1 May: Lehman's Board; Jeremy Isaacs: BoA; Studzinski; Rainer Stephan

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By:
Abigail Hofman
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In this edition, don't miss: Abigail's opinion of Lehman's Board of Directors and of Jeremy Isaacs' realm; her advice to Bank of America on investment banking; the details of HSBC's Studzinski's glam 50th birthday party; and hats off to Rainer Stephan, chairman of Barclays in Germany.

Abigail's biography
Lehman: Isaacs' realm; Lehman's Board of Directors
Bank of America's global franchise
HSBC: Studzinski's 50th
Barclays: Rainer Stephan

Please, write something nice,” my editor pleaded. “Must you assassinate everyone straight through the heart with your stiletto?” Well, even by my high standards, Lehman Brothers, Euromoney’s choice of best investment bank in 2005, is on a glittering trajectory.


First-quarter profits were good, showing a 24% increase in net income to a record $1.1 billion, although they seemed drab when juxtaposed with Goldman Sachs’s spectacular results. Perhaps most important, Lehman is successfully diversifying away from its traditional fixed-income niche. The firm was ranked seventh in global M&A for 2005 and placed fourth in the 2006 first-quarter global announced M&A league table. That’s good news for an already happy group of shareholders, who have benefited from a doubling of the share price during the past two years.

Dick Fuld, Lehman Brothers
Lehman is to be commended for at least one thing: in an industry that worships youth, the Brothers’ board is a shining beacon of non-ageism
In Q1 2006, Lehman generated some 40% of its revenues from outside the US, with Asia Pacific revenues growing by 70%. Jeremy Isaacs, the firm’s chief executive in Europe and Asia, should be dancing a jig of joy. “He’s done well,” a rival told me. “In retrospect, it was a good move not to pay up for Cazenove when they decided to auction themselves to the highest bidder in 2004.”


Ah yes, I do recall hearing about a clandestine dinner between Isaacs and tall, dark and handsome Robert Pickering, Caz’s chief executive. I wonder if the two great men discussed Pickering’s potential role in the new organization?

Call me cynical, but I am convinced that what drives most of these banking liaisons is jobs for the boys. However, one mustn’t be too hard on Robert. He has just endured that most horrendous of afflictions (which all bankers secretly dread): an ED or, for the non-initiated, an expensive divorce. It’s so heart-breaking to see all those millions end up in her bank account, isn’t it?

Perhaps Isaacs didn’t buy the firm because he took the view that Cazenove’s strength was domestic UK corporate broking and this expertise was rapidly becoming redundant. In the 21st century, the investors who count are hedge funds, and was Cazenove in this flow? I agree with Isaacs. No one has ever explained to me satisfactorily what a corporate broker does all day long. But they probably feel the same about journalists. Ultimately, JPMorgan captured the Cazenove prize. There are mixed reports about how this blue-blooded joint venture is faring. I promise to lift the kimono in a future column.

Instead of forking out on an entire firm, Isaacs went in to recruitment mode and hired a number of A-list investment bankers. The roll call is long and includes Anthony Fry and William Vereker in Europe, as well as Zhizhong Yang and Masaru Shibata in Asia.

Isaacs is achieving results. Recently, Lehman has been involved in several high-profile European deals, such as the bidding war for the London Stock Exchange, and ABN Amro’s purchase of Banca Antonveneta.

One question lurks at the back of my mind: if Isaacs’ empire is notching up successive successes, what is the need to hire Andrew Gowers, ex-editor of the Financial Times, on a stupendous stipend? And what will Gowers’ remit actually be: corporate communications, brand development, or perhaps just chief of staff to the increasingly important Isaacs?

For all Isaacs’ prowess in Europe, the brand of Lehman Brothers is inextricably linked to one man: Dick Fuld, the bank’s chairman and chief executive. Fuld has been at the firm for 37 years. Often dubbed “tough as nails”, he is regarded by competitors with a grudging mixture of respect and fear.

Now no single individual, however tough and clever, can create success on his own. Often, such benevolent dictators rely on the counsel of a close group of advisers to help keep them on the straight and narrow. Scanning Lehman’s board of directors to discover the type of individual Fuld surrounds himself with, I pursed my perfectly painted lips. Rarely have I seen such a motley collection of the great and the good. Nevertheless, Lehman is to be commended for at least one thing: in an industry that worships youth, the Brothers’ board is a shining beacon of non-ageism. Sprightly seniors abound and half the board are septuagenarians.

