|
Bill Harrison: A man in a hurry
Inside Ebbgate House, the sheer size of the deal had the champagne corks popping. One estimate has it that 100 bottles were drunk.
Bob Diamond, just two months into the job, could afford a smile. BZW's new head of global markets had scored a rare coup in winning the mandate to launch the UK's $2 billion floating-rate note. BZW's status as sole bookrunner, where it, and not joint-leads NatWest Markets or HSBC Markets, gains all the league-table credit, sent out a powerful message: BZW has emerged as the UK's best chance of having an investment bank in the big league.
Diamond's appointment further confirms this. A fresh-faced 44-year old, he is an archetypal product of Wall Street, his career divided between two of its most powerful firms, Morgan Stanley and CS First Boston the sort of high-profile banker who had always seemed beyond the reach of BZW's recruiters. His nickname at CS First Boston although he denies any knowledge of it was "the Coach", and he looked set for the big job: that of CSFB boss Allen Wheat. Then, a messy revolt by bond traders in March forced his departure. He was blamed for not managing the traders' bonus expectations well.
His decision to join BZW at an estimated £5 million ($7.5 million) a year shows the resolve of Barclays' chief executive Martin Taylor to take his investment banking subsidiary onto a new level. So much so that Diamond's hire even makes it into BZW's history, The First Ten Years, to be published later this month. "In anyone's language," the book declares, "Diamond was a big hitter."
The UK deal was a big success. Cool heads, Diamond's among them, will look at it in perspective, however. For a start, selling a UK floater is not difficult. In the unlikely event that you can't sell it, the bonds have a zero risk weighting, and can easily be accommodated on the balance-sheet of a commercial bank such as BZW's parent, Barclays, as a floating-rate asset. Besides, the UK government clearly favoured the UK banks as lead managers of the deal.
Goodbye old team
Ironically, the champagne Diamond's team were toasting with was left over from a huge batch BZW bought nine years earlier to celebrate the firm's first birthday. The champagne has remained in the cellar ever since. The anniversary party had coincided with the 1987 stockmarket crash.
More sober BZW bankers remembered that the two men who had largely fostered the bank's floating-rate note capability plus much else had gone. Joint debt syndicate heads, Rob Jolliffe and Steve Hones, who arrived in 1995 from JP Morgan, left for Goldman Sachs and PaineWebber respectively in the summer. In 1995 BZW was nowhere in floaters 21st in the league table. In 1996 Jolliffe's and Hones's influence had begun to tell. In the league table to September the firm was sixth, having raised $6.4 billion, about three times the tally for 1995.
When Jolliffe and Hones arrived, the BZW Eurobond syndicate desk was controlled by Alan Wilson, a personable Scot, whose nickname was "Ish". This was because whenever Wilson was asked where he would price a bond he would reply, "oh, around 25-ish, or 26-ish". Wilson was quickly moved to equity derivatives. The Eurobond desk, driven by Jolliffe, Hones and head of debt origination, Yann Gindre, gradually began to churn out results.
The first half of 1996 was BZW's best ever. In the week he arrived, Diamond was shown results that showed BZW was fourth in the Eurobond league table, and first in its home currency, sterling up from third in sterling in 1994 and 1995. In the headline league table, which includes all international bonds, it had gone up from 20th in 1995 to 13th. BZW raised a billion dollars more in the first half of 1996 than in the whole of 1995.
So why did Jolliffe, Hones and others go when a top-quality coach like Diamond looked set to take BZW to the top?
BZW's culture is not usually associated with a hire-and-fire mentality. It was this summer. The first to go was Sam Marrone, Diamond's predecessor as head of global markets, and a former US marine. He was told in late May that Diamond would be coming. But, rather than simply fire him, BZW initially explored a number of abortive solutions, which included giving Marrone the newly-created title of markets division chairman, with Diamond as chief executive. While this was going on, Marrone, a BZW employee since 1987, appeared indecisive. "He aged 10 years in three weeks," comments a colleague.
On June 14, Marrone's senior staff were called to the eighth floor by Donald Brydon the acting chief executive after David Band's death in March. Brydon listed Marrone's strengths and how indispensable was his contribution to the firm's current position. He then told those present that it would be made public in the afternoon that Marrone was out and Diamond was in.
Marrone left the trading floor that afternoon, and was given a separate office in another building with a telephone and a secretary. Like all the BZW staff that would follow him he spent a fair amount of time at an outplacement firm that BZW hired called Meridien. It wasn't until September that he finally left, returning to New York to be ABN-Amro's head of US fixed income.
