 2018

Is Nomura to UBS a good career trade? ... Take Two

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My blog last week on William Vereker’s move to UBS from Nomura to head corporate client solutions in EMEA (Is Nomura to UBS a good career trade?) caused a bit of a storm within UBS and I took some heat – a bit of an occupational hazard for me. In the interests of transparency and balance, I’m happy to share some of the feedback I received – noting that it was counterbalanced, perhaps predictably, by some equal and opposite comments from ex-UBS bankers and the Street.

IFR Editor-at-large Keith Mullin

IFR Editor-at-large Keith Mullin

I’d written that David Soanes had unceremoniously been shoved aside to make way for Vereker. After all, he’d occupied the very same position that Vereker has been hired into, while Andrea Orcel’s comment in the terse statement about Vereker’s appointment contained some odd sub-text.

The way UBS tells the story – which I’m happy to share; you decide if you buy it – is that Soanes played a key role in persuading Vereker to sign on at UBS. It appears he was chomping at the bit in October to get into his cross-divisional FIG role. But if he’d moved then, the bank wouldn’t have had anyone immediately to run the EMEA corporate client solutions (CCS) business that had just been created.

So Soanes took on that role but at the same time actively courted Vereker in order to accelerate the move into his own new role, which encompasses everything from FIG advisory/M&A and capital markets in CCS to FIG-related business over the wall in the investor client solutions division. Whatever the case, it’s clear that combination of his deep FIG expertise, his ability to get on with people and his popularity at the bank and in the market suggests Soanes has more than a decent shot at making a success of it.

Another element that upset the folks at UBS was my comment that its DCM business is crumbling. That got a lot of people going, both in and outside the firm: “it’s not crumbling, it’s done,” was one external comment; “it’s all advisory, no capital markets there now,” was another (referring mainly to EMEA).

UBS suggested my list of DCM bankers who’d left in the past few weeks – which included two regional DCM heads – were mainly SSA people who had nowhere to hide once the bank shuttered its sovereign DCM business. While that perhaps was a less than credible response, the point the bank was keen to get across was that it retains talent in its now-priority areas of corporate and FIG origination.

I guess it’s only fair to counter my list with theirs; so in EMEA the likes of Giles Borten (head of EMEA/APAC leveraged finance and co-head of EMEA corporate capital markets), Rob Ellison (co-head of FIG DCM), Barry Donlon (head of EMEA corporate and capital syndicate), and Armin Peter (head of covered bonds and EMEA financial flow syndicate) remain in situ. In the US, the team does look more settled: Scott Yeager and Tom Curran, co-heads of Americas FIG DCM have built a track record; ditto Chris Forshner and Christian Stewart (co-heads of corporate DCM); and Tim Steele and Mark Sattler (co-heads of corporate derivatives Americas).

Critical limits

Beyond the different versions of stories, though, what most upset the proud Burghers of Zurich about my blog was not my perceived reflected criticism of the bank per se; it was as much if not more the inference that UBS had an inferior investment bank to Nomura. While that’s not actually what I said, I did love the wonderful irony in the heavily barbed “I don’t mind if you say we’re rubbish just don’t ever say we’re worse than Nomura” comments I received.

“I honestly don’t think you can compare Nomura’s advisory business to ours,” was one comment. OK, I think I can say fairly safely that on broad reputational standing, UBS would win on a straight vote. But if you look at league tables, while UBS’s overall performance is superior across pretty much any global or regional M&A or capital markets underwriting metric, I’d suggest the degree of superiority is less marked in many areas than UBS bankers would like to think it is. UBS ranked 10th in worldwide M&A last year to Nomura’s 12th for example. Sure, you can take apart the league tables and claim they don’t catch the nuances and shades of grey in focus, strategy and business selection, but that goes for all firms.

The point here is not to compare the two firms in the equivalent of an investment banking decathlon. In today’s world where almost all investment banks have developed or are developing niche strategies that result in a slimmer suite of core products resting on less capital-intensive platforms, the bulge-bracket pretence has gone; replaced by a quest to generate a return on capital that exceeds the cost of equity and to demonstrate relevance and value to a core group of clients.

In that respect, success and achievement become much less optically quantifiable; league tables can’t reflect the shades of grey inherent in institutional choice. Where banks will get cute about this is when they tell me: “We’re not focused on our league table position; we’re focused on optimal client service and I can tell you we’re top tier in the clients we cover.” That vexes me because there’s nothing I can do with that sort of information. I suspect this will become the new mantra, though.

Making choices

The point I was originally making in any case was a more subtle one than whose is bigger than whose. When I questioned whether UBS was a better place than Nomura, it wasn’t a side-swipe, I was thinking aloud about the options likely to have been open to an M&A rainmaker like Vereker and why he would choose a regional role over the global role he’d been occupying and an investment bank that’s clearly undergoing a painful transition and which by its own admission will take years to conclude over a firm less challenged by the need to restructure, retool and recalibrate.

In another time, you’d imagine Vereker might have jumped at the chance to play the M&A chairman role that Andrea Orcel had hired fellow Nomura exile Piero Novelli to do just weeks before. It certainly would have played more directly into his skill set. On the “why UBS?” point, I guess the prospect of working for the larger than life Orcel – who you just know tells a convincing story about the reflation of the more filleted UBS IB franchise – clearly looked like a worthwhile punt … particularly if it were accompanied by the right compensation incentives.

And on the basis that Vereker and Novelli had both run out of road at a Nomura that is heavily scaling back its international ambitions in equities and advisory, one thing that UBS does have going for it is that it’s made its investment banking ambitions very clear and is working towards as clearly articulated an end-game as you’ll find in the industry at this point. But that does make it a go-to bank? Not yet.

Here’s the key point for UBS, which was contained in feedback: it’s proving you can run an investment bank without deploying a massive balance sheet and taking massive risk. “If we can prove that this works and we earn the cost of equity, then the pressure [on the top-tier global houses] is massive,” one UBS insider told me.

He was realistic enough to add that there’s a long way to go before proof will be evident. Along the way, the proof of the pudding will manifest itself in two ways: whether UBS can hire top talent from leading houses rather than those that are actively retreating; and in the quantum and provenance of earnings. Q1 2013 numbers are out on April 30. Can’t wait.

 

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