Abigail Hofman: "You’re fired."
"You’re fired" is the new "You’re free".
"You’re fired." The punch line of TV business show The Apprentice suddenly has resonance. In the City, heads are becoming decapitated faster than the tumbrils can collect the carcases. Of course no one is ever officially fired in investment banking. And, because most people depart on "mutually agreed" terms, even when the firing gun hasn’t been used, any departure can cause trouble. Remember how Barclays’ share price plummeted when news leaked that the little-known Ed Cahill, SIV structurer extraordinaire, had left the building. "The situation’s too volatile," a mole whispered. "If you fire someone now, everyone assumes you’re looking at a black hole."
By the autumn, firing – sorry, parting company – had become the new hiring, a heady weapon of potential. But are the people holding the strongest cards those actually in the firing line? After all, what’s so wonderful about sitting tight and dealing with the headaches that remain from the heady days of credit exuberance, particularly when you’ve been earning historic bonuses for the past five years? Much better to slink off and lie low for a few months in the Bahamas or perfect your snow-boarding technique in Verbier. The New Year will almost certainly bring new opportunities.
Of course Osman Sermerci, Merrill Lynch’s former global head of fixed income, who lost his job in October, might feel a bit low. His role lasted a meagre 14 months. However, he’s in good company: the tenure of Citi’s co-head of markets and banking, Tom Maheras, is no more and the revolving door at UBS is turning so quickly it’s making me giddy.
In late September, a mole reports mingling with a select gathering of the rich and famous at London’s Serpentine Gallery. The purpose of the evening was to meet New York’s mayor, Michael Bloomberg. Mole was apparently accosted by Huw Jenkins, the chief executive of UBS’s investment bank, who seemed in excellent spirits. The next morning it was announced that Huw was no longer CEO, and had joined the also semi-detached John Costas as a special adviser. (Do they have adjoining offices on a dedicated ‘special advisor’ floor? We’d love to eavesdrop on those conversations.)
Huw Jenkins, the chief executive of UBS’ investment bank seemed in excellent spirits. The next morning it was announced that Huw had lost his job. Judging from Huw’s happy demeanour, my theory is correct: ‘You’re fired’, is the new ‘You’re free’
Judging from Huw’s happy demeanour, my theory is correct: "You’re fired" is the new "You’re free". Bloomberg himself parted company with his former employer, Salomon Brothers, in 1981. At the time, he is alleged to have said: "I’ll get those guys. They fired the wrong person. Wait until they read about me in The New York Times." A quarter of a century later, Bloomberg is a billionaire, he’s mayor of New York, he may be president of the USA and his eponymous terminals are the life-blood of any trading floor. So who’s laughing now? I laughed out loud when I saw the list of London’s 1,000 most influential people in 2007, published by the Evening Standard newspaper. Rifling through the finance category, I shook my head in disbelief. The list was inadequate and incoherent. Why was Jeremy Isaacs, chief executive of Lehman for Europe and Asia, missing while his junior, Anthony Fry, was ranked with a flourish just above Louis Bacon, the founder of Moore Capital. Where was Barclays Capital’s tax guru, Roger Jenkins? Roger can take consolation that he is often featured in the social pages with his glamorous wife, swimsuit designer Dijana. It is so important to be on a list isn’t it? And does it really matter what list?
Anthony Alt of NM Rothschild is out, as is Bruce Wasserstein of Lazard and George Robinson of hedge fund Sloane Robinson. Where is Hans-Joerg Rudloff, the eminence grise of Barclays Capital, who sits on the board of Rosneft? And why is senior Morgan Stanley banker Michael Zaoui feted, whereas his boss, Walid Chammah (who moved to London in September), is not mentioned? Finally, one man who won’t be happy is Anshu Jain, Deutsche Bank’s head of global markets. He is dubbed "up and coming". I would have thought Anshu arrived a long time ago.
This is what happens when you let amateurs comment on financial matters. So I have decided to compile (with the assistance of my erudite editor and an informal panel of bankers who know where the real power lies) my own list of the top financiers in London – those individuals who wield true power and are both feared and respected by their peers. The "Abigail list of London’s ‘it’ (or should that be hit) bankers" is published online now.
