|Illustration: Jonathan Williams|
It is early March and the construction workers have arrived in Bryant Park, New York. They are dismantling the Bank of America Winter Village, a jumble of seasonal stalls surrounding an ice rink, the whole contraption perched on a platform over the grass.
It takes three weeks in late autumn to assemble the Village (slogan: ‘Above 44th, Below 32°’). It should take about two to take it down, one of the workers tells Euromoney. He looks doubtful as he glances up at the swirling snow. “It depends on the weather.”
When they are done, the park looks just as it did before. But across the road, at One Bryant Park, the Village’s sponsor has been undergoing a longer and more lasting transformation. For the last eight years, the Manhattan hub of Bank of America Merrill Lynch has been the cradle of a new corporate and investment bank. It was born in the early 2009 crisis-driven merger of two venerable brands, but its formative years really started in 2012, with a new management structure and a new focus.
The unit sat behind JPMorgan and Goldman Sachs in terms of investment banking fee revenue in 2016. But within that, BAML clocked up more debt capital markets revenue than any other firm. In equity capital markets, it was practically level with Goldman and Morgan Stanley, behind JPMorgan. In advisory revenues, it was fourth.
The bank’s stock has been on a tear. It has enjoyed a remarkable Trump bounce, having risen more than 40% since the US presidential election in November 2016. But it had also risen 20% in the six months before that.
You don't develop a CEO's confidence if you don't have an approach that's collaborative, global and oriented around the long term- Christian Meissner
Whatever the numbers, the senior staff that Euromoney has spoken to – whether legacy BofA, legacy Merrill or external hires – are energized about something. They talk of a long-term integrated and global approach that they feel sets them apart from their peers, one that over time will see the firm rise to lead the pack.
Where does this confidence come from, given that not so long ago this was a firm struggling to deal with a tricky merger of cultures? It is an evolution that has been the result of many people’s efforts. But at the centre of it is Christian Meissner, who used to work for Goldman Sachs and Lehman Brothers, who joined BAML, took apart its corporate and investment bank and put it back together again.
Given the tumultuous birth of BAML, it is not surprising that in the immediate post-crisis period its structure was a mess. The two legacy firms had little in common. They had little trust in or respect for each other in 2009. One then-Merrill executive based in London recalls a call with a counterpart at BofA headquarters in Charlotte, North Carolina, touching on foreign exchange. “My new colleague stopped me mid-conversation and asked: ‘What’s this thing ‘sterling’ you keep talking about?’”
Bringing the two firms together was the stuff of nightmares. The result was that until the creation of the GCIB division, the corporate bank was separate from the investment bank, the treasury business was off on its own entirely and the mid-market commercial bank was not even part of GBAM – the shorthand for BAML’s Global Banking and Markets businesses.
The parts that are now in GCIB previously had multiple balance sheets, multiple client teams, metrics and multiple strategies. That was in large part a reflection of the fact that BofA barely had an investment bank to speak of, while Merrill did not really have a corporate bank and certainly no treasury business.
GCIB was put in place in 2011, a year after Meissner had joined the firm as head of EMEA investment banking. Presiding over the initial changes was Tom Montag, now the bank’s chief operating officer and who retains responsibility for all of the firm’s banking and markets businesses. Montag knew Meissner well from their time at Goldman Sachs and quickly elevated him to be one of three global co-heads of GCIB. In 2012, he gave him sole leadership of the division.
Meissner then set about putting in place the final structure that would make the business fit for the strategy that he wanted to pursue, one based on serving a smaller number of clients than the sprawling machine he inherited, and serving each one with more of the stuff that BAML could do.
Five years on, competitors who used to dismiss BAML’s ambitions are starting to take note. “On the banking side, they are clearly as strong as they have ever been since the merger,” says one investment bank rival. “They are well-positioned to take advantage of everything that is moving in the US banks’ favour. The challenge is figuring out how you can deliver the behemoth in a joined-up way.”
Meissner thinks he has found the answer. Today, GCIB is built around three pillars of corporate banking, investment banking and global treasury services (GTS) – with capital markets also brought into the division, having previously sat on its own. The units serve each other, but also other parts of the larger group outside GCIB. GTS, for example, provides solutions for not only the large corporates that sit within GCIB, but also for mid-market US corporates covered by the Commercial Banking division. A lot of the technology developed in GTS is also used in BAML’s retail bank, and some of what is developed for retail clients is also used for large corporates.
