Abigail with attitude: Over-indulgence and overdrafts
December is a month for reflection: reflection on what has passed and what might happen.
As I write, it is hard to feel optimistic. Ireland has received a bailout from the IMF and its eurozone partners. Am I the only commentator who questions the efficacy of a monetary union two of whose members teeter on the precipice of bankruptcy? The euro is worth $1.36, some 5% less than in January 2010. This valuation to me is collective lunacy but perhaps helps explain the appeal of gold for some of the most intelligent financiers. John Paulson, David Einhorn, Jim Rogers and George Soros all own tons of the stuff.
For most of this year I thought collective lunacy reigned in the boardroom of UK bank Lloyds. I did not understand why chief executive Eric Daniels was still in charge. It was Daniels, together with the former chairman, Sir Victor Blank, who agreed in the autumn of 2008 to purchase the floundering HBOS. HBOS was a seething cauldron of poison: the commercial loan book, even at that time, looked bad and it turned out to be horrific. Lloyds, which until recently was thought of as the best UK bank (remember Sir Brian Pitman, the highly regarded former chief executive), became a crippled ward of the state unable to pay a dividend to its loyal shareholders. Blank walked the plank last year but Daniels lingered on. This was partly I am informed, because Daniels is a good operational banker and was viewed as a safe pair of hands. I also think it was difficult to replace Blank and Daniels at the same time. Let’s face it, there aren’t many qualified candidates keen to run a stricken, state-supported bank in an era when senior bankers rank lower in the popularity stakes than estate agents, journalists or even politicians.
During the past few months, sources kept whispering that this or that senior banker had been approached to run Lloyds. But the search never seemed to progress. Then in early November it was announced that António Horta-Osório, chief executive of Santander UK, had been appointed as Lloyds’ new chief executive and would formally take over from Daniels in March 2011. The public rejoicing was such that it was if the archangel Gabriel had descended from heaven. On the day of the announcement, shares in Lloyds rallied some 3% and shares in the Spanish banking group wilted by 4%. Some people were surprised at the appointment. Horta-Osório is Portuguese and had worked at the Santander group for the past 17 years. In my May column this year, I had listed a few bankers whose careers I thought had real momentum: the market’s rising stars. He was among this select group: "I expect Horta-Osório to play an even more prominent role in European banking in the next few years," I wrote. "Good commercial bankers are hard to find."
Horta-Osório’s departure is a blow for Santander. He had grown the business substantially from its Abbey National roots and was very much a hands-on chief. Not for him the delicious epitaph I once heard used of a former Barclays chief executive: "He’s so big picture, he’s out of the picture."
Shortly before Horta-Osório resigned, it was confirmed that Santander was planning a partial flotation of its UK operations. Ana Patricia Botín, daughter of Santander chairman Emilio Botín, will take over from Horta-Osório. But I doubt very much that she will be able to proceed quickly with the deal. Sceptical UK investors who have been burnt on numerous IPOs (remember Ocado) will want to see the colour of her eyes and maybe a few quarters’ numbers without Horta-Osório before they buy stock.
Lloyds is a quagmire. This murky landscape may not worry Horta-Osório. But for a while he will be fighting on several fronts simultaneously. He must sort out and stabilize the relationship with the UK authorities: UK Financial Investments holds a 41% stake in the group. Questions swirl as to whether Lloyds might now be split up on competition grounds. Horta-Osório will be good at pouring oil on troubled waters. He is charming but canny and his experience as a non-executive director of the Bank of England will be useful.
Horta-Osório also needs to decide the overall strategy for the institution. I never understood why the bank embarked on a capital markets hiring spree last year. I wrote about this in my October 2009 column. Lloyds’ board must have been delusional to think the firm could compete with more established players. RBS tried this and the outcome was ugly. My advice to the new chief executive: close the whole area down.
Horta-Osório must deal with Lloyds’ toxic-asset portfolio. And finally, he must raise morale and maybe recruit some key staff. This is a challenging "to-do" list that he will relish. I have never been a big fan of Lloyds’ chairman, Sir Win Bischoff. Described by some as a "true gentleman", he failed to impress me during his brief tenure as chairman of Citi. A source murmurs mysteriously: "Win is like a pillow. He bears the impression of the last person who sat on him." As far as I’m concerned, Bischoff’s best achievement is hiring Horta-Osório, although I suspect that his candidature was strongly sponsored by the UKFI. Anyway, the appointment is good for Lloyds and good for the taxpayer and it is good for the UK that high-calibre individuals want to nurse our sick children.
There was some other interesting hiring news. It’s late in the year to hire people in the financial sector, so autumn appointments tend to be City recidivists – bankers who for one reason or another are "resting". Somehow a resting banker doesn’t have quite the ring about it that a resting actor does. John Hyman, the former co-head of global capital markets at Morgan Stanley, is joining hedge fund Cheyne Capital. John had a dalliance earlier this year with Nomura that did not lead to a formal engagement. It is good to see him resurfacing and I look forward to calling on him in due course.