In October’s column, I said I was concerned about Merrill Lynch’s third-quarter profits. How right I was. Merrill wrote down $84 billion in the third quarter and posted a loss in excess of $ billion. Stan O’Neal became the highest profile victim of the sub-prime crisis to date. This would seem to put Merrill near the top of a new league table: losses incurred because of the credit crunch. Merrill was the biggest underwriter of CDOs in 2006. One has to assume that Merrill is kitchen-sinking: being very conservative in a quarter where everyone got it wrong so that in future things will look much rosier.
Competitors are rubbing their hands with glee. "Merrill’s risk-management system must still be in nappies," a rival gloated. And don’t forget that arch-enemy Goldman Sachs’s results were glossy, with third-quarter net income rising by 80%.
What is the problem at Merrill and who is to blame? Should we point the finger at chief executive Stan O’Neal or at fixed-income subordinates such as Osman Semerci, and Dale Lattanzio, who left the firm in October. O’Neal was ultimately responsible for the strategic direction of the firm and thus the decision to expand the CDO business must have been blessed by him. A source queried the decision to purchase sub-prime mortgage originator First Franklin. "Who the hell approved that decision? I can’t believe you spend $1.3 billion without checking with the boss." This acquisition closed in December 2006 when it should have been clear that sub-prime was sinking faster than a depth-charged submarine.
The situation is made more complex because in May a new layer of senior management was interposed between O’Neal and the business heads: Greg Fleming and Ahmass Fakahany became co-presidents of the firm. We thus have a bulging pyramid at Merrill and you have to ask who is in charge: O’Neal or the two Fs? If (as I suspect) it’s O’Neal, surely the new structure serves only to obfuscate accountability? I have many friends at Merrill and a deep admiration for O’Neal but I long believed that there needs to be a trader in a more senior position. Fleming and Fakahany are not traders. Their background is investment banking or operations. Merrill needs to fix this lacuna and quickly. A senior source suggested: "The herd’s best move right now would be to hire Anshu Jain from Deutsche and anoint him as the heir apparent." That would certainly set the cat among the pigeons – remember that Jain grew up at Merrill before he followed Edson Mitchell to Deutsche in the mid-1990s.
Respected and collegial commodities trader David Sobotka has been promoted to replace Semerci. Age is back in fashion at Merrill. Sobotka is 50, a generation more senior than 39-year-old Semerci. I have not met Sobotka. I had also never heard of him before October 5. I might be being arrogant – but if I had never heard of him, is he the right man for a tough job in tough markets?
Someone whom I had heard of was Paul Calello, the recently appointed chief executive of Credit Suisse’s investment bank. Paul is close to Brady Dougan, Credit Suisse’s American chief executive. I met Paul at a dinner in London. I was seated on Credit Suisse’s table between two of the Swiss Bank’s most charming senior executives: Russell Chambers and Michael Philipp. "I like Paul," a mole intoned: "He’s one of the good guys." I liked Paul too: there’s nothing pretentious about him, although I sensed a hint of the pugilistic. Paul has the ability to mingle with the little people, like myself, which is always important for leaders. Think Bill Clinton rather than Hillary. Paul and I have a bet on the price of gold. I am convinced that it is going to $1,000 before the end of 2008; he disagrees. I was feeling quite smug about my trading prescience until, a few evenings later, I sat next to Mick Davis, chief executive of Xstrata, one of the world’s largest mining companies. When I described the bet, a look of concern crossed Mr Davis’s face: "I hope the stake is low, Abigail," he said. "Because I think you’re going to lose."
Being a loser is not much fun. As predicted in this column, Barclays lost the battle for ABN Amro. Andrea Orcel, Merrill’s handsome head of global origination, bet the ranch on winning. He decided to remain on the sidelines when Barclays bid initially. Other bankers were dancing around Barclays’ chief executive, John Varley, like moths to a flame. Orcel’s strategy was high-risk, high-reward. When Royal Bank of Scotland’s Sir Fred Goodwin and his continental partners finally entered the fray, Merrill was at their side: sole adviser to the consortium. And now that the consortium has won, Merrill picks up hefty fees and hefty league table volume. All five advisers to Barclays will get no league table apportionment as they lost.