“A major theme of what we are doing is to deliver the entire bank to the client in an integrated way through a unified product offering and integrated client strategy,” says Meissner. “But our legacy organizational structure didn’t always reflect that strategy and therefore enable our bankers to provide the optimal level of service to our clients.”
head of global corporate
and investment banking
The upshot is that every client now has just one client team. There is one balance sheet, one client decision. One of Meissner’s earliest introductions was the capital review committee, through which every balance sheet commitment must pass. The decision makers themselves vary depending on the size of the commitment, but the CRC’s scope is the whole of GCIB, with the business case for a client commitment analyzed on a division-wide basis rather than at a product level.
At the table are senior management such as AJ Murphy, head of global capital markets, and Diego De Giorgi, head of global investment banking, alongside those who lead the regional CIB structure, such as Bob Elfring, who runs EMEA. One part of the matrix does not take priority over another.
“It all funnels into one decision point, as opposed to each part of the firm separately competing for balance sheet or resources, in some sort of Darwinist way,” says Meissner.
The evolution of that structure came about two-and-a-half years ago, with the creation of an investment banking leadership team, now headed globally by De Giorgi, who joined from Goldman Sachs in 2013. The move completed the rebuilding of that business, which Meissner had taken personal charge of but needed to hand over as the number of his direct reports became unwieldy.
Meissner believes that in a world where his is not the only universal firm that claims to be able to serve clients holistically, BAML’s GCIB structure is a differentiator. This, he stresses, is not by virtue of him personally being in the single leadership role, but rather because that role exists at all.
That said, the management levels below Meissner constantly reference him as driving the culture and the strategy. “Christian is laser-like in terms of what he wants to achieve,” says one.
Since moving to the US when he took sole leadership of GCIB, Meissner has maintained a policy of having some global heads based in London; something he believes imposes a global approach to the business. The roles that are based there are partly driven by circumstance, but it is also true that being based outside a market as big and profitable as the US forces a nonlocal approach – for the simple reason that there is not enough activity in the UK or Hong Kong to “feed the machine”, in the words of one business head.
De Giorgi is based in London, as are some of the coverage heads, including Julian Mylchreest for energy and Jim O’Neil for FIG. Also in London, Craig Coben runs global ECM and Adrian Mee jointly runs global M&A. Even when not based in London, Europeans are prominent throughout the organization. Out of the eight industry groups in investment banking, five are solely or co-headed by bankers from Europe.
One of Meissner’s first tasks was to whittle down the bloated client base that the two legacy firms had accumulated.
“Client selection before that was far less strategic and deliberate,” he says. “The result was that we had about 12,000 clients in GCIB, and we hadn’t really parsed through that to determine which client relationships were the best fit for the firm.”
He cut that back to about 5,000. “Every year since then, revenue, profits and market share have been up, which gives you a clear sense that focus is important.”
The job was twofold, first, to assess which clients fitted the firm’s profile; second, to drive a cultural change across the combined organization that would support one of the big mantras at BAML: the prioritization of franchise over revenue.
“Historically, it was more of a personal revenue-driven culture, which naturally meant that as a coverage officer you would want to have access to a larger client pool to capture as much deal activity and boost revenue for your scorecard,” says Meissner.
In the new world, bankers were told that they should be committed to a smaller number of clients, but that those clients would have the best long-term potential for the firm.
“That cultural change was probably the single most-important thing that drove our strategic business,” says Meissner. “You don’t get into the boardroom and you don’t develop a CEO’s confidence if you don’t have an approach that’s collaborative, global and oriented around the long term.”
Meissner was never going to triple the number of coverage bankers – and nor would he have wanted to – which meant that limiting the client roster to a more manageable number was the only feasible approach.
“Roughly speaking, we strive to cover 80% of the available fee pool, which happens to be about 5,000 clients,” he says. “Doing better with the top 80% is a lot more profitable for our shareholders than doing merely OK with everybody.”
