Thursday, 21 June 2018

The change at the top continues. It won’t end here.

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Some big-league investment banking people moves in the past couple of days: Jes Staley of course leaving JP Morgan for BlueMountain Capital Management Tuesday, and Jamie Forese and Manuel Medina-Mora anointed as co-presidents of Citigroup Monday.

IFR Editor-at-large Keith Mullin

IFR Editor-at-large Keith Mullin

The rumour mill around super-senior bankers is as active – and conspiratorial – as ever and if some of the gossip is to be believed, we should expect other changes soon. I guess the most openly discussed situation is around Brady Dougan, where my colleagues at Reuters and BreakingViews and elsewhere have suggested the Credit Suisse CEO may not last long in his current role.

As for Staley, Forese and Medina-Mora, no real surprises but they do add to change and churn at upper levels of the banking industry. Back in October, I wrote about the shift in bank leadership that has gathered steam in the past year or so. The pace of change shows no signs of slowing down.

Ever since Staley was sidelined by Jamie Dimon into the CIB chairmanship and denied a shot at succeeding him as CEO of JP Morgan Chase last July, the talk has been not if but when he quits. Jumping ship to become managing partner and part-owner of hedge fund BlueMountain – a significant affiliate of US$415bn Boston asset manager AMG – to help the business institutionalise and capture opportunities looks like a good and potentially highly lucrative trade. It’s likely to be followed by other masters of the universe seeking opportunities.

Vikram Pandit and John Havens left Morgan Stanley to set up hedge fund Old Lane Partners, which was subsequently acquired by Citigroup. Assuming there’s no room for Pandit at the helm of a major bank – arguably a safe assumption – moving back to the buyside is probably his only option … (famous last words!). Remember that’s where Bill Winters went after leaving JP Morgan, setting up Renshaw Bay. You’d expect something similar from Bob Diamond and Jerry del Missier, too, potentially in partnership.

Bank-client relationship

On the Staley move, Jamie Dimon referred to BlueMountain in his memo as an important client. I’ll say: the firm was a counterparty on the infamous CDX NA IG 9 trades and did the unwinds, so made a packet at both ends.

But Dimon’s comment offers food for thought. While on the surface you’d imagine the counterparty relationship to be a little fractious – after all’s it is a zero-sum game of winners and losers – both JPM and BlueMountain portrayed it as far from combative. Quite the contrary, in fact. So might we see banks’ playmakers increasingly moving along the client conduit and banks cosying up to them as preferred clients? Interesting one to ponder and an interesting one too from a governance perspective.

The interview that Staley and BlueMountain CEO and co-founder Andrew Feldstein did with CNBC was interesting, if a little general and high-level. Staley spoke of structural changes in the financial markets – and the credit markets in particular – that he said BlueMountain is well positioned to take advantage of. Feldstein spoke of the changing business model of traditional financial intermediaries due to regulation, shareholder expectations and lessons learned in the financial crisis.

He told CNBC: “we’re staggered by the opportunities ahead of us”. When was the last time you heard that kind of talk from the sell-side? Underlying those opportunities is an assumption that credit will migrate to the capital markets, which is THE big industry strategy play. Of course, taking maximum advantage of those opportunities as a private partnership offers a number of key advantages.

Prior to his move to BlueMountain, Staley had long been associated with the CEO position at mega fund-manager Legg Mason, which is searching for a replacement for Mark Fetting. Staley had apparently been talking to Legg Mason ever since his days in JPM’s asset management division, which he ran until 2009. The story goes that Staley used the Legg Mason situation as leverage with Dimon that led directly to his being appointed CEO of the investment bank. With Legg Mason the focus of attention from activist investor Nelson Peltz and having suffered huge capital outflows, he’s way better off out of that situation.

Staley was also supposed to be close to landing the CEO job at Barclays but lost out to British retail insider Antony Jenkins. In that dark post-Diamond world, though, putting up an American investment banker to lead a large UK-based bank would have been an extremely difficult proposition for the UK political and regulatory machinery.

At BlueMountain, you imagine Staley will initially suffer culture shock, after 34 years at a big universal bank. But it’s a pretty tight group he’s joining and he’s among former colleagues: Feldstein spent 10 years at JP Morgan before co-founding the firm in 2003. Senior portfolio manager Alan Gerstein had gotten to know Feldstein at JPM but he also spent 10 years at Goldman. Michael Liberman, the firm’s COO and CRO also knew Feldstein from JPM but he too spent time at Goldman; as did senior portfolio managers Bryce Markus and Derek Smith. Head of research Peter Greatrex did 10 years at JP Morgan.

So far so good

As for Corbat’s re-org announcement, it all looks incredibly uncontroversial. In appointing Forese and Medina-Mora as co-presidents, Corbat aped Brian Moynihan’s top-line structure at Bank of America Merrill Lynch, which is a little cleaner than the cut of responsibilities at JP Morgan. Dimon merged the investment and corporate banks with treasury and securities services to form the CIB but kept commercial banking divisionally separate from consumer and community banking.

Forese will run Citi’s institutional business (the cognate of BAML’s Tom Montag); while Medina-Mora has got consumer (BAML’s David Darnell) plus he continues to run Mexico – once a Banamex man … Beyond that, the only item worthy of mention is the decentralisation of the operations and tech functions, which now report into the co-presidents so they can build divisional efficiencies.

I don’t know Medina-Mora but I have crossed paths with Forese now and again ever since his time at Salomon Brothers. I don’t recall when we first met, but it was probably in the early 1990s. I’ve always thought highly of him. He’s considered and very smart.

Other than a potential issue around the future chairmanship of the bank that I articulated earlier this week – which is not an issue that Corbat can directly control – the new CEO looks to have made all the right moves in his tenure-to-date.

Of course, it’s early days and every day’s a new day. In investment banking, in particular, you never quite know what’s going to come through the door.

Here’s one certainty: don’t expect organisational change to slow down any time soon.

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