Naguib Kheraj, the former chief executive of JPMorgan’s joint venture with Cazenove, found himself as minister without portfolio after selling the business to Morgan earlier in the year. In October, it was announced that Kheraj would join Lazard as chief executive of Lazard International and deputy chairman of the firm. Kheraj will "take a leadership role in advising large corporates, financial institutions and sovereign funds in Europe, the Middle East and Africa". This wide but woolly mandate is intriguing. A mole whispers that Kheraj has been brought in to reinvigorate the European operation. Apparently, relations between European and US colleagues are not harmonious. And Ken Jacobs, Lazard’s chief executive, hopes Kheraj will sprinkle magic dust in the air and all will end well. I am not convinced. A diary note in the Financial Times the day after Kheraj was appointed hints at discord. The FT noted that Lazard International chairman Ken Costa "was in Scandinavia drumming up business" when the news broke about King Kheraj. The implication of the diary note was that Costa was much too busy attending to client needs to focus on unimportant political developments back at home. Meanwhile what is to be the future role of William Rucker, Lazard’s chief in London? Might we be about to witness a plethora of body bags? A source says: "Those Lazard guys eat what they kill and kill everything in sight."
Despite the depressing events in Europe, one good-news story caught my eye. I was pleased to see that Deutsche Bank, Euromoney’s investment bank of the year, reported good third-quarter numbers. The investment bank did well despite an earlier warning that the figures might disappoint. The group had net income of €1.1 billion excluding a charge for its stake in Postbank. Pre-tax income at the corporate and investment bank increased 11% year on year, which was creditable, especially when compared with other European investment banks.
Deutsche’s securities’ business still dominates the bank, contributing more than 80% of group net revenues in the third quarter, and dwarfs the other businesses. Group chief Josef Ackermann has not made much progress on this issue during the past four years. The acquisition of German retail lender Postbank is a step in the right direction.
December is the time for goodwill and seasonal celebration, which often includes over-indulgence and overdrafts. I hear that my former school, St Paul’s Girls’ School in London, held a Winter fair, to support its bursary pupils. St Paul’s is a "private" school. In other words parents have to pay for their daughters to be educated there. In my time, St Paul’s was an institution with a good academic reputation and an eclectic catchment policy. Today, it has become the destination of choice for daughters of some of the pushiest and wealthiest parents in the financial community.
My mole reports that the fair was an odd affair. Bossy US ‘professional’ moms mingled with dowdy, harassed-looking English mums. A few parents drifted aimlessly and no one seemed to know who they were. Mole assumed these were the parents of the bursary children: suitable recipients of largesse but not of conversation. A few fathers, definitely investment bankers according to Mole, hovered uncomfortably among the cup-cake stalls and scented candles. The daughter of a well-known former Goldman Sachs partner goes to St Paul’s, or is a "Paulina" in the vernacular. When the precious petal was 16, her father chartered a private jet and whisked Petal and six friends off to Paris where they stayed at the swanky Hotel Costes for a memorable weekend.
In my day, the cool crowd, which included the daughter of a Greek shipowner, several scions of the British aristocracy and, surprisingly, me, got our thrills differently. We went shoplifting at Biba, an achingly hip but dimly lit clothing store in Kensington, or skipped lessons to play bridge in the local working men’s café. I am sure we had a much better time than today’s cosseted youth.
I have saved the worst until last. On November 16, Paul Calello, the former chief executive of Credit Suisse’s investment bank, died, aged 49, of non-Hodgkin’s lymphoma. My editor, Clive Horwood, has written a moving obituary of Paul entitled "Why we’ll all miss Paul Calello".
I met Paul about three years ago and we immediately liked each other. But Paul had the ability to engage and connect with all types of people. Paul never thought he was better than you because he was richer than you. I always assumed this was because both his parents were social workers and he grew up in an environment where compassion was valued. Now I think it might just have been who he was.
During the last week, I have been asking myself what it was that made Paul Calello so special. Of course, he was highly intelligent. Of course, he was a dedicated and talented banker who loved his job. Of course, he was one of the few bank chief executives who was more respected at the end of the financial crisis than at the beginning. But it was Paul’s personal qualities that distinguished him. His energy, his humour, his warmth, his courtesy, the fact that you could talk to him about anything, and that it was never about him, even during his arduous 14-month illness, which he fought so bravely.
Close colleagues of Calello have endowed a professorship in leadership and ethics in his honour at Columbia Business School. Paul and I argued all the time but always without rancour and our disagreements never affected our friendship. If more bank chief executives had been like Paul and countenanced different views, I suspect Lehman, Bear Stearns and Merrill Lynch would still be independent firms. Leadership, ironically, is often about listening to the opposition rather than surrounding yourself with adoring acolytes.
The first time I met Paul, we made a bet. I told him the price of gold, then about $770 a troy ounce, would breach the $1,000 level. "Nonsense," he scoffed. Gold has nearly doubled in price since our bet. Two months ago, when he must have known that he was dying, I received an email from Paul: "I hope you bought gold when we first discussed it!!" As I said, it was never about him.
There is a phrase that I’ve heard often but never fully understood: "The best die young". With Paul Calello’s death, I now know it to be true.
How was your month? Please send news and views to Abigail@euromoney.com.