Abigail with attitude: In exile
The wilderness years may be the title of a TV mini-series but it could as easily be a state of mind. I have been thinking about those who are in exile. Obviously potentates such as Zine El Abidine Ben Ali, the former president of Tunisia, come to mind, but might the phrase also apply to senior bankers who are temporarily resting?
The financial crisis of 2008 exposed the frailties of bank chiefs. Boards and shareholders wanted scapegoats. There was nowhere to hide for those who had been running investment banks that ran aground on the pernicious rocks of leverage and greed. Two years on, the waves have closed over. It is very much business as usual at the big financial institutions. Was it perhaps all a bad dream? Then you look at the share prices of some of these firms and you realize: "Houston, we have a problem!" Barclays’ shares, for example, trade for less than half of what they were worth at the peak (spring 2007). This is also true of Credit Suisse and Deutsche Bank shares. Neither of these banks took taxpayers’ money during the crisis so this underperformance is odd. Shareholders of HSBC and JPMorgan have fared better but those who invested in the banks that were bailed out are in big trouble: Citi shares fell from $55 in May 2007 to about $5 today.
So, what is life like for a deposed mogul or former bank chief who has been ejected from the corner office? Is it full of despair and regret: a dark period of brooding over past mistakes? Or is it a wonderful interlude filled with new challenges and less stress? I suspect exile is rarely a walk in the park, which is why most former bank chiefs maintain a low profile. Think Dick Fuld, Jimmy Cayne, Chuck Prince, Daniel Bouton, Fred Goodwin and many others.
I was pondering this subject when a headline flashed across my Bloomberg screen that Naguib Kheraj, the recently appointed chief executive of Lazard International, had left the firm after 32 days to "concentrate on philanthropic activities". This is a remarkably short tenure at the top, even in the fast-moving world of investment banking. Parting is such sweet sorrow, and the official statement regarding this departure does indeed read like a love letter. Kheraj is quoted: "I am very sad to be leaving Lazard, and have not taken this decision lightly. I underestimated the difficulty of managing my external activities in a way that would enable me to be properly engaged in an executive role." Lazard responded: "We understand and respect Naguib’s reasons for stepping down. He was a friend of the firm before he joined and will continue to be a friend. We wish him well."
I am perplexed. Kheraj, a former finance director at Barclays and chief operating officer at Barclays Capital, is a demon for detail and extremely hard-working. Isn’t it odd that a man with such a fine brain could make such a simple miscalculation? Effectively we are being told that Kheraj couldn’t juggle his commitments.
When Kheraj’s appointment was announced, the press release stated that he would "take a leadership role in advising large corporates, financial institutions and sovereign funds in Europe, the Middle East and Africa". Surely, if you agree to take on such a job, you would realize that it was a broad and time-consuming role?
It is not only Kheraj who has stumbled here. One obviously has to question the efficacy of the Lazard recruitment process. But might there be a back-story that we are not being told? In my December column (Abigail with attitude: Over-indulgence and overdrafts), I was dubious that Kheraj and Lazard would have a fairy-tale ending. "Ken Jacobs, Lazard’s chief executive, hopes Kheraj will sprinkle magic dust in the air and all will end well," I wrote. "I am not convinced... Might we be about to witness a plethora of body bags?"
I know my instincts are normally correct but it is rare that I am proved right so quickly. The market has a raised eyebrow about this revolving door. "It reflects badly on whoever sponsored him at the firm," a senior banker told me.
"Kheraj is more of a manager than a client guy," a well-connected source mused. "At Lazard, did anyone, apart from his assistant, report to him? Maybe he had difficulty carving out a client-facing role for himself?"
Rumours circulate that King Kheraj might have clashed with Mighty Mandelson. Lord Mandelson, the former British politician, was hired by Lazard on January 21 as a senior adviser. Kheraj exited less than a month later.
Sources hint that Mandelson has already become a key component in pitching for business in the UK and Europe. Was this perhaps the role that Kheraj expected for himself, only to find the ‘Dark lord’ – and new-found best friend to Bob Diamond – dominating the room? And did Kheraj’s need to shine lead him, as one observer noted, to "aggressively assert himself", an effort that went "disastrously wrong"?
A source close to Lazard insists: "Kheraj did not clash with anybody. Given his considerable commitments to the Aga Khan and other charities, he simply realized he could not fulfil both roles properly." It sounds unlikely. As one former colleague says: "Naguib’s been doing lots of stuff for the Aga Khan since he was in nappies." Or, you might surmise, at least while he held down full-time jobs at Barclays and Cazenove. Kheraj declined our requests for comment.
One is left confused about his future. If his philanthropic activities are so demanding, does this mean that at the relatively tender age of 46 he is dismissing the possibility of any future executive roles? Noble Naguib has had three employers in the past four years: he left Barclays in April 2007 (after a decade), joined JPMorgan Cazenove in the autumn of 2008 and then darted briefly over the Lazard threshold in January 2011. I am all for variety but perhaps this is too much of a good thing. What do you think?
I was stunned when a source whispered to me that James Gorman, chief executive of Morgan Stanley, might face exile if the firm can’t produce consistent results in the next few quarters. Is this damning judgement fair? "Come on Abigail," a source said. "The honeymoon may be over but surely they will give Gorman three years? You must remember the mess that he inherited." I tend to agree with my source but Morgan Stanley’s shares are trading below their stated book value of $31.49 (as of December 31 2010). This is not a vote of confidence.
Profits were up in the final quarter of 2010. However, there was a loss for Morgan Stanley’s common shareholders in the third quarter. Gorman is focused on making Morgan Stanley a power player in private client business. He also wants to improve the securities business by enhancing the trading operations. It’s not proving plain sailing.