My lack of conviction about the make-up of this group might, I admit, be prejudiced because Christopher Gent, the former Vodafone chief executive, is one of them. I am underwhelmed by Sir Christopher, who seems to waft along on the tide of his own PR machine. I shed no tears in March when he stepped down as Vodafone life president (a ridiculous title that shrieks of hubris). Gent’s grandiose acquisition of Mannesmann in 2000, for which he paid some $200 billion, left me gnashing my teeth with rage. It proved disastrous for Vodafone shareholders, albeit delicious for Gent’s own net worth. Remember how he received a £10 million special bonus merely for doing the deal?

I am also sceptical about another Lehman director: 74-year-old Thomas Cruikshank, retired chairman and CEO of oil services company Halliburton – the company forever associated with George W Bush’s inner cabal. Let’s hope the Halliburton connection won’t lead to any quail-hunting invitations for Dick Fuld from another former CEO of the company, US vice-president Dick Cheney, whose errant ways with a shotgun have prompted much hilarity among my friends in Washington. “I had a terrible nightmare. I dreamt I was at a Washington party and I had to choose between Dick Cheney taking me on a hunting trip or Ted Kennedy driving me home,” quipped one.

At least there’s one member of the Lehman board who ought to be able to put together a first aid kit from available flora and fauna should something go awry on any bank offsite. Marsha Johnson Evans is a retired rear admiral of the US Navy and served for four years as the national executive director of Girl Scouts of the USA (I suppose someone has to do it). In addition, Marsha is a director of WeightWatchers.

All admirable achievements I’m sure, but remind me again how these activities relate to investment banking? What’s more, to my eyes at least, Dick Fuld has managed to keep a rather lean and mean physique despite the undoubted pressure on the waistline of all those client dinners. Nonetheless, I’m sure such a doughty and distinguished dame contributes enormously to the debate around the Lehman’s board table.

Talking of weight, has anyone out there seen ‘Big boy’ Michael Sherwood? I had a nodding acquaintance with Mike while he was head of Goldman Sachs’s London debt syndicate in the early 1990s. I always liked him. But before he had to emerge briefly from his shell to explain why Hank Paulson had clipped Goldman’s wings in the UK M&A business, a colleague scoffed: “Everyone knew Woody in those days. But now he doesn’t talk to the press. He zooms about in his private jet seeing clients and doing deals. We all thought when he became co-chief executive for Europe, this would be a more public-facing job. Apparently not – he’s still a phantom.”

Obviously Woody’s priorities are clients and making money for the firm. He thus has limited time for chattering with lowly members of the fourth estate. So perhaps one of his colleagues can provide an answer to that burning question: is Michael thin or tubby these days? I saw a picture of him a while back looking positively waif-like. Indeed, if any reader has sighted Sherwood recently, please let me know. Is it worth establishing a special GawkerStalker.com website for Woody? Alternately, maybe Michael could find a little time in his jetset lifestyle to renew our acquaintance (“Come in Woody”: abigail@euromoney.com).

Ken Lewis, Bank of America
“Bank of America does what it says on the tin. It is a national retail bank”
Another institution (because, let’s face it, Woody is an institution in his own right) missing in action seems to be the Bank of America. In the US, BoA is a behemoth – the second-largest banking company in terms of earnings and assets as of year-end 2005. But the deeper you dig, the dimmer things look. BoA is very focused on its domestic franchise. An ex-employee puts it well: “It does what it says on the tin. It is a national retail bank.” The bank is thus heavily exposed to the faltering American housing market and the indebted US consumer, who during the past decade has been busy converting his home into an ATM.


Poring over Bank of America’s 2005 Investor fact book (all 90 pages), I could find no geographical breakdown of either revenues or profits. This is odd since the ubiquitous buzzword in finance is globalization. The purchase last June of a 9% stake for $3 billion in China Construction Bank, China’s second-largest commercial bank, was also bizarre. What do the good citizens of Charlotte, North Carolina, where BoA is based, know about China? Is there a good cultural and strategic fit here? Will Bank of America managers be a match for the canny Chinese?

After all, the bank’s other foray abroad – its many and to-date ill-starred attempts to plant a European footprint – seems to have collapsed with a whimper. A well-placed source sighed when I mentioned the US household name. “What a waste,” he intoned. “They are mega in the US yet lack credibility in Europe. They made a great flurry about hiring high-powered people a few years ago and now it’s all fizzled out. I have the impression most decisions are made in Charlotte. And does Charlotte do international?”

