The ins and outs of mandate hunting
Every major investment bank in Asia seeks the answer to the key question: how do you win business in China? For most of the past decade, the answer was to have a rainmaker – an insider with serious connections to the Chinese establishment. Reports of the rainmakers’ death have been greatly exaggerated.
IN THE FLUID and competitive world of China investment banking, new hires come and go, but occasionally one comes along that rattles the market. One such emerged in February when Merrill Lynch hired Margaret Ren, the former Citigroup China chief, to chair its China investment banking operations.
This is a bold and surprising appointment. Ren is arguably the ultimate rainmaker: bankers with such exceptional relationships that they can bring in big mandates for houses that might otherwise have no right to expect them. The daughter-in-law of former premier Zhao Ziyang, Ren proved her contacts and persuasiveness time and again at Bear Stearns and Citigroup. Her successes in getting Bear Stearns on to IPO and secondary issues for such names as China Telecom and Guangshen Railway in the late 1990s, when the bank had no meaningful China investment banking presence to speak of, are widely considered the most extraordinary examples of leveraging relationships the China market has ever seen.
But she left Citigroup under a cloud in 2004 over her role in the IPO of China Life Insurance, a departure that has never been explained. The China Life case is alleged to have centred on the allocation of shares in the IPO and a manipulated document submitted to the US SEC. Ren was cleared of wrongdoing by the SEC itself, but unfortunately some of the mud stuck.
The hire, like Ren herself, divides opinion. "Bizarre," says a rival China head. "Excellent hire," says a leading headhunter not involved in her move. One banker: "Margaret without that family connection would have zero value in China." Another: "She is without question the most effective China banker of her type the market has seen."
The disparity i n view, and the ferocity of attention, is because Ren’s move is about more than her past behaviour or ethical probity. It’s also because to many people it amounts to a return to a style of China banking from a past and less sophisticated era: the rainmaker, or princeling, model.
The fashion these days is for banks to say that they eschew the cult of the individual: that mandates are only won by houses with demonstrable excellence not just in coverage but also execution, and with industry expertise and a host of other skills beyond a well-positioned father-in-law or an ability to get a big meeting in Beijing.
Big China privatizations today are decided by committees with a far higher level of sophistication and transparency than has ever been the case before. And besides, those elephant deals are running out, with Agricultural Bank of China the only landmark on the horizon; the big story today is private sector listings, as the companies born of China’s burgeoning entrepreneurial spirit seek capital. The people who run those companies couldn’t care less about government connections because they don’t have to.
Some rivals look at Merrill’s hire – swiftly followed by a less controversial poaching, the recruitment of a rising China star, Rodney Tsang, from Credit Suisse – with some bemusement, seeing it as a step backwards, and wondering just how the bank can accommodate so many stars in one team. It already boasts Ehrfei Liu, one of the outstanding China bankers of his generation, as chairman of Merrill Lynch China; one market old-timer recalls him fondly as "leading the listing of China Southern Airlines when it was just a plane." There is also already a China investment banking chairman, Wilson Feng, himself a well-connected individual (his father-in-law is Wu Bangguo, chairman of the National People’s Congress, who was in charge of state-owned enterprises under Zhu Rongji).
Feng and Ren will work alongside one another and report both to Liu and to Sheldon Trainor, the head of Asian investment banking, a driven and strong-minded figure in his own right. They will have the further supervision of the man who led the hires, Pacific Rim investment banking head Damian Chunilal, who is also COO for Merrill Lynch Pacific Rim. As one banker puts it: "There’s an awful lot of egos in that place." Another says: "I don’t think Sheldon knows what he’s taken on."
But Merrill is enjoying great success in China, lead managing the record-breaking $21.9 billion Industrial & Commercial Bank of China IPO late last year alongside a host of other transactions that are both lucrative and interesting. These are not the hires of a desperate institution hoping to make up lost ground. So has Merrill, in taking a chance on what some see as damaged goods, just smarter and bolder than the herd? Or is it going to mess up a successful franchise with a hire that looks backwards rather than forwards?
To answer that, let’s first take a look at what the competition is doing with its staffing models. Because for all their protests of building teams not individuals, the fact is that the same dozen or so key figures, many of them best known for their connections rather than their execution skills, have been bouncing around different investment banks for years, with little new talent rising to the top. "Some say all the princelings are dead," says a top Chinese headhunter. "I don’t think so. You’re just relying on smarter princelings."
One perennially popular hire is Wei Christianson. Formerly at Morgan Stanley, she followed John Mack to Credit Suisse, then moved on to Citigroup to replace Margaret Ren, before being rehired by Mack barely a year into her stint at Citi to come back to run Morgan Stanley’s China team. This followed the departure of previous China head Jonathan Zhu to private equity firm Bain Capital.