HSBC's succession saga Deutsche's Q3 results
Wuffli's ethics and globalization
I’m wounded. For the past few weeks I’ve been suffering excruciating pain from an obscure condition called calcific tendonitis. It means I can’t put pen to paper, or hand to keypad. One friend called to say that I should take a leaf out of 1940s’ Hollywood star Betty Grable’s book – she famously insured her legs – and take out cover in case my writing arm packs up for good. So this month my editor, Clive Horwood, has kindly offered his help in putting my thoughts into text and ensuring you get your monthly dose of Abigail with attitude. The whole tedious episode has reminded me that although we work in an industry where mammon is king, health is always paramount. Everyone is equal in the Accident & Emergency room.
Anyway, enough about the pain in my shoulder. For anybody senior at HSBC, the past few weeks have been a searing pain in the neck, the backside, or any other body part you care to think of.
We dialled in to an emergency media call on the evening of Friday September 24 to listen to official confirmation of what had been leaked the previous evening: Michael Geogheganwas to step down as chief executive, to be replaced by Stuart Gulliver. And Douglas Flintwould become chairman in succession to Stephen Green, whose departure to the UK government had already been leaked more than two weeks earlier.
Exactly what happened in those intervening days has now become the topic of conversation among those who, like me, follow the banking world closely.
On the call, I asked the HSBC management teams (present and future) how they felt about the constant leaks and speculation of the previous days, particularly in relation to Geoghegan’s position and the possibility that he would ascend to the chairman’s role, as his predecessors had done for the previous 33 years.
Those on the call: Green, Geoghegan, Flint, Gulliver and Sir Simon Robertson, the senior independent director charged with securing the succession, presented a united front. But surely, I suggested, the damaging leaks hinted at a lack of unity on the board?
Green said the misinformation was "distressing"; Robertson called the leaks "diabolical". But no one seemed to have any idea where they had come from.
All five had clearly got their story straight. If they were trying to hide anything, they were very convincing actors.
The official line goes something like this: Green had let the board know earlier this year that he would step down from his role some time in 2011. Robertson began the process of identifying potential successors as chairman (but not, we note, chief executive) in March this year.
In August, Green informed the board that he would be quitting HSBC earlier than expected, as he had been invited by UK prime minister David Cameron to become trade minister. Robertson said that by mid-August HSBC was some way down the road of choosing a new chairman – a role that one HSBC insider deliciously describes as "having been transformed by Green into a cross between the governor of the Bank of England and the Archbishop of Canterbury".
News of Green’s impending departure leaked on the evening of September 6, before it was officially confirmed by HSBC the next day. At first, people suspected that the leak must have come from Whitehall. However, HSBC has since proved itself so porous that one cannot discount the possibility that a bank insider close to the board put the information out.
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During the call on September 24, Geoghegan revealed that some 10 days earlier he had dinner in London with Robertson and learnt that he would not become the next chairman of HSBC. Finance director Flint would be getting the job. Geoghegan says he asked Robertson for 24 hours to think about where that left his future at the bank; having done so, he informed Robertson that he would leave to give a new management team the space and freedom to run the bank their way.
Putting the pieces together, therefore, one can assume that Geoghegan informed Robertson of his intention to leave on or around September 15. Robertson must then have communicated this decision to other members of the nominations committee as well as key board members.
Now it gets really interesting. The Financial Times ran a front page story on September 22 saying Geoghegan had threatened to resign if he were not elevated to the chairman’s role.
This was a week after Geoghegan had revealed his intentions to Robertson. So one can surmise that whoever leaked the story was either in the know, and had an axe to grind against Geoghegan, or was completely out of the loop.
But the FT’s sources seemed well informed: editor Lionel Barber (accurately) revealed the news of the new management team live on UK television on the evening of September 23.
HSBC has taken a reputational hit through seeing its succession played out in this way. Two of HSBC’s heavy hitters are also losers in this saga. The first is of course Geoghegan. The vast majority of his tenure as chief executive has been fighting fires: first dealing with HSBC’s disastrous investment in Household in the US, and then the global financial crisis. Any neutral observer would say that, given HSBC’s enhanced reputation today, he dealt with those issues well.
The shame is that Geoghegan has not had as much chance as he would have liked to use his entrepreneurial flair in the chief executive role. He managed to wrestle the vital strategy brief away from Green only when he moved to Hong Kong. Already he has engineered a successful bid for Nedbank, which greatly increases HSBC’s presence in its weakest emerging market, Africa. Geoghegan was rumoured to be looking at a bid for Turkey’s Garanti Bank. He also wanted to list HSBC on the Shanghai Exchange: a hugely symbolic move but also one that could have prepared the way for a transformational acquisition in China.