A former colleague of Marrone says, "When he came over two years ago Sam thought he had four years to build the business." That turned out to be a false assumption.
It was the first of many departures although it would be wrong to say tensions were not already present. Yann Gindre, the flamboyant French head of debt origination, was having minor bust-ups with Jolliffe. And Hones was known to be pretty weary of bringing BZW's often backward systems and processes up to scratch. For starters, the former Morgan syndicate heads had spent time during their first months at BZW arranging for the syndicate desk's profit-and-loss account to be kept separate from the secondary trading book. Things had improved, but much still had to be done, and such exercises were time-consuming and frustrating. Hones told Marrone he was considering an offer from PaineWebber. He knew nothing of Diamond's joining at this point.
Late nights versus families
But, by Monday June 17, Hones had changed his mind, ready to see what Diamond had to offer. Diamond began on Monday July 8, and took Hones and Jolliffe to lunch. It was clear to Hones that he and his new boss shared a trading background (Diamond started his career as a repo trader) and a similar view of the business, but that life under Diamond would involve three years of very late nights. The two qualities Diamond demands are loyalty and commitment. Even his secretary (brought from CSFB) regularly works till 10pm. Hones is a family man.
In contrast, the job at PaineWebber was a pure trading brief and offered fewer management challenges. Since both he and Jolliffe already had their one-year guaranteed bonuses in the bank, the question was whether six months of turbulence was worth it.
On Wednesday July 24, Hones informed Diamond of his decision. Diamond was in New York at the time, and told him to wait until he returned so they could talk. Diamond got back on Monday July 29, but Hones did not see him for a couple of days. The conversation was said to have lasted no more than five minutes.
It was a hectic period for Diamond, if only because he was busy recruiting a new inner circle in three continents. He was also spending up to 15 minutes with as many of his existing staff as he could. Gindre was given slightly longer and explained the origination group's strategy.
On July 19, Gindre interviewed the ex-Deutsche senior coverage officer, Abigail Hofman. She had been out of the market since March for personal reasons, and was introduced to Diamond by Alex von Ungern-Sternberg, the former group treasurer at Deutsche Bank, who came to BZW last year as Marrone's deputy.
It wasn't just BZW that was interviewing her, however. Hofman's old employers were also keen to get her back, both because she is highly regarded in the market and because she was popular with the Frankfurt set, who associated her with the pre-Edson Mitchell era. Since Deutsche's top origination job in London was filled by her old boss, Roy Boecker, she was offered in the region of £500,000 to play a senior coverage role and run the frequent borrowers desk.
Over at BZW a similar role was initially envisioned. But then, unusually, Hofman was offered Gindre's job. Whether this was because she was asked the inevitable question "What do you need to join?" and she replied "Gindre's job", or because Diamond was desperate to poach her from Deutsche's grasp, is not known.
On death row
Gindre was on holiday in France at the time. On the evening of Wednesday August 7, he received a call. Diamond told him his job had been given to the woman he had interviewed a fortnight before. The next morning Gindre's team was informed.
He returned from holiday a week later. By 2pm a group of BZW removal men had arrived and he was moved out of his office, to another BZW building, affectionately known as "death row". The next month he joined Commerzbank, as global head of debt capital markets.
Gindre's dismissal was unusual: the normal practice was to wait for staff to return from holiday before asking them to leave. On August 19, Nick Carter the head of swaps marketing got back from vacation. Late that afternoon Alan Wood, the head of sales, and swaps head, Constantin Thanassoulas, told him he was to go. That same week, Paul Ellis, the head of the 28-person structures group, and who last year earned a quarter of the whole derivatives group's profits, also decided to go. Jolliffe, who had been in talks with Goldman Sachs, went on August 23.
Shira Cornwall, head of bond credit research, also went, this time to UBS, where she was hired by Bob Harding, the senior fixed-income director, who previously worked for BZW and who came over from Kidder Peabody with Sam Marrone in 1987. She had joined BZW in 1988 and was in tears as she left.
Peter D'Mario also left. D'Mario, the global head of repo marketing and sales, was also vice-chairman of ISMA's repo subcommittee, an alternate member of the Bank of England's stock borrowing and repo committee, and a member of the Bank of England's code of best practice committee for gilt repo. He arrived last year from Goldman Sachs and was considered something of a star.
"He was very good at getting things done, explaining issues and following up," says one of his clients. He was instrumental in arranging the World Bank's repo facility on the Deutschmark global bonds.
