A tale of two US ECM houses


Mark Baker
Published on:

Equity capital markets moves at Citi and BAML say more about the two firms than they do about ECM.


Here’s an odd little scene. A bank with a European equity capital markets franchise that has just had one of its best years moves the head up to a chairman role. But it replaces him with a head from another bank, one whose franchise has been struggling to the point of embarrassment.

It’s not a dynamic you see often, but it has just happened between Citi and Bank of America Merrill Lynch. Ken Robins, who joined Citi in 2009 and has been a part of the resurgence of that bank’s European ECM business, will be chairman. The move will suit him well, and is now fairly commonplace especially as global ECM heads are becoming a rarity.

Replacing him is James Fleming, who has quit as EMEA co-head of ECM at BAML and will be co-head alongside Valery Barrier, Citi’s existing head of France, Switzerland and Benelux. 

What makes it intriguing is that it comes as the two franchises seem to be moving in opposite directions. What’s going on tells us as much about the two firms as a whole as it does about ECM.

Aggressive approach?

Citi has had a mixed history in European ECM, for years never really cracking the top tier. In its quest for market share it used to have a reputation for muscling into block trades with bids that would struggle to clear – mention Siemens/Infineon to certain Citi bankers and a shudder probably still goes through them even 14 years later. 

Some rivals think EMEA capital markets origination (CMO) head Phil Drury has an aggressive approach to the business and might be tempted to take Citi back to its previous strategy, one built on outsized risk. But a renewed focus on IPOs doesn’t seem to back that theory up.

The data is instructive. Since 2000 and until last year, Citi’s best EMEA ECM (including equity-linked) league table position, according to Dealogic, was fifth, in 2007. Most of the time it has hovered around seventh. But last year it finished third, which is also where it stands so far in 2018.

In IPOs specifically, Citi has had a much more volatile history. But in 2017 it ranked top for the first time since 2000, and is also top so far this year. IPOs might be episodic and relatively rare in EMEA compared to the US, but get them right and you eventually dominate in all volume. It’s what UBS used to do. Citi learned this the hard way when it was trying to break into the business through block trades.

Citi’s ranking has been ticking up steadily from its low in 2009, but the results seen now are partly a reflection of three things over the last five years or so. 

As Drury and Falco have shown at Citi, even a good car needs to be driven 

First: hiring. A few years back saw the hires of Barrier, Giacomo Ciampolini for Italy and Malte Hopp for Germany and Austria. Drury was moved to London by global CMO head Tyler Dickson (himself an ECM veteran) in 2015 to shake up the operation there and even rivals acknowledge his drive. He has a stated ambition to build nothing less than the best ECM team in Europe, so expect more hiring ahead.

Second: luck. Citi’s resurgence has come alongside a tough time for European rivals – who, with the exception of Deutsche Bank and UBS in their prime, had in any case never really broken out of their home markets for ECM. The last bank to try to do so was Barclays, but it had to rein in those ambitions in favour of securing leadership in the UK.

Third: sponsors. Even those at the firm would concede that the bank neglected sponsor business in the wake of the financial crisis. That changed with the hire of Anthony Diamandakis from Credit Suisse in 2014 to run the alternative assets group in EMEA. 

So what about BAML? The last time it ranked top in EMEA IPOs was in 2001 – in 2017 it was seventh. That looks bad. It was also seventh in overall EMEA ECM, down from second as recently as 2014, the culmination of a steady post-crisis climb.

Rival chatter

BAML’s fall is harder to fathom than Citi’s rise. There has been plenty of rival chatter about a pull-back from risk at the firm since the Steinhoff margin loan loss (which also hit Citi, among others). The talk is probably exaggerated and in any case it seems a stretch to attribute a failure to perform in IPOs to this – even if Steinhoff did touch ECM more at BAML than it did at Citi, for instance, because of the different ways in which the businesses are organised.

But it’s no secret that BAML has had a tougher time of late on the advisory side, after an impressive period of growth. It’s no coincidence that Citi’s rise has come amid a long and patient push on advisory led by Manolo Falco, the bank’s EMEA CIB head. Could BAML’s advisory performance be feeding through to product areas? It seems perhaps too quick, but weakness there will certainly already be taking up valuable management time and focus. 

And that may ultimately be the more important determinant of success. After all, no one would seriously say BAML was incapable of executing a transaction as well as any other ECM shop. But, as Drury and Falco have shown at Citi, even a good car needs to be driven.