And although he will no doubt welcome the end of a schedule that has had him on the road for at least 200 days a year, Geoghegan will surely regret that his tenure in Hong Kong, which he moved to only in February, was so short lived. Apparently, he still hasn’t moved into the Taipan house that was being renovated to accord with his celebrity status on the island.
The second loser is John Thornton, described by one mole as a "thoroughbred Goldmanite", with all that implies. Green put Thornton on to the board because of his strong China connections. An impeccable source told us that Thornton would never have joined HSBC’s board in a non-executive capacity unless he’d been offered the potential carrot of a more senior role in the future. I suspect Thornton might now take his leave from the HSBC board – perhaps at the same time as Green and Geoghegan?
HSBC has done what it can to draw a line under this unfortunate saga but too many questions remain unanswered:
Did Geoghegan really jump, or was he pushed? Most likely, he jumped but the appointment of Flint as chairman seems to have acted as a gentle prod;
Where did the leaks come from, and if HSBC finds out, what will it do about the source: sweep it under the carpet or make a public example?;
Is it true that Thornton engaged his own PR firm to handle rumours about his candidacy for chairman?; and
Given how poorly the process appears to have been managed, how has the man in charge of it, Simon Robertson, snaffled a promotion to deputy chairman?
Notwithstanding all the above, the new team in charge of HSBC looks strong. When Thornton joined the board in late 2008, a future chairman with great knowledge of and links to China would have seemed appealing. Post the financial crisis, the crucial task of the chairman will be to deal with shareholders, politicians and regulators. Few bankers in the world are better at that than Flint.
Gulliver, who like Flint is highly respected by his peers, gets his chance to become chief executive a little earlier than even he might have expected. The chance is well deserved.
But it also presents many new challenges to Gulliver, who is very much a hands-on manager. These will include completing the takeover and integrating Nedbank, finding other acquisition targets and, the biggest challenge of all, the day-to-day running of the vast sweep of businesses that make up the HSBC group. We wish him well.
Gulliver has let it be known that he intends to continue with the present co-head structure in global banking and markets at HSBC, with both Samir Assaf and Robin Phillips reporting straight to him. I’m not sure this is a feasible solution for the long term. I’ve never believed co-heads work, unless they have a very strong, micro-managing superior, and Gulliver will have too many distractions in his new role to be that.
But what will happen to two other co-heads of investment banking whose direct report is about to become a group chief executive? Step forward Jerry del Missier and Rich Ricciat Barclays Capital.
Jerry has already seen off one co-head in Grant Kvalheim. But Ricci was integral to the takeover and integration of Lehman Brothers in the US, so his position looks just as strong as that of del Missier, Bob Diamond's long-term protégé. I don’t know another industry in which a former head of human resources could rise up to reach the top rung of the executive ladder, as Ricci has done. But I’m not about to doubt the credentials of people that Diamond has promoted.
The howls of outrage that greeted Diamond’s promotion to group chief executive at Barclays took many at the bank by surprise, with one source describing the reaction as "a witch hunt".
I’ve never understood why Bob is so unpopular with some of the UK press. Could it be as simple as the fact that he is paid so much, or perhaps that the bank is not always as upfront as it could be about the money Diamond takes home?
When you think about it, at a time when newspapers and politicians are crying out for entrepreneurs to build businesses and create jobs, Bob should be feted by them for his achievements since he took over the fixed-income division of BZW in 1996.
I joined BZW shortly after Bob. There wasn’t much to join. Fixed income was meant to be a core competency; I remember telling Bob that the business he had inherited was second tier at best. There were no centres of excellence.
But even then, Bob had a steadfast vision that Barclays Capital would be a top-five global investment bank. Fourteen years later and BarCap is at least that, and the only foreign bank ever to become a top-five player in the US markets.
A constant jibe against Bob is that he’s "been lucky". And so he has. He dodged a bullet with the failed ABN Amro takeover. He caught a break when he failed to buy all of Lehman before its collapse.
But I’ve always said it’s better to be lucky than to be smart, and in an ideal world you will be both. Bob is just that. His record speaks for itself: he has not only made BarCap what it is today, he built and sold BGI for an excellent price and is behind the rise of Barclays Wealth, which is steadily breaking into the top tier of global private banks. The Russia crisis of 1998 and the bursting of the internet bubble in 2001 could have brought BarCap down, but Bob soldiered on.
Even 18 months ago people were doubting whether Barclays could survive the latest, and deepest, crisis. But pull through it did, and then some.
