Investment banking: BAML winning battles in EMEA, not yet the war

By:
Duncan Kerr
Published on:

US bank is showing signs of real momentum; Astute hires and capital strength key to growth

This month, former Goldman Sachs partner Luigi Rizzo lands at Bank of America Merrill Lynch as head of mergers and acquisitions, Europe, Middle East and Africa.

He will be followed in the autumn by the return of one of BAML’s former rainmakers, Jim O’Neil, as co-head of the bank’s global financial institutions group.

This in itself says much about where BAML sees growth opportunity. But when seen in the context of the flurry of senior hires BAML has made to its EMEA corporate and investment banking business in the past year, it is clear that the US bank is on the charge in a region where it has in the past struggled to punch its weight.

Diego De Giorgi, co-head of BAML's EMEA corporate and investment banking business
Diego De Giorgi, co-head of BAML's EMEA corporate and investment banking business
In M&A, leveraged finance and in regional and country coverage across the Middle East and North Africa, Spain, Portugal, Russia, Germany and the Benelux countries, BAML has been filling senior roles, underlining its commitment to boosting its EMEA corporate and investment banking business, run by co-heads Bob Elfring and Diego De Giorgi.

Aggressively adding risk-weighted assets and deploying capital in the region has been equally important, and supportive of a strategy that is already delivering some results.

In the first half of the year, BAML was ranked sixth for investment banking revenues in EMEA – down two rankings on a year earlier – but for the full-year 2012 the bank achieved its best ever ranking of fourth, according to data provider Dealogic.

Although fourth is out of the medals, BAML’s rise since 2011 has been commendable.

From 10th by revenues in 2009 – the first full year following Bank of America’s agreement to acquire Merrill Lynch in September 2008 – BAML fell outside the top-10 rankings in 2010 before managing to pull itself back up to seventh in 2011.

For many, the catalyst for change was the arrival of Christian Meissner, now head of global corporate and investment banking, in 2010. Meissner was instrumental in helping to merge BAML’s corporate banking and investment banking operations, which is another reason for the bank’s turnaround.

BAML did suffer off-the-chart levels of attrition among managing directors in Europe in the aftermath of the merger with Merrill Lynch, and was hit hard again last year following the defection of Andrea Orcel to UBS, but stability seems to have returned.

"Stopping the bleeding and then injecting new blood in appropriate quantities was an important part of where we are today," says De Giorgi, who himself joined in January from Goldman Sachs.

In addition to Rizzo – a former colleague of De Giorgi at Goldman Sachs – and O’Neil, BAML has in the past year also hired Arshad Ghafur from Nomura to run its North Africa and Middle East business; Joaquin Arenas from Morgan Stanley to run Spain and Portugal coverage; and Alexander Pertsovsky, former chief executive of Renaissance Capital, to run Russia from its Moscow office.

Last year, BAML also hired Toby Ali from Credit Suisse as head of EMEA leveraged finance origination, a business that, together with M&A, composes strategic priorities for the bank.

But it is not just in making astute hires of senior bankers that BAML is underlining its commitment to grow its EMEA corporate and investment banking franchise; it is also putting its balance sheet to work.

"For some European banks the discussion for them is still about shrinking risk-weighted assets," says De Giorgi. "For us it is can we deploy more assets so that the return on assets is high enough. We are not capital constrained."

Partly evidencing this is the fact that since January BAML has been lead financier on the region’s three largest leveraged financings: Virgin Media’s acquisition of Liberty Global; JAB Holding’s buyout of Dutch retailer Master Blenders; and CVC Capital’s buyout of German company Ista International.

It is hoped this combination of talent and capital will help drive BAML’s EMEA M&A franchise too.

In the first half of the year, BAML was ranked eighth in M&A by revenues, according to Dealogic.

"It is clear that where we have needed to make greater strides has been in the most intense relationship businesses, and that is M&A," says De Giorgi.

BAML will need to make great strides too in DCM and syndicated loans, where it was ranked outside the top 10 and 10th by revenues in the first half of the year. In equity capital markets, traditionally a strong business, it was ranked third in EMEA.

League tables however, tell only part of the story.

"What the league tables do not include and is a successful business area for us is the business of derivative overlays," says De Giorgi. "These are not visible in the league tables but are particularly important. Interestingly, if I think about revenues this year, the most important and relevant transactions in derivatives have actually come from our corporate banking relationships and corporate banking activities."

This points to the success so far of the way BAML has managed to combine its corporate banking and investment banking businesses.

"We are now well on the way to forming that combined business," says Elfring, who says that ensuring the success of this combination has been a core part of the bank’s strategy, together with expanding its international non-US business and recognizing that EMEA is a critical market.

He adds: "In the past couple of years we have been executing on that consistent strategy, and have done so without being distracted by big strategic overhauls. That’s important. And that combined with our clear ability and position of strength to commit capital is important too."