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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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The return of Bill Winters to the financial markets was something of a damp squib, at least to those who had come to view him as the once and future king of investment banking.
The former co-chief executive of JPMorgan’s investment bank is setting up an asset management and advisory boutique called Renshaw Bay, rather than taking on a turnaround job at a troubled bank such as RBS or UBS.
Winters should be able to make a decent return by picking through assets that are for sale as the industry restructures. But he will struggle to generate meaningful income from the derivatives-based advisory work that is the other goal for the new venture.
A similar business mix has been tried before, by Winters’ former boss Peter Hancock, who set up a firm called Integrated Finance Limited (IFL), and by TJ Lim, another one-time JPMorgan employee, who co-founded NewSmith.
Hancock and Winters had comparable career arcs at JPMorgan. Hancock developed the bank’s derivatives business during the 1990s and was appointed CFO before resigning when the merger with Chase Manhattan was agreed in 2000. He then engaged in prolonged negotiations with Warren Buffett to buy the troubled Gen Re Securities business from Berkshire Hathaway. Buffett had become alarmed by the complex derivatives risk run by Gen Re Securities in parallel to its main insurance business. In retrospect, this shift should have been a warning about the comparable risks that would be assumed on a much bigger scale at fellow insurer AIG, but that experiment still had almost a decade to run before it ended in disaster in 2008.
Hancock seemed like a good fit for a restructuring of Gen Re Securities, but he could not agree terms with Buffett and eventually set up IFL as a boutique combining asset management with cross-asset-class advisory work. Joining Hancock as partners were Nobel Laureate and former LTCM principal Robert Merton and Roberto Mendoza, a former JPMorgan vice-chairman who was a senior figure when the firm bulked up in investment banking.
The star power of the IFL trio and the widely acknowledged need to view fundamental risk challenges such as pension funding on a holistic basis was not enough to make a success of IFL.
The fundamental problem with its business model – and an issue that Winters will face with his new firm – is the difficulty in getting paid for cross-asset-class advisory work when an investment bank will almost always be required to handle the actual trades involved in a client solution.
Winters was keen to give the impression in announcing the formation of Renshaw Bay that it would have financial firepower. The announcement said that Winters and his partners Jacob Rothschild and Johann Rupert would invest “substantial capital” in new funds and investment vehicles. It is debatable how substantial this capital will be, however. Winters was at the top of the investment banking tree for more than a decade of his quarter century at JPMorgan and enjoyed annual bonus payments of $20 million or more on at least one occasion. But he is unlikely to want to use too much of a fortune that is likely to be in the low hundreds of millions of dollars to fund his 50% stake in Renshaw Bay.
And even an exceptionally well-funded boutique will not be able to supplant an investment bank as the counterparty to any big derivatives trades involved in risk-restructuring exercises for clients.
Hancock eventually shuttered IFL and last year took a job as head of risk and financing at AIG. TJ Lim spun his debt advisory business out of NewSmith and into UniCredit in 2008 and took up a role as co-head of global markets at the bank.
Winters will hope to finally crack the code of combined asset management and risk advisory success with Renshaw Bay. However, if it does not work out he can always return to investment banking. There is bound to be some firm in need of a saviour before too many years pass.
See also: Judgement day looms on capital charges
