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Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks |
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A newfound zeal for increased regulation among politicians has heightened uncertainty over key revenue sources. And there are signs that the astonishing boom in bank profits in 2009 was a one-time windfall. But experienced financiers persist in trying to develop competitors to the oligopoly that emerged from the crash of 2008.
UBS and Citadel represent approaches to the same goal from opposite directions. UBS retained a corporate finance capacity while gutting its sales and trading after losing more than $50 billion in the crash. It is now rebuilding a full-scale sales and trading operation while hoping that outflows in its core private-client business will eventually be stemmed. Citadel has relaunched its attempt to add a corporate finance function to the sales and trading expertise in its core hedge fund operations.
Both approaches face big challenges. The recent appointment by UBS of Neal Shear as global head of securities did nothing to quell predictions among rival bankers that the new-look investment bank might turn into an assortment of feuding fiefdoms. Shear’s appointment was accompanied by a reshuffle that featured promotions for two bankers who have developed reputations for acquiring business lines from within banks. The appointment of Rajeev Misra and Dimitri Psyllidis as co-heads of fixed income, currencies and commodities (FICC) appeared to sideline Jeff Mayer, the former Bear Stearns banker who had previously shared the title. Misra joined UBS last year as head of credit after a career spent mainly at Deutsche Bank, while Merrill veteran Psyllidis was hired soon afterwards as head of macro products. The promotions for Misra and Psyllidis also added to speculation about the long-term prospects for the two current co-chief executives of investment banking at UBS, Carsten Kengeter and Alex Wilmot-Sitwell.
Kengeter’s appointment to the co-chief executive role in 2009 puzzled rival bankers, given his relatively limited senior experience while at Goldman. By relinquishing the role as co-head of FICC he had shared with Mayer, Kengeter is now a step further from an operational role. Wilmot-Sitwell is a highly regarded advisory banker, but UBS seems to have pinned its plans on developing an investment bank dominated by sales and trading revenue.
It has been an open secret in the past few years that UBS has repeatedly put out feelers to senior bankers at competitors about roles that could put the right candidate in the frame for eventual ascension to group chief executive.
This rolling executive search programme undermined the positions of Huw Jenkins and Jerker Johansson when they spent successive stints as chief executive of investment banking at UBS. Kengeter and Wilmot-Sitwell now face the same problem.
Shear is not widely viewed as a candidate to supplant Kengeter and Wilmot-Sitwell from within, but he adds to the mix of experienced managers jockeying for position at UBS. He will head global securities from Stamford, and fellow Morgan Stanley exile Roberto Hoornweg joined at the same time to run securities distribution from London. Shear was pushed out as sales and trading co-head at Morgan Stanley in 2008; Hoornweg was replaced as head of rates, credit and currencies in 2009.
If UBS is starting to look overstuffed with senior sales and trading managers, Citadel continues to suffer from the inability of veteran investment bankers to work with founder Ken Griffin, a trader to the bone. The departures of Rohit D’Souza and Todd Kaplan, two former Merrill Lynch bankers, added to the perception that Citadel faces cultural challenges if it is to expand from its hedge fund roots to become a fully fledged global investment bank.
Griffin is expected to persevere, which implies further expansion for Citadel. This could change the landscape regulators face if they are given a mandate to reduce the potential impact of reliance on proprietary trading at investment banks. When Citadel came close to failure in late 2008 some of its bank trading counterparties worried that a collapse of the fund group could cause as many problems in unwinding derivatives contracts as the bankruptcy of Lehman. Citadel was arguably already too interconnected to fail, or at least not without causing major issues for its counterparties. If Citadel succeeds in adding a big investment banking presence to its trading it will become even more widely connected.
Regulators could be forgiven some weariness as they contemplate the prospect of trying to cut the likes of Goldman and JPMorgan down to size, when the list of candidates for the too-big-to-fail club continues to grow.