Diamond could have walked away at any time. As a former partner at Morgan Stanley, he was wealthy long before Barclays came knocking. But he never has. He even bided his time to take over from John Varley, apparently rejecting the advances of other firms dangling the chief executive carrot in front of him.
It’s this commitment and determination that I most admire about Bob Diamond. He fully deserves his chance to be chief executive of Barclays. But I wonder if he will enjoy the hassle and scrutiny that the new job will bring.
What with all the hullabaloo over HSBC, news that Deutsche Bank had told the market that its third-quarter numbers would take a hit from reduced trading revenues did not create the waves it might otherwise have done.
On September 21, Deutsche revealed that it would post a net loss for the third quarter, because of a revaluation of its existing Postbank stake. The bank also mentioned poor sales and trading revenues in July and August that were "substantially below the prior-year quarter". Deutsche shares dropped sharply at the news.
This wasn’t ideal for Deutsche’s now sole head of investment banking, Anshu Jain. He would have been hoping that the markets business that he has overseen for many years would continue to run smoothly as he assimilated the banking side that he has inherited from his former co-head, Michael Cohrs.
Deutsche also suffered a hit to that side of the business with the surprise departure in September of previous co-head of M&A Brett Olsher. Jain had given sole responsibility for global M&A to Brett’s former co-head, Henrik Aslaksen, while Olsher was put in charge of coverage for emerging markets clients.
Now Olsher is off to Goldman Sachs, where he becomes a partner and global co-head of natural resources investment banking. Although his last role at Deutsche apparently gave Olsher few direct reports, it is strange to see one of Deutsche’s top investment bankers jump ship for a position in the mid levels of the Goldman pack. Perhaps he was proving resistant to the Jain charm? A mole muses: "Goldman had been after Brett for a while. He tried to resign about a year ago but was persuaded to keep the faith." We hear that Olsher’s impending arrival at the US firm has ruffled a few feathers. Change is never easy!
Anyway, Deutsche’s warning spooked the markets in general. Deutsche’s sales and trading business is regarded as one of the best in the industry. By the end of September, research houses such as Bernstein were reducing Q3 estimates for Goldman and Morgan Stanley because of the difficult trading conditions.
But wait. On the very same day as the Bernstein report, Deutsche chief executive Josef Ackermanntold a conference in London that Deutsche’s Q3 sales and trading numbers would, after all, be in line with last year’s equivalent. This was apparently because of a pick-up in activity during the last two weeks of September. That’s both good news for Deutsche, and rather embarrassing. Updating an update in the space of 10 days is unseemly and, some might say, messy!
Wuffli's ethics and globalization
Talking of messy, the man who created most of the mess at UBS finally resurfaced last month. Peter Wuffli, the former chief executive of UBS, is out and about and promoting his new book on the subject of ethics and globalization.
Wuffli was the first big-bank chief executive to lose his job as a result of the sub-prime crisis. According to an interview he gave on Swiss national TV, the first since his departure, he is still in shock that he lost his job.
A rather uncomfortable-looking Wuffli explains that he lost his job when Marcel Rohnerwas promoted to chief executive and Marcel Ospelgained an extended stay as chairman. "I wasn’t at the meeting. It had been built up for a long time that I would become chairman. Nobody ever told me who took the decision."
Wuffli still seemed genuinely aggrieved at the oversight, even when the interviewer suggested it was better never to have been chairman at all than to have, inevitably, been sacked from the post within weeks or months when the extent of UBS’s losses became apparent.
Wuffli blames the losses on a combination of UBS becoming too confident – "we had outperformed our local rivals" – and wanting to become a top global bank quickly through organic growth rather than acquisition.
The Swiss Bank Corp takeover had been a painful experience. It’s funny how we make new mistakes by trying to avoid repeating past ones. Wuffli at least admits that UBS put too much faith in "risk experts", but seems to direct his ire more at the rating agencies than his own risk managers.
The interviewer saved his best line till last. How, he asked, could Wuffli in all conscience write a book about ethics when large numbers of his own bank engaged in criminal activity in the US wealth management market?
Wuffli mumbled something about it being an isolated incident and the interview drew to a close. I doubt we will hear much from Wuffli again.
And finally, did you see that M&A banker Adrian Mee has flown the Nomura nest nearly two years to the day after the Japanese bank took over Lehman’s European operations? This is becoming something of a seasonal migration for Nomura. Mee has a shiny new home at Bank of America Merrill Lynch, where he will be reunited with his mentor, Christian Meissner. I recently met Meissner, about whom I have heard so much. I liked him immensely.