At this stage it became evident that Diamond was putting his FOBs (friends of Bob), as they were called at CSFB, in place. Robert Morrice was named head of credit business in Europe. This gave Morrice, 33, control of syndicate, origination and secondary trading operations although not in sterling which was ringfenced under former Marrone aide-de-camp, Tony Smith. Morrice had already moved with Diamond from Morgan Stanley when he joined CSFB. At CSFB Morrice had been promoted six months earlier to head European sales but, like Diamond, his background was in repo.
The new head of Tokyo fixed income, Patrick Lin, also knew Diamond from Morgan Stanley. Mark Dearlove, head of repos and short-dated Japanese government bonds, also has the Morgan Stanley connection.
The cocktail party which took place in London on Thursday September 12 was revealing. It was organized to allow new chief executive Bill Harrison to meet the markets team. According to one onlooker: "Diamond and Morrice were like war buddies, telling old war stories. Only Abigail Hofman approached them in buddiness. Everyone else looked like they had a different colour skin."
The decision to split London into the Morrice area and the sterling area is bizarre. Diamond would probably not have opted to do so, unless he felt very keenly that there was a danger of BZW's very successful gilts traders and salespeople leaving and taking a lot of revenue out the door with them. To prevent this, Tony Smith was given a ringfenced sterling area.
Bringing in new blood
Sterling specialist Richard Mann is looking after the whole syndicate desk for the moment, aided by Antony Barklam, the head of MTNs. Two young MTN traders, Marc Falconer and Hugo Varney, are managing MTNs until this situation is resolved.
The most senior member of the old guard still remaining is Alan Wood, the former co-head of debt capital markets, who is now head of sales. But Wood has health problems and has agreed to retire as soon as Diamond finds a replacement.
If Diamond didn't feel in control in London initially, there can be no mistake he is now. Moreover his appointments outside London are evidence of his ability to bring high ranking personnel from US investment banks. The new boss in New York is Tom Kalaris, a JP Morgan veteran of 18 years, who former JP Morgan head Dennis Weatherstone says has some of the characteristics of the late David Band. "The first thing that springs to mind when I think of Tommy is his integrity," says Weatherstone.
Lin in Tokyo is very excited by the opportunities for BZW in the Japanese market. He hopes to have built the operation to 90% of its eventual size by March. His team will trade Japanese government bonds something BZW has not done before and use this platform to move into Euroyen.
Two other key hires underline Diamond's strength as a business manager. His first recruit was Mike Keegan, who arrived from CSFB's New York office within 48 hours of Diamond himself. An accountant by training, he will act as Diamond's administrative head, responsible for auditing and monitoring internal controls. The second recruit, equally vital, was John Brock, the former head of fixed-income research at Morgan Stanley. He will head fixed-income systems development, a key role since an estimated £100 million will be spent to get the technology right when BZW moves to Canary Wharf in April. Nobody who has ever worked in BZW's markets division has much praise for its systems, so this is an area where Diamond's experience will be particularly useful.
In his modest office at Ebbgate House, Diamond is itching to move to Canary Wharf ironically the London base of his two former employers where the BZW trading floor will be unified for the very first time. Diamond will have his office amid the 700 trading positions. "You can have as many squawk boxes as you like but it doesn't compensate for not being in the same room," says Diamond.
BZW's businesses are not close together as in the American style. There was one day in his first fortnight, when Diamond spent a whole day in internal meetings, and had to go to five buildings. His secretary Caroline had to give him a street map and draw where the buildings were.
One of the surprises that greeted him was the number of buildings the markets division occupied. More surprising still was the slightly unconventional decision his deputy, Alex von Ungern-Sternberg, made to move the swaps desk out of Ebbgate House, where it was next to bonds. It is now beside foreign exchange and money markets in the Tower Hill office. According to one source, Diamond had never seen the likes of this before. Fortunately the trading floor in Canary Wharf will sandwich the swaps desk between the two thus solving this problem.
Diamond's challenge is to ride out the turbulence of these hiring and firings, put the pieces in place to make BZW a credible force in international bonds and, at the same time, make some money.
Diamond began his career with Morgan Stanley after gaining an MBA from the University of Connecticut where he ranked first in his class. He joined Morgan in 1979 as administrative director of management information systems and became assistant to the chief financial officer. His first fixed-income role was in repo but, by 1988, he was responsible for all fixed-income trading in Europe and Asia.
He joined CSFB in 1992 where his rise was even more meteoric. He was initially based in Tokyo, as chief executive of CSFB Pacific and, by the time he left CSFB, he had risen to vice-chairman, head of the 1,200-strong fixed-income group, and was a member of the main executive board and of that of derivatives arm, Credit Suisse Financial Products.
