Some fighting capital markets talk

IFR 2063 13 December to 19 December 2014
6 min read

WAS PAUL YOUNG’S decision to decamp from his lofty position as head of debt capital markets for EMEA at Citigroup to an optically more senior position as head of the capital markets group at Mitsubishi UFJ Securities a bit like leaving Manchester United for Blackburn Rovers, to use an English football analogy? I do wonder….

While Citigroup is a top-three – and at worst a top-five – player in most parts of the global debt capital markets, MUS is generally in that mid-teens to 25th slot and doesn’t play in all market segments. But that’s kind of the point of the story, which also has a touch of the “getting the band back together” about it.

I’d asked back in April whether Cliff de Souza’s departure from Mitsubishi UFJ Securities Holdings would mean the end of the firm’s expansionary ambitions in capital markets and securities trading. Well, it would appear the game’s still afoot. The battle plan won’t be revolutionary: the idea is to expand methodically, one step at a time, and build the dream deal by deal.

Working hand-in-hand with Bank of Tokyo-Mitsubishi UFJ’s lending clients (the bank is number two in global syndicated lending ex-US), MUS is targeting a top 10 position in US investment-grade corporate bond underwriting and is looking to expand in Europe and Asia-Pacific, too.

The idea is to expand methodically, one step at a time, and build the dream deal by deal

ON THE BASIS of this year’s activity, going from 14th (the firm’s current position) to 10th in US investment-grade corporates entails upping your deal flow by 40%. That’s pretty ambitious. But at the same time, it’s quite refreshing to see a bank espousing some optimism and seeking some upside in a banking industry that’s in a confounding and difficult place. The story goes that Young was taken with the more entrepreneurial and dynamic opportunities offered by MUS and the ability to fill its partially blank canvas.

“There are very few opportunities when you can come in as a securities professional and feel you have real stability beneath you,” one MUS insider told me. “Think about how it’s felt for the past five or six years: capital is scarce, anything that’s balance-sheet intensive is being killed while headcount is being trimmed right across the industry. We’re one of the few firms going the other way.” Fighting words.

Part of the feel-good factor people say is tangible at MUS is down to Geoff Coley, who joined in June to run all of the front-office capital markets and securities operations. He clearly had a lot to do with Young’s hiring. Coley is a bit of a legend: 22 years at Salomon Brothers and Citigroup, latterly as co-global head of FICC, having previously co-run the global capital markets group; partner to Randy Barker and a close colleague of the then co-head of markets and banking Tom Maheras in those heady pre-crisis days.

Coley and Young both joined Salomon Brothers in 1986 so have a lot of shared history. Mortgage trading losses and some rather unseemly management in-fighting led to a series of high-profile departures from Citigroup (the same in-fighting that gave Vikram Pandit his break, incidentally). Coley left in 2007 for a series of situations – Chapdelaine, Citadel, Gleacher – but he’s back at a global multinational bank, and by all accounts has the bit between his teeth and is on good form.

Adding to the allure of the MUS situation, Jim Higgins, another Salomon Brothers alum and 2007 Citigroup departure – he was co-head of global credit trading at the time of his departure – joined MUS in 2012 after a stint at GFI and is international head of credit at MUS in New York. To make way for Young, MUSI veteran and former international capital markets head Paul Morganti is moving to a vice-chairman role to look after key client relationships and no doubt tying the two sides of the MUFG story together.

THE FIRM MAY HAVE built a good base of talent but converting BTMU lending relationships into capital markets mandates won’t be easy. Persuading important capital markets issuers to trust you with their underwriting business is not just a function of cordial relationships at the coverage level. You have to prove that you can handle the business in the cash and derivatives sales and trading engine room and that you have the requisite research capability. Through some judicious hiring, MUS now says it has the distribution platform to underpin the business.

Not to spoil the party but there is something that’s kind of bothering me. While I’m told BTMU/MUS are joined at the hip and behind the capital markets piece, I wonder how they’re going to deal with the Morgan Stanley relationship. Don’t forget MUFG owns 22% of Stanley and they have the MUMSS joint venture in Japan. But outside Japan, there’s been some delicate negotiation around how business is conducted.

While at the corporate level both sides are all over the relationship and they have a ton of collaborative associations and co-operations across securities/IBD and investment/wealth management, when MUS starts to push harder on monetising BTMU’s lending relationships and growing out its origination effort, its bankers will undoubtedly bang into Morgan Stanley’s origination and coverage machine.

I suspect it’s going to get fractious from time to time and that element will need managing. “We will need to tread carefully,” my MUS insider told me no doubt with a hint of considerable under-statement.

Keith Mullin