Meissner wanted the firm to be focused more on doing higher quality work for a smaller number of clients, but the other driver was the cost of doing business. Before the financial crisis, not many firms gave much thought to an investment banking unit’s cost per deal, but a world of capital constraint and regulatory burden imposes a concentration on those clients that will generate the maximum return from the resources available.
|Diego De Giorgi, head |
of global investment
The selection process was exhaustive. Meissner consciously stayed away from a client-level wallet share target, however tempting that might have been, in favour of a name-by-name qualitative analysis.
One senior banker recalls that the whole approach depended on a fundamental assumption: “One of the big debates during that time – it was a leap of faith, if I’m honest – was the supposition that we could actually win with the biggest clients.”
The view was that the bank’s scope naturally compelled it to compete in that part of the arena, the unpalatable alternative being a complete reversal into a boutique-style approach.
Meissner argues that the bank’s GCIB performance since then makes the strategy seem like an obvious call now. But it was not always that way.
“Back then, some were opposed to this cultural shift, saying: ‘No, you can’t do that, that’s not how we do things and you’re not allowing me to maximize my revenue potential,’” he says. “Perhaps, but it just happened not to be our strategy, and to compete in the top tier we had to change the approach.”
The mental timescale has had to change. Bankers say they are often taking at least a five-year view on getting close to a client and, even then, it is the legacy that they will leave others that matters. One cheesily rephrases the advertising slogan of the watchmaker Patek Philippe: “You never actually own a client, you merely look after it for the next generation.”
Franchise over revenue
Mention of business that is franchise-enhancing rather than revenue-focused comes up time and time again. It is a remarkably consistent mantra for such a diverse group of senior managers across all regions. While many stress that Meissner has been the chief advocate of the change, they also remark that it is a message that they hear internally all the way up to Montag and Brian Moynihan, BAML’s group CEO.
As the earlier internal debates demonstrated, ‘franchise-enhancing’ is not a simple thing to define, but the closest summation is probably that the firm wants to be involved with what is most important to its clients, even if that involves a long period of nurturing.
“It’s different for each product,” Meissner says. “If you are in the treasury business, you want to be involved in a client’s core treasury functions, perhaps through an e-payable strategy, or cash pooling. In the M&A field, you want to be the one who gets the call from a CEO on a Sunday afternoon.”
In investment banking, De Giorgi also spends a lot of time thinking about what makes something franchise-enhancing and communicating it to his teams.
“To misquote Thomas Mann, it is: ‘Being important in the minds of the important people on the planet,’” he tells Euromoney. “It means participation in a leading role on deals that are in some way unique, first, enhancing to our relationship with the people that matter.”
The CEO of one large European client that BAML has recently advised tells Euromoney that while the bank’s commitment to balance-sheet support was important, it was not the differentiator: “I was particularly impressed by the lateral thinking that they showed, bringing us alternative solutions and insight into market risks. It was not just plain vanilla – their coverage is very good.”
That client hired BAML on a multibillion dollar transaction. The problem with the ‘franchise over revenue’ mantra is communicating it in such a way as to reassure staff that it is not all about size – that a small deal can be as franchise-enhancing as a jumbo. That has not been easy.
“You have to have headlines out there to get people to change behaviour, but it’s a balance,” says Meissner. “All of our people have to feel like they have a seat at the table – that’s much easier in a boutique where there is one focus, but if you are a universal bank then by definition there are 30 things that you think are important on any given day.”
One senior banker recounts that he was asked in a town-hall meeting how a team could consider themselves to be franchise-enhancing if their average deal size was fairly small. In response, the banker noted that at no point had the concept of franchise-enhancing been linked to deal size. Now he argues that the concept has bedded down across the firm.
In ECM, there is a global ‘elephant list’ of the key transactions that the franchise should be targeting, but according to global ECM head Coben: “The importance of the franchise is not about league tables or revenue from one particular deal – it’s about being active, pivotal and relevant.”
Making the elephant dance
It might not be a product in itself, but at the heart of GCIB sits the corporate bank, managing the group’s relationships with its key corporate clients.
“Our job in corporate banking is to make the elephant dance, we are a conductor of the orchestra,” says Anne Clarke Wolff, head of global corporate banking and global leasing, reporting to Meissner. “We deliver the complexity of the firm to the client.”
