Macaskill on markets: The European bank random CEO generator

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By:
Jon Macaskill
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Freshly empowered European bank chairmen are making perplexing lurches as they search for new chief executives. A random CEO generator might help.

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The global financial crisis led to a divergence in bank governance trends on either side of the Atlantic. US banks recovered faster than their European rivals and many firms retained the practice of combining the role of chairman and chief executive.

Entrenched leaders can often pick a successor, as Lloyd Blankfein did when he chose David Solomon to head Goldman Sachs and Jamie Dimon may do if the day ever arrives when he decides that running JPMorgan has become too tiresome.

In Europe, the post-crisis weakness of many big banks led to a consensus that the roles of chairman and chief executive should be split. This was accompanied by the emergence of a new breed of chairman with a mandate to exert closer control over the chief executive, including determining the timing of a CEO replacement.

As with many corporate governance fashions, there are logical reasons for this shift. But the decision-making process of some of these new uber-chairmen is starting to look arbitrary and counterproductive.

HSBC

HSBC is one example of a bank where a strong-willed head of the board is making apparently capricious decisions in forcing change among the senior executive ranks.

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Mark Tucker, HSBC

Mark Tucker ejected HSBC chief executive John Flint last year in an abrupt manner that suggested that the chairman had not thought very far beyond his annoyance at Flint’s ineffectual delivery of strategic change.

HSBC’s commercial bank head Noel Quinn was given the odd role of interim chief executive and set about trying to impress Tucker with an air of urgency