Naguib Kheraj’s bet was less successful than Orcel’s. The former Barclays finance director was meant to leave the bank this spring. However, despite a splendid farewell party at 18th-century private palace Spencer House, Kheraj stayed on at Barclays to coordinate the bid for ABN Amro. That endeavour has failed and sources are speculating about Kheraj’s next career move. At the time his resignation was announced, cerebral Kheraj was rumoured to be considering a move in to private equity. I wrote at the time that when respected finance directors of public companies were linked with the leveraged buyout industry, that had to be the sell signal for the private equity sector. I was right of course but where does that leave Kheraj?
Recently, I have been going through some traumas of my own. I was commissioned by a middle-market newspaper to write about top City women. The upside was that I met some fascinating women, the downside was that the fearful and feared female editor demanded a more voyeuristic style than any financier would ever countenance. "I want anecdotes. I want colour," she shrilled. "When did they buy their first BMW? Did their husbands leave them because they worked too hard? Are their days fulfilled but their nights lonely? Bring me stories about their mansions, their cavernous wardrobes, their Colefax and Fowler-lined underwear drawers." A friend chortled: "Abigail, I’m afraid it’s the irreconcilable clash between business and tittle-tattle."
I was not surprised when a very senior woman at a US investment bank put her Ferragamo clad foot firmly down and refused to cooperate further. The editor dropped her from the feature. The Credit Suisse women, however, endured my questions with good humour and patience. I was highly impressed by Susan Kilsby, chairman of the European mergers and acquisitions group; Nicki Dobinson, co-head of European equities cash trading; and Marisa Drew, co-head of European leveraged finance origination. It is a tribute to Credit Suisse’s culture that the firm has more than one token woman at the top.
A source whispers that if Prince were forced out, Bob Rubin, chairman of Citi’s executive committee, will be asked to step in as a temporary chief executive. Rubin is extremely highly regarded by those who have worked with him. One former Goldman colleague insisted: ‘Rubin is the best risk manager on the street’
I am surprised that there have been so few CEO casualties of the credit crunch. Peter Wuffli lost his job this summer because of the Dillon Read Capital Management disaster. In late October, Stan O’Neal followed suit. The man who looks most precarious now is Chuck Prince of Citi. His "We’re still dancing" comment (made in early July) will be remembered as one of the most unfortunate remarks of the decade. A source whispers that if Prince were forced out, Bob Rubin, chairman of Citi’s executive committee, would be asked to step in as a temporary chief executive. Rubin is extremely highly regarded by those who have worked with him. A former Goldman colleague insisted: "Rubin is the best risk manager on the street." Another Citi insider adds seditiously: "Chuck has the smell of death following him around the building." Chief executives who still had a job were out in force for the annual IMF-World Bank meetings in Washington in October. Their mood can best be described as gloomy verging on the grumpy, and underlings had to tread carefully. "Ken’s testy," a mole whispered. Mole was referring to Ken Lewis, Bank of America’s chief executive, who the day before had delivered a disappointing set of third-quarter results. At the World Bank reception, I spotted senior bankers Paul Hearn of BNP Paribas and Michael Ridley of JPMorgan deep in conversation about the treacherous volatility of month-end revaluations. Ralph Berlowitz and Bill Northfield, Deutsche Bank managing directors, were more sanguine. However, these gentlemen look after Deutsche’s sovereign and supranational business, which must be booming in this risk-averse environment.
At the Euromoney reception, where Brazilian Henrique Meirelles was named central bank governor of 2007, I had a long conversation with the engaging and ebullient René Karsenti, executive president of the International Capital Market Association. René reminded me that I had been pessimistic when we last met at ICMA’s annual general meeting in June. "René," I said. "I’m a perma-bear. I’m more interested in knowing if you are a bear." René’s response was an enigmatic smile and an invitation to attend ICMA’s 2008 annual general meeting, which will be held in Vienna.