As in the broader group, clients in the corporate bank were cut back as part of Meissner’s review. Right now there are about 2,225, down from roughly 5,000 at the peak.
|Anne Clarke Wolff, |
head of global
and global leasing
It is in the corporate bank where the concept of franchise-enhancement is felt most keenly. Clarke Wolff incessantly scrutinizes the firm’s relationships across a bewildering number of metrics, fed by monthly performance reports from across different divisions of the firm. These include tracking the number of ‘solutions per relationship’, a metric often referred to by BAML bankers, all of whom are adamant it is not simply another way of saying ‘product’.
Other measures include the percentage of clients using the firm for its various services; 72% are served by GTS, for example. That reflects good penetration, but in other areas the numbers are lower, including FX.
“Last year we recognized that we could be stronger in leveraging our FX platform for clients, so that represents a growth opportunity for our business at the moment,” says Clarke Wolff.
Calling intensity is key, as is the importance of actually showing up face-to-face with clients. That might be 10 or 15 times a year for a big client – one oil company client now uses the organizational chart that an assiduous banker had developed for his own reference. A lot of the emphasis is on establishing the franchise in the minds of the clients. BofA was faceless to a lot of them.
Clarke Wolff’s capital markets background also helps. She spent 20 years at Salomon Brothers and Citigroup, much of it in DCM, before moving to corporate banking. A couple of years at JPMorgan followed before she joined BAML in 2011.
BAML’s global strategy is unashamedly built around multinational corporations, and its subsidiaries work is big business. It is necessarily complex. For it to work, the bank needs to service a company’s headquarters and then cover it at a regional and country level.
|Ather Williams, head |
of global transaction
Bankers say that the subsidiaries business is big and growing fast. In some markets, it is of critical importance to client coverage. Two thirds of the revenue related to BAML’s 30 corporate banking clients headquartered in Switzerland, for instance, is booked outside the country.
Driving a local market operation through subsidiary work for established MNC clients also means the firm develops an expertise that can be put to use for clients headquartered in that same market.
Key to these corporate bank relationships is the work done in GTS – a $6.4 billion annual business for BAML, with some $3 billion coming from large corporates. The business has changed with client needs, says Ather Williams, who runs it globally and reports to Meissner.
“The role of a transaction services provider is increasingly strategic,” says Williams. “Treasurers are thinking much more strategically about their working capital, and this plays into the strengths of a firm like ours. We can deliver the FX platform, partner with DCM in order to manage liquidity or bring another dimension to M&A advisory with issues like post-merger treasury integration.”
These days the team may find itself discussing how synthetic borrowing using FX swaps may be more efficient for a subsidiary than using an intercompany loan.
Amid such complexity, it can be useful to be reminded of the importance of the business to the nuts and bolts of company operations. It is a point not lost on the investment banking teams at BAML, who acknowledge the limitations of the strategic dialogue that they tend to manage.
“If you just cover the CEO, you fail to capture what the client is about,” says Luigi Rizzo, head of EMEA investment banking. “Corporate banking for us is a key constant – when our corporate bankers do something leasing, lending or transaction banking related, they engage in an ongoing dialogue with multiple key touchpoints across the company. The key to successful coverage is depth and consistency right across the firm – that’s why our partnership can make the difference.”
No 'first focus'
The agnosticism that characterizes the approach to products and solutions elsewhere in GCIB is reflected in GTS. Its integration means that the bank is comfortable advising on a working capital management solution for an acquisition, rather than debt or equity. GTS will advise on ways of managing liquidity in order to create a cash pile, or tweaking supplier terms to enable a client to maximize its access to capital.
Traditional capital markets work can still often be the answer, however. For Murphy, who runs global capital markets, one of the defining characteristics of the business is the way in which it has morphed into a capital structure advisory role and away from mere financing and distribution.
“We work very closely with banking to establish what we are solving for at every stage,” she says. “We are more connected, not just globally within one product, but also across different product segments.”
|AJ Murphy, head of |
global capital markets
For Murphy, the biggest change since she joined has been the development of the concept of delivering value to the franchise. “It’s about the dollar behind the dollar,” she says. “We think about our clients’ priorities and strategy over a longer period of time instead of just reacting one transaction at a time.”