BoA’s investment banking franchise looks weak compared with those of other top financial conglomerates. In 2005, its global capital markets and investment banking division contributed only 11% of net income, whereas the number was more than 30% at Citigroup (and HSBC’s investment bank made 25% of the group’s pre-tax profits).

Does Ken Lewis, Bank of America’s chairman and chief executive, deliberately want to contain the investment banking effort? Perhaps he views investment bankers as overpaid, transaction-oriented toadies? I would argue, however, that for Bank of America to become world class, it needs to rethink its lackadaisical attitude towards investment banking.

BoA’s figures for Q1 2006 show a 14% fall in investment banking profits while competitors were making hay. Lewis told analysts he had spent $500 million hiring traders and sales teams for the division.

Will it make any difference? When the bank really puts its mind to something, it can achieve things. Anyone doubting this need only look at Euromoney’s latest benchmark survey of the foreign exchange market, published this month. In a short couple of years, BoA, under the sophisticated watch of global head of FX Christiane Mandell, has gone from nowhere to become one of the 10 largest FX banks in the world.

So here’s my advice to Ken: before you pour more money in to China, get it right first in Europe. It’s nearer home. And if you base the effort in London, at least you speak the language. If you don’t fancy acquiring another institution, why not hand-pick a few classy individuals with outstanding pedigree? Luring a Bob Diamond of Barclays Capital or Anshu Jain of Deutsche Bank and some of their top lieutenants seems a ludicrous ambition but it’s the kind of vision BoA needs if it ever wants to punch its weight on an international scale. It would probably cost you as much as a small regional European bank once you’ve factored in three-year guarantees, golden hellos and tarnished goodbyes to existing stock options. But you would definitely receive change from $3 billion. Surely, you have more in common with these guys than Guo Shuqing, the current chairman of CCB? I wonder whether BoA has missed a trick by promoting Jonathan Moulds as the new president for EMEA and Asia, replacing William Fall. And what do you think?

John Studzinski, HSBC
Studs talks of “running up and down the Strand at three in the morning counting homeless people”

My first column had just hit the news-stands. I crouched behind the desk as howls of rage reverberated from HSBC’s headquarters. Last month, I criticized HSBC for appointing co-heads at its investment bank. One of these co-heads, the highly paid John Studzinski, narrowly avoided defenestration earlier this year but cajoled his way back in to favour.


The phone rang. It was a former Oxford classmate who regaled me with details of a four-day fiesta that Studs had organized in Austria for his 50th birthday. Glamorous guests including Caroline Kennedy and the chief executive of BP, Lord Browne, were flown to Salzburg where they gorged on caviar while watching a spectacular firework display. Delicious titbits abound: the Leopoldskron Palace transformed in to an Indian temple, mountains of flowers, 200 staff dancing attendance and a singing Sound of Music birthday cake. The cost? Allegedly a mere £3.5 million.

This Austrian extravaganza sits uneasily with the frugality for which HSBC’s senior management is renowned. In a recent Financial Times interview, retiring chairman Sir John Bond explains that the bank bottles its own water because “it’s cheaper”.

The Salzburg saga also seems a long way, geographically and spiritually, from the London soup kitchens where Studzinski is reputedly a regular volunteer. Of course Studs can spend his money and his time as he pleases and he undoubtedly supports more charitable causes than most bankers. In the April edition of an obscure financial publication he talks of “running up and down the Strand at three in the morning counting homeless people”. The mind boggles. And I must confess that I prefer to be tucked up in bed at that hour.

Rainer Stephan, chairman of Barclays in Germany
Rainer waved a hand self-deprecatingly and talked about controlling football hooligans at forthcoming World Cup matches
Some girls are shoe fiends, some love bags; my passion is hats. And as winter is replaced by balmy spring, I doff my cap to Rainer Stephan, chairman of Barclays in Germany. In addition to his many banking responsibilities, Rainer was recently appointed an honorary consul in Frankfurt for Her Majesty’s UK government.


Rainer is one of the best investment bankers in the market and is held in the highest esteem by clients and colleagues worldwide. “He’s an exceptional person,” one major borrower told me.

Rainer himself was vague about the exact duties associated with his new role looking after British citizens abroad. He waved a hand self-deprecatingly and talked about controlling football hooligans at forthcoming World Cup matches. An optimist, I look forward to glamorous cocktail parties and black-tie balls in Frankfurt.

Rainer Stephen profile (Euromoney October 2000)

Send me your input and feedback (abigail@euromoney.com) and let me know what’s on your mind.

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