John McNiven started in banking in Australia in the early 1980s with the leading merchant bank, AUC, in Melbourne, in which Morgan Guaranty (today called JPMorgan) had a big stake.
He got a break within three months when Morgan Guaranty sent him to New York on its commercial banking management programme.
He was part of quite a class. McNiven recalls: “I shared a desk with Bill Winters [who later ran investment banking at JPMorgan and is now chief executive of Standard Chartered] and TJ Lim. At the end of the course I was asked to stay on in New York, and together with TJ Lim, I was assigned to the derivatives team.
“I remember sitting there trying to figure out what that meant.”
It meant the start of a period of great innovation.
Bank financing then was floating rate. Morgan Guaranty pioneered provision of fixed interest financing, using swaps, which precisely matched the same dated liabilities of issuers who wanted to switch between fixed and floating.
It wasn’t terribly sophisticated: small IBM desktops, handheld calculators and manually generated spreadsheets.
“There was a rather sarcastic but very bright woman who was in the mathematics team managing the derivatives portfolio,” says McNiven. “I found her very intimidating. I remember once seeing this huge screen on her desk, around 1988, that was bigger than she was and asking: ‘What is that?’ ‘It’s called a Sun Microsystem, loser,’ she told me. ‘They’re going to be the most valuable company in the world and I am a seed investor’. She was right about that, I suppose.
“This was the advent of advanced technology in finance. People often overlook how late technology came to finance.”
Markets that were once closed were beginning to open up. McNiven was put in charge of Australian dollar and New Zealand dollar swaps and recalls the excitement of doing the first ever deal in New Zealand dollars for a foreign issuer, Belgium’s Bacob Bank.
Morgan Guaranty also helped develop non-dollar securities in the US domestic market.
It was a time of creeping deregulation.
“Remember, Morgan Guaranty hadn’t been allowed to lead manage bonds itself since Glass-Steagall in 1933,” he says. “But Walter Gubert [who later chaired JPMorgan in Europe] had a great contact at Bear Stearns in New York, which had strong retail distribution. And so we would bring them issuers, structure deals that delivered boatloads of Libor-minus financing and they would have the responsibility as the lead manager.”
Oh, the irony.
I rang my contacts in Lebanon and said: ‘Look, we need three weeks with no bombs, if that is at all possible’- John McNiven
In 1988, McNiven, Lim and three other colleagues joined Conrad Voldstad at Merrill Lynch in London. Edson Mitchell wanted the JPMorgan team to drive it up the league tables in Europe and they took it to number one within four years.
“The turning point was probably leading the first-ever global Canadian dollar bond, which was for Ontario Hydro,” says McNiven. “Ontario Hydro had a huge annual financing requirement and had to visit smaller markets, like sterling and Swiss francs, to fund long-term projects, which brought enormous hedging risk. If you were going to sell Canadian dollar bonds in the US, you had to put bearer bonds in a truck and drive them over the border. It was so inefficient. By linking clearing between Canada, the US and Europe, we took this small market and made it much bigger.
“When we explained the C$1.25 billion global, one of the Ontario Hydro treasury team said: ‘It’s just a shame we needed a bloody Australian to tell us how to do it.’”
The era of global bonds had dawned, bringing bigger deals than ever before.
But his favourite deal was for Lebanon, when he got to know the billionaire businessman Rafic Hariri, sadly assassinated in 2005 but then the country’s first prime minister after the civil war. Hariri turned to the Eurobond market to fund the reconstruction of Beirut.
“Lebanon had never defaulted and the local currency was always convertible,” says McNiven. “He was such a passionate man who desperately needed the money to rebuild. And he didn’t care whether you were Sunni, Shia, Christian or whatever you were. He was one-for-all, all-for-one.”
The firm’s credit and risk committees both turned the deal down.
“So, I flew out to New York to see senior management and told them: ‘Look, we can get this deal done, we’ve got to get it done. We can show the world that access to international finance can make a major difference, provided you are honourable and play by the rules.’”
The response was: “‘OK, you can do it. But if anything goes wrong, you’ll never work again.’
“I rang my contacts in Lebanon and said: ‘Look, we need three weeks with no bombs, if that is at all possible’,” says McNiven. “There weren’t any in the run up to the deal and it was a huge success for the people of Lebanon. It proved capital markets can be a force for good, as they can provide much needed funding for infrastructure, health and education. They can even stop fighting.”