Elfring, head of EMEA CIB, adds: “Ours is a culture where we have no bias towards offering a particular solution, no ‘first focus’. Big corporates are increasingly careful about how they allocate their fee wallet. Our priority is not to just cross-sell, it is to offer the right expertise and solutions.”
This approach is critical in an area like debt, where the preference for euros or dollars can switch in an instant. And the flexibility within the business has also been a boon on deals for credits whose ratings might change, such as Broadcom, which was upgraded shortly before a bond issue in January that BAML worked on.
The bank’s deal team straddled investment grade and high yield, supported by the knowledge that both areas would be appropriately credited for the work. “We had a view on where the Broadcom ratings would go – our ratings team was adamant that there could be an upgrade,” says Murphy. “Also we were confident in the marketability and the story in either ratings outcome, so we were ready for either option.”
Deals for Dell and Charter Communications were other examples of working fluidly across the capital structure, say Andrew Karp and Brendan Hanley, both legacy BofA bankers who now co-head global investment-grade capital markets. Sub investment-grade rated Dell structured a $20 billion deal to be investment grade in 2016, while Charter sold a mix of high-grade and high-yield debt to finance its acquisition of Time Warner Cable in 2015.
“We are all rowing in the same direction,” says Hanley. “It is not about individual P&L.”
Karp adds that the cooperation through the business has made complex esoteric deals routine. In private placements, he cites a $1.4 billion deal for a Swedish issuer that was sold in three currencies and seven tranches. Elsewhere, the firm sold a Canadian dollar deal for a Latin American client to an Asian investor.
“The business has seen increased globalization, and we have to reflect that,” says Karp. “It’s not about who banks the trade or gets to send the email. We have extraordinary momentum around the world, and people have to remember this firm was only born eight years ago.”
Despite the EMEA leveraged finance business being fairly young at BAML, it is also able to give rise to franchise-enhancing relationships. The bank’s work with WorldPay began when the payments business was being spun out of RBS in 2010, with BAML involved in the LBO financing for the acquisition by Bain Capital and Advent International. The deal involved advisory, financing, corporate banking and GTS.
When the business was floated in 2015, the bank was global coordinator on the IPO, did the post-IPO bank finance, a bond issue and is now the firm’s corporate broker.
Lonza’s acquisition of Capsugel from KKR, announced in late 2016, was another to stretch right across GCIB, with activity in M&A advisory, lending, an equity placement and derivatives. The bank is also mandated on a rights issue.
“This was a Swiss corporate buying a US company out of a financial sponsor,” says Toby Ali, co-head of EMEA leveraged finance. “This type of transaction – large, multi-product and cross-border – is where we excel and we expect to see more of these.”
These are examples of where the bank is acting across most of its disciplines, but even when that is not the case, its flexibility is crucial to being able to offer the correct advice.
Within its 5,000 GCIB clients, BAML misses plenty of business that it would like to have. While these are potentially the most rewarding clients, they are also the ones that every corporate and investment bank with global aspirations chases after. And BAML is far from alone in cutting its client book – Citi and HSBC, with similar global universal banking models, have done just the same.
The job of securing the full relationship BAML wants with its chosen clients is far from done. Moving from a transactional approach to a relationship one is a work in progress and one that is made more difficult by the strength of the competition. Cracking the key relationships takes many years of consistency – lack of tenure is one reason why the firm still falters.
|Bob Elfring, head of |
EMEA corporate and
Another – less so now, but certainly in the early days – was the brand. “Back then, if people were thinking about great investment banking brands, I don’t believe they would have necessarily said ‘Bank of America Merrill Lynch,’” says one senior banker.
It was not just clients that had problems with the brand. After the merger many former Merrill bankers were aggrieved that their old firm’s traditional raging bull logo was nowhere to be seen. Times have moved on. “Today that’s certainly not an issue, and increasingly we are getting business because of who we are,” the banker adds.
Of all the new mantras at the bank ‘Responsible growth’ is perhaps the hardest to escape when speaking to those at the firm. It is regularly cited by group senior management, as well as within GCIB. Mantras like this can often have a whiff of hopey-changey about them. What does the bank think it really means?
Writing in BAML’s 2016 annual report, Moynihan boiled it down to: “Not every dollar is a good dollar.”