Diamond already talks like a BZW veteran. He uses the pronoun "we" to refer to events that occurred five years ago, such as Barclays' decision to move all international businesses to its investment bank. "Our goal is to be a first-tier securities firm in three to five years," he says, but adds, "I would never set five-year goals by league tables. If we are important to a client in a sector they will know it."
He intends to be mobile. "Quite frankly, I will spend a lot of time in the US," he says. "I will be out with clients." Diamond doesn't have a house in London yet. In fact, he is staying just behind the Dorchester, in the discreet Albert Roux-run hotel, 47 Park Street, where the corporate rate is about £200 a night, and guests have small private kitchens. The hotel restaurant is Le Gavroche.
His style is described as "nice guy", and he is said to be a great motivator who likes to make big, vague speeches around the theme of winning thus his nickname "the coach". His principle expertise is in repos he built Morgan Stanley's European repo desk in 1985 and in government bonds, both of which make up the low-margin, high-volume side of the business.
In to lunch
He does not find lunches with clients very productive, preferring meetings in the office. This is arguably, from a relationship standpoint, a more American than European way of doing business but, since BZW hired Diamond to Americanize it, that's probably good.
"Some of the early changes," he comments, "were just obvious changes. I could figure out pretty quickly we were not in the JGB market. I know some terrific people. So we got that up and running." In the US he is happy to have netted Kalaris who "grew up in the treasury market". He adds that he was sorry to lose Jolliffe and Hones.
Clearly Diamond needs to find revenue wherever he can. One area where BZW's fixed-income effort has been traditionally weak, if not invisible, is in emerging markets. Diamond is in the process of hiring an emerging markets team. Philippa Rose, the headhunter, is working on the job along with colleague Amy Rousseau, who was formerly Sally Bott's number two in the human resources department at BZW. Diamond's critics suggest he knows very little about emerging markets. But the Diamond style is to hire people that do, and let them run with the ball.
Diamond's most important judgement call is Abigail Hofman, the new global head of debt origination. She is widely regarded as one of the best coverage officers in the market, but she has no management experience, and about two-thirds of her London-based team came from UBS with her predecessor, Yann Gindre. Many are loyal to him still, and those that aren't are filled with uncertainty about what the future holds.
A former barrister, Hofman began her career at Merrill Lynch, and built her reputation leveraging Deutsche Bank's relationships with supranational borrowers such as the World Bank, with which she is particularly close. If she could clinch a mandate for a dollar global from this borrower she would more than vindicate her boss's judgement.
"The bottom line," says Hofman, "is that Bob is attracting people of the highest calibre and these are very exciting times. Bob and Bill Harrison are inspirational."
Asked about Abigail Hofman taking the origination effort to a new level, Diamond pauses. He leans back in his chair and puts his feet on his desk. About a minute or so later, presumably after deep thought, he says, "Within fixed income there will be a separation between the government bond and the credit businesses. Abigail Hofman will run origination for fixed income." The reply is Delphic. Diamond clearly doesn't want to give away too much of his strategy.
He adds a little later: "I can't tell you how excited I am about working with Abigail. We've done some great transactions." The UK floater is clearly one of them, but this comment is made prior to the UK deal's launch. When asked to say which particular transactions were great, Diamond declines to comment because it would be unfair to single out specific deals and clients.
Diamond is slick, but EOBs (enemies of Bob) suggest his master-plans are a little short of detail. Bearing in mind the problems Diamond faced with the CSFB bonus pool this year, attention will no doubt focus on how he handles it at BZW. "You need an MBA to understand the complexities of the CSFB bonus calculation," comments one banker. "At BZW you need a slide rule."
The markets division began calculating this year's bonuses in October last year. The process took about three months with offsites and horsetrading being the order of the day rather than algebraic equations that apportion costs to individual areas. A concern of long-time staff is whether (the suspected) guaranteed bonuses offered to new recruits will creep into the bonus pool thus sapping theirs.
Diamond, however, is sensitive to the whole question of pay most particularly to the readily drawn comparison with Edson Mitchell, Diamond's exact counterpart at Deutsche Morgan Grenfell. But what is clear is that Diamond, unlike his predecessors at BZW, has a mandate from Barclays' chief executive, Martin Taylor, to build and spend, not dissimilar to that Mitchell has from Deutsche chief executive Hilmar Kopper. At stake? A place in investment banking's much-heralded global league. |