And could there be a mightier Master than Hank Paulson, the present US Treasury secretary and former Goldman Sachs chief executive. Cast your mind back to the balmy days of the summer of 2006 when his appointment was announced and he strode off the small but highly lucrative Goldman Sachs stage to play in the global theatre of international finance.
At the time, I cautioned that tree-hugging Hank might find his new job challenging. How little I knew. In fact, I can envisage only one job worse than being US Treasury secretary in this period – and that is being chief executive of an investment bank. As a banking chief, you now have to fire lots of people who will hate you for life; shareholders hate you because you keep on announcing write-downs on instruments they don’t understand (and certainly don’t understand why you owned them in the first place); and, in the end, you probably have to resign and your family will hate you because you skulk around the house all day moaning about your misfortune to have been a chief executive during the worst banking crisis since the Great Depression.
One man, of course, has distinguished himself in these dark days: Jamie Dimon, chairman and chief executive of JPMorgan Chase. But might the stress of snaffling Bear Stearns at a bargain basement price have made the great man a little irritable? A source reports a story that is wafting around Wall Street. The night before the Bear deal was announced Hank Paulson corralled the major banking chiefs on a call to take them through the transaction. Paulson signalled that this was a high-level overview so he wasn’t encouraging any troublesome detailed questions. When Hank paused for breath, a participant intervened to enquire how counterparty exposure would be handled. Suddenly, Jamie Dimon yelled: “Who is this?”
“Its Vikram”, came the reply.
“Vikram – who is Vikram?” asked Dimon.
“Vikram Pandit,” replied Citi’s chief executive.
“Well, Vikram Pandit shut up, this deal has been done.” Apparently, Dick Fuld, Lehman Brothers’ chief executive, then tried to persuade the bickering bankers to comport themselves in a more mature fashion. My source grumbled: “ Dimon’s attitude seemed to be: ‘We’re here to save the world and we don’t need any questions.” Might it be that the credit crunch is not bringing out the cuddly side of banking chiefs?
No group hugs either on the Bahnhofstrasse, which is witnessing the unravelling of UBS. Switzerland’s biggest bank is committing death by a thousand cuts and this descent from hubris to hunted has taken less than a year. With write-downs so far totalling $37 billion, several capital replenishments and a vicious cull of senior management (including the former chairman, Marcel Ospel), UBS still looks vulnerable. Its new management is a motley collection of old nags from support function pastures pressed into active service (the new chairman, Peter Kurer, is the bank’s previous general counsel), to younger men with front-office experience such as Morgan Stanley refugee Jerker Johansson (the new chief executive of the investment bank) and 43-year-old Marcel Rohner, who was appointed last July as UBS’s chief executive. But how easy will it be for this new management team to meld, and stop the good ship UBS capsizing?
Moreover, it’s not clear that UBS’s pain is over: as of March 31 2008, the bank had more than $30 billion of US sub-prime exposure and there will inevitably be an impact on UBS's lucrative wealth management franchise. So what solution is the new management proffering? It seems to be a case of “muddle through and hope for the best”. Former president Luqman Arnold’s proposals for a break-up of the various businesses have been greeted with vague platitudes. I hear rumours that problem loans will be migrated to a ring-fenced company that could be run by fixed-income chief, Andre Esteves. Another mole reports that Esteves, the previous managing partner of Banco Pactual, which UBS purchased in late 2006, has had enough of the gnomes and wants to pack his bags and go home to Brazil (the girls are prettier and the weather is warmer). Who will run UBS’s slimmed-down fixed-income business, albeit that I expect the division’s appetite for risk to be anaemic? Suneel Kamlani, the investment bank’s present chief of staff, might be a potential internal candidate. But surely new blood is called for?