Elaborating on how ‘responsible growth’ plays into the GCIB business, Meissner emphasizes the client approach, how he and his team are working to ensure that bankers are thinking about fostering relationships rather than chasing deals. But as important is reputational care and culture – spending time making sure that the whole firm understands the importance of ethics and reputational risk. It is a theme that he returns to several times. He says that a reputational mishap is his biggest worry, partly because it is the biggest unknown.
“That’s why we are so focused on culture, because ultimately it is those issues that bring down great brands,” he says. It is why he also spends a lot of time ensuring the firm is looking after its junior talent, through mentoring programmes or commitments to work-life balance.
Does responsible growth mean a different attitude to risk at BAML to those firms that preceded it? Meissner argues that the context matters when looking at what the firm is doing now.
“Responsible growth is most impactful in the context of the cultural transformation that we are driving. And it goes back to client selection – if you are less concerned about risk, sustainability or chasing any transaction, then you probably have a very different list of clients.”
The related issue is whether growing responsibly necessarily means growing more slowly. That is not a question just for BAML, but for the whole industry, as shareholders demand returns in what is a tougher environment for banks.
Taking a longer-term view is something that Meissner acknowledges he has had to adapt to himself. “In my old days in ECM, the moment of truth was five minutes – either you were right or wrong, and you moved on. But our moment of truth is measured in years.”
Improvement has not always been easy; in some areas the bank’s performance has been little short of embarrassing. Leveraged finance outside the US market was for some time a case in point. The firm has long had a very strong US leveraged franchise. In Asia, the opportunities are much more limited, but the puzzle was BAML’s failure to do much of note in Europe.
Post-merger, there was an attempt to build a franchise in the region, anchored around a team imported from Deutsche Bank. But the results in European high-yield were patchy, not helped by the fact that the business in this region was seen mostly as an add-on to the sponsor coverage team in investment banking, rather than an integral part of capital markets as it is now.
Building up the EMEA leveraged finance business was not an overnight task. “You need not just the actual leveraged finance person, but also the right sponsor franchise, which took us a while to build, and you need the right collaboration with risk, sales and trading,” says Meissner. “All that required time and patience.”
Off the record, some at the firm are blunter about the way things were. “Frankly, it was a travesty that we were number one or two since the dawn of time in the US, but in Europe we were nowhere,” says one banker.
The unit shrank during 2014 as personnel left, so the business that exists now has effectively been built since then. Colleagues describe the hiring of Chris Munro as co-head of EMEA leveraged finance from JPMorgan in 2015 as the final piece of the puzzle.
The investment in a new team, coupled with a management focus on fixing the problem, appears to be paying off. In the week when Euromoney talks to Munro and Ali, the bank is on 11 deals and is in the lead position on no fewer than nine.
|Elif Bilgi Zapparoli, |
co-head of Asia
Pacific corporate and
Sponsors are still the main driver of the business, but corporate work is increasing. “It is a gradual pursuit of key names,” says Munro. “We have a dozen or so key targets for levfin corporates and with all but one we are actively engaged in some way. Four years ago that was just two.”
Asia Pacific is another area where Meissner and his senior team target growth. As far as GCIB is concerned the Asia strategy is built around three areas: Greater China, Japan and Australia, in that order.
Co-heads of CIB for the region are Jiro Seguchi and Elif Bilgi Zapparoli. While Seguchi was sole head, he had moved to Hong Kong from Japan, but later returned when Bilgi Zapparoli moved from Europe to Hong Kong to be co-head.
The resources are in place and the emphasis now must be on execution, says Bilgi Zapparoli. “We have to be on top of client selection, we must concentrate on the must wins and we need to have a laser focus on the intellectual value-add. Our work for a client starts with the deal – it doesn’t end with the deal.”
Asia is a region where the BAML strategy of focusing on local multinational corporates and the subsidiary businesses of multinationals from outside the region is most explicit. It is a market that is often barely rational; it is still difficult to find clients that value paying for advice, unlike Europe or the US. Cultural differences between US banks and local firms are often formidable and the cost of business is huge; there is no one hub where presence is sufficient to cover the region.
“You don’t want to over-invest as it’s a very competitive region, so you have to be very rational about what resources to deploy,” says Meissner. “On the other hand, you clearly cannot be global if you don’t have a strong Asian presence, so you have to balance the franchise-relevance of the region with the economic challenges and be prepared to take a long-term view.”