Progress in wealth management has not been helped by volatile markets. I am assured that the integration is on target. Nevertheless, in the fourth quarter, despite net new assets of $14 billion, a pre-tax margin of 12% was made, compared with Gorman’s target of 20%. And the jury is out on the fixed-income trading and sales area. Star trader Jack DiMaio was hired in 2009 as head of FICC. He quietly exited late last year. My mole murmurs: "Jack just found he couldn’t get anything done."
What does any self-respecting chief do when the path becomes bumpy? He imposes a senior management reshuffle. Thus in early January Greg Fleming took charge of the private client business (as well as continuing with his original role as head of asset management). And Colm Kelleher, already co-president of the securities business, was moved to London and given responsibility for operations in Europe, the Middle East and Asia ex-Japan. Both men are extremely highly thought of and competent with a capital C. I have a lot of time for Morgan Stanley so I hope momentum picks up. The current strength of the investment banking sector will help the firm as Morgan Stanley is a clear market leader in M&A and equity capital raising.
Then there is the question: when are wilderness years not wilderness years? The answer, of course, is when the individual in question has moved on. In February, I had lunch with Jeremy Isaacs, Lehman’s former chief executive in Europe and Asia Pacific. Isaacs left Lehman shortly before the firm went bankrupt. He did not join Nomura but instead formed an investment vehicle, JRJ Group, with his colleague, Roger Nagioff. In early 2010, JRJ bought Marex Group, a global broker for commodities. The timing was good: for most of last year, commodity trading was the best game in town.
Isaacs was in fabulous form and is obviously thriving outside the big-bank cocoon. I was intrigued that Jeremy and I spent a mere 10 minutes of our lunch talking about the big banks. The topic was a postscript to our much broader discussion.
I am reminded of a wonderful parable a friend told me. In ancient China, a monk determined to go trekking in the forests so that he could be closer to God. After a while, he came to a large, turbulent stream that he could not cross on foot. As the monk could not swim, he decided to build a raft. He spent many days and nights chopping trees and joining planks together. Eventually, he was able to sail across to the other bank. The monk then pondered what to do with his raft: should he leave it behind – after all that work – or carry it with him? The monk decided that he would proceed, albeit much more slowly, with the raft on his back in case he should ever come across another large stream. The monk could not move on. Isaacs has.
By the way, did anyone apart from me notice that all the eminent talking heads at Davos missed the point once again? The World Economic Forum’s annual meeting was held this year at the end of January. Did any delegate raise the possibility of a "Jasmine revolution" spreading throughout the Middle East causing oil prices to hurtle towards $120 a barrel? I don’t remember reading any reports of such prescient prophecies, do you?
In February, I had a quick drink with António Horta-Osório, who will take over as chief executive of the Lloyds Banking Group in March. I have a lot of time for Horta-Osório, who is intelligent without being arrogant and charming without being oleaginous. I feel faint when I think about the challenges facing him as he licks Lloyds into shape. The UK faces an ugly combination of low growth and high inflation. Anorexic interest rates have softened the pain but this could change and Lloyds’ customers could battle with higher debt levels on their mortgages and credit cards.
António moves at a fast pace but he will need every ounce of his ample energy reserves. I was amused to read in a reputable newspaper that, during his first week at the bank, he walked up to the head office building at 6.30am to find the front door firmly locked. After ringing the bell for some time, a sullen security guard appeared and the chief executive designate was able to gain entry. Next morning when António arrived at 6.45, the doors were wide open, receptionists were decorously perched behind the front desk and there were even apparently some poor souls on the trading floor. I believe it’s called ‘leading by example’!
Some things, however, never change. In January, I was basking in the sun in Palm Beach, Florida. One of the resort’s best restaurants is a French brasserie, Chez Jean-Pierre. One evening I was having dinner there and my waiter, whom I know well, pointed out the disgraced press baron Conrad Black at a nearby table. "Didn’t he lose his title?" I queried. "I don’t think so," corrected my waiter: "He’s still Lord Black to me and I’m still Richard to him."
I’m sure Lord Black wishes he could turn back time. We’ve all done things we later regret. But rarely do our mistakes expose us to public humiliation. However, one power couple must be wishing that they had been a little less potent. Recently, The London Evening Standard ran a story with the titillating headline: "Oo-er, missus! Top City PR in sex gaffe email".
The story referred to an email exchange, since seen by Euromoney and which was sent out to a huge number of people in the markets and in the media, between a PR woman at a private-equity house and a journalist on a serious newspaper.
The exchange went:
Her: "Were we careful on Thurs?" Him: "No, I think we epitomised the linear opposite of careful. I did ask if you had any jonnies, but you said: ‘What for?’... Was fun though. When can we do it again?"
The PR executive has resigned and the journalist has been reassigned. I doubt either of them will ever send an indiscreet email again. I chuckled when I returned to the press release that described PR lady’s appointment. "XYZ firm," it states, "devotes great energy...to our communications." PR lady obviously took serving (or should that be ‘servicing’?) the needs of the media to a whole new level.
There is moreover a post-coital postscript. Might the PR executive’s emails have been hacked into and the explosive email sent to so many contacts deliberately rather than in error? Surely by now all executives know that you should never commit anything you wouldn’t want your mother to see to email. That way, what happens in Vegas stays in Vegas.
Finally, congratulations to Roberto Hoornweg, who was promoted in late February to be co-head of FICC at UBS. Roberto joined the firm in early 2010 as global head of securities distribution and had previously worked at Morgan Stanley for many years. I recently had a drink with Roberto and found him to be balanced, bright and open-minded. In fact, most un-bankerish! More on UBS next time.
How was your month? Please send news and views to firstname.lastname@example.org.