“Who can we turn to outside the firm to run our fixed-income division?” an insider asked me with a furrowed brow. After some pondering, I came up with an inspired answer: “Why not find out what happened to Jim Healy?” I said. Jim Healy was the former head of fixed income at Credit Suisse. Frequently described as “beloved”, Healy saw little point in hanging around when Brady Dougan brought in former Goldman Sachs banker Mike Ryan (see more below) last summer to be his boss. And talking of people who hang around, can it be true that Ramesh Singh, once UBS’s global head of securitized products, still has a job? “Oh yes,” my mole whispered, “Singh is now charged with getting us out of our difficult MBS positions.” Well, if that is what is meant by a fresh start, I suggest investors scurry for the exit.
However, not everyone who works at UBS is consumed by gloom and keeping a low profile. An interesting trail of e-mails crossed my desk and led to James Tulley, an executive director based in UBS’s Singapore office. James, affectionately known to friends as Tulley Tubby, was profiled in a recent edition of the Singapore Tatler discussing his wardrobe and sartorial preferences. Tulley is photographed sporting an enormous Cartier watch, a gorgeous grey silk tie, a dab of Creed cologne and a smirk. The dapper one, who regularly carries a designer briefcase from Paris, tells Tatler that he has 30 pairs of spectacles and 100 pairs of shoes, including a $4,000 Louis Vuitton red number suitable for both “formal and casual outings”. The mind boggles – and you thought we were in the midst of a global recession?
Credit Suisse staff may not be featuring in fashion magazines but the smaller Swiss bank has had a few distractions of its own. In late February, one week after reporting respectable fourth-quarter results and making soothing noises about its robust risk management, the bank irritated investors by announcing additional write-downs resulting from adverse market conditions as well as “mismarkings and pricing errors by a small number of traders”.
In my March column, I called for a reduction in the responsibilities of Mike Ryan, Credit Suisse’s global head of securities. At the time Ryan was in charge of equities and fixed income even though he was an equities specialist. In mid-April, Paul Calello, the charismatic head of Credit Suisse’s investment bank, announced a major reorganization. Gael de Boissard, Tony Ehinger, Steve Kantor and Jonathan McHardy were appointed co-heads of Global Securities reporting directly to Calello, and Ryan was erased from the management organization chart.
“You called that one right,” an insider said ruefully. Ryan, whom a source describes as “extremely bright, personable and possessing the highest ethical standards”, was recruited from Goldman Sachs in February 2007 by Credit Suisse’s current chief executive, Brady Dougan, when Dougan was running the investment bank. However because of gardening leave, Ryan did not start at Credit Suisse until August 2007. “Ryan was never going to fit in,” one source opined. I’m not sure that is correct but I am reminded of the words of the late, great financial journalist Ian Kerr: “Those Goldman guys don’t travel well.”
The real issue for me is why has Ryan left? The internal memo says: “Mike Ryan will be leaving Credit Suisse”, not that he resigned. Any senior banker who was departing would normally want it spelled out if he had resigned. Could Credit Suisse be holding Ryan accountable for the ballooning losses and fraud (which is what the mismarking turned out to be) in its fixed-income division? Who knows, but it would surely be difficult to pin poisonous positions that would have been in place before he crossed the Credit Suisse threshold onto Ryan.
Another possibility is that Credit Suisse tried to put the genie back in the bottle along the lines I suggested in my March column: confine Ryan to equities and appoint someone else to run fixed income. Ryan might not have welcomed that demotion and his lawyers would have been well positioned to argue that this compromise constituted constructive dismissal.
I strongly suspect that Ryan had a long-term employment contract with some form of multi-year guarantee. Remember, Ryan was hired at the absolute apogee of the boom. I imagine the two parties are striking a deal: Ryan goes quietly (rumours are rife that he will resurface at Merrill) and Credit Suisse pays him out under his contract.
I am not happy. If I am correct that Ryan will be paid to walk, the Ryan interregnum will have been an expensive mistake. Mole, however, was delighted. “As far as I’m concerned,” said Mole, “we now have a sensible structure and fewer layers of management, which can only be a good thing.” A Credit Suisse spokesperson declined to comment on Ryan’s departure and several calls to Ryan’s mobile phone were not returned.