It is in this region that the differences between the current approach and the Merrill legacy seem most apparent. Merrill in Asia was often a curious beast, popping up on esoteric equity-linked trades for a client that it might not work with again for several years, if at all. BAML no longer scrabbles around for trades in any region, but nor does it need to.
“If you don’t have a corporate bank, you don’t have the same degree of recurring and fl ow revenues,” says Meissner. “If we can supply a Japanese corporate’s treasury needs all around the world, then we can get attractive returns on our balance-sheet commitment, build a CEO dialogue and wait until they do their next big M&A deal. If you’re a boutique or a broker-dealer, you can’t do that.”
The client selection process here was about identifying existing global leaders and those firms that will be in the future. There is still much to be done in the region, even considering the firm’s deliberately tight focus. But the tide is turning.
“There has been evolution on a couple of fronts – the DNA and the culture,” says Chris Gammons, head of Asia Pacific global capital markets. “Eight years on, there is a rhythm in place and a uniform approach across GCIB. No one talks about being former BofA or former Merrill. And we trust our partners.”
BAML hopes that the strategy makes it relevant enough that when a Brazilian client wants to do business with a Chinese utility, for example, the firm is credible on both sides of the equation. That was exactly the case when China’s State Grid agreed the purchase in late 2016 of a 23.6% stake in Brazil’s CPFL Energy – a deal where BAML could have worked on either side but ended up advising State Grid.
What is easy to lose sight of – externally and sometimes internally – is the opportunity to grow in the US, BAML’s back yard. At one end of the bank’s domestic corporate client base are the Fortune 100 and Fortune 200 companies served through GCIB.
Here, bankers across the firm admit that BAML ought to have greater penetration in terms of strategic product. “We have got a lot better, but we are still behind the likes of Goldman and JPMorgan,” says one.
At the other end is the mid-market served by the commercial bank, a potential client base of about 30,000 firms. BAML banks about 10,000 of them in some way, but lacks penetration in terms of investment banking market share. The reason is hardly a mystery.
“We didn’t have enough product expertise and coverage depth dedicated to that market segment,” Meissner says, diplomatically. “If you are an ECM banker, you would probably be more inclined to work on the next $1 billion IPO or corporate restructuring. You may not consistently look for the next middle-market transaction, even though that may be more profitable. So you have to dedicate people whose day job it is to do just that.”
It was the same with investment banking. The assumption had been that it would be possible to service the commercial bank from within the investment banking industry groups, but it just did not work.
[Franchise-enhancing] means a leading role on deals that enhance our relationship with the people that matter- Diego De Giorgi
The answer was to replicate the structure of regional industry and product coverage seen in Europe, but for the US domestic franchise, so the bank now has middle-market investment bankers in US cities, partnering with the existing commercial bankers for those markets. There is plenty of reason to do so. Mid-sized firms in the US are like third-tier Chinese cities: small but big. “Being the bank for Middle America is only getting more important,” says De Giorgi.
Move to the left
The other aspect of growth is what some bankers call the “move to the left”, stepping up from a junior role to a lead. The bank has had success on this across all its capital markets products, but for Meissner, it is in the M&A business where the shift has been particularly effective.
Bankers at the firm concede that there is still much more potential, particularly if they wish to compete with the very best, like Goldman Sachs. “They are the gold standard,” says one. “You have to aspire to be the best, so the answer to the question of: ‘Do we want to be like Goldman in M&A?’ is: ‘Yes, without reservation.’”
What is most striking in the M&A business, however, is that the bank has gone from an also-ran with the occasional pocket of excellence – like Merrill’s old FIG franchise – to being much more credible and involved in many of the biggest deals. A poster-child deal would be the $66 billion acquisition of Monsanto by Bayer, where BAML was a lead financial adviser to the German firm. Buy-side advice led to work in bridge finance, debt take-out, equity and equity-linked.
The fact that Meissner identifies M&A as the area where there has been perhaps most progress in terms of stepping up the importance of the bank’s role is notable.
He and the rest of his team spend much time extolling the virtues of integration within GCIB and yet M&A is the area where all the integration in the world probably is not what moves the needle compared with the constant CEO dialogue that comes from M&A coverage.
Meissner’s longest-serving M&A bankers certainly look at their work this way, and some tell Euromoney that their roles have changed the least of all. The only big difference, says one, is that they no longer have to merely “flash the balance sheet” at a client – they can commit for the longer term, which changes the dialogue.
This goes to the heart of how Meissner looks at the business. It is not that he does not value the rest of the franchise – quite the opposite – but it is more that he sees CEO dialogue and board access as the key to unlock the potential of the rest of the operation. Looked at in this light, investment banking becomes the route to making universal banking work, rather than the other way around.
The blunt truth is that a universal firm that does not have great M&A bankers can have the best treasury engine in the world but will always be a junior in the biggest strategic situations.
Meissner’s tenure at the top of GCIB has arguably been the first real attempt by BAML to get a grip on many of the resources it accumulated through the merger of BofA and Merrill. BofA had the breadth but Merrill had the depth, bringing a strategic credibility to a corporate bank that was lacking much of a corporate bank identity.
BAML’s board has given Meissner plenty of support since he joined. While results improve, one might expect that support to continue. But inevitably, it is the US that dominates the firm. Almost 90% of its assets sit there and it accounted for 90% of the bank’s profits in 2016.
Observers sometimes wonder how long the bank’s commitment to the international franchise will continue, particularly given the conditions that have broadly prevailed in the US for the last decade, compared with the rest of the world, and the strength of BAML’s reach within that economy. Rumours often circulate internally and externally that Moynihan lacks the commitment to international business and to investment banking of, say, JPMorgan’s Jamie Dimon.
The former CEO of a rival investment bank concedes that BAML has a much more global perspective than BofA ever had, with the GCIB structure and its prevalence of London-based global heads. “But the problem is that banking is a business that is just so much more profitable in the US than anywhere else.”
The quickest route to short-term returns would be to focus on the US mid market, give up on global MNCs, forget investment banking and everything that comes with it and simply bank mid-market corporates. Is it too much of a stretch to even consider?
“Resource allocation and the balance between the different places you can put your capital is ultimately at the core of what we do, so our shareholders and our board would be remiss not to ask the question,” argues Meissner. “In fact, if they are not asking the question, our resource allocation would probably be less efficient than it is.”
But to go down that route would mean jettisoning any notion of balance, of a portfolio approach, of a long-term perspective, argue supporters of the current strategy. It would mean abandoning the ability to accompany US clients abroad, as well as giving up on the ambition of being appealing to global MNCs that look to their banks to deliver the US market.
What Meissner does recognize is the need to maintain the culture, although he is confident that the silo mentality at least is dead and buried. Personality-centred silos and empires can be the dangerous flipside of what one BAML product head delights in calling the “bankerpreneurial” approach. Others think back to the old “power alleys”, centred around strong individuals that often seemed to be running their own firms.
“I don’t see that as a risk with the leadership team that is in place across our organization,” Meissner says. “If anything, everything we do is designed to go in a different direction.”
Maintaining that direction will be the challenge. “It’s a big company,” says Meissner. “That gives us many advantages and allows us to pursue our universal banking strategy. At the same time, it is imperative to keep the notion of a start-up culture – staying scrappy, humble, gaining market share without hubris – which has served us well.”
The former bank CEO agrees that this is probably the biggest task for BAML. “I wouldn’t put them at the JPMorgan- or Goldman Sachs-level yet. The challenge is scaling their international business appropriately so that they can deliver the whole bank in a meaningful way without getting bloated. It’s a great work-in-progress, but it remains a franchise that can do better.”
It is a tricky balance. On the one hand, Meissner wants to maintain the collaboration and integration that he has brought to the culture, but on the other he does not want to lose some of the edginess. It sounds like he is making a cocktail with a base of BAML franchise, a measure of JPMorgan and a dash of Goldman.
Those two are certainly the firms that he and his senior colleagues consistently refer to as their closest competition. Many seem a little put out by any suggestion by Euromoney that BAML is sometimes viewed from the outside as a JPM-lite, but equally they are clear that taking on the mantle of their strongest competitor is an ambition.
As one senior banker at the firm says: “We can be proud of our accomplishments. Much remains to be done, but that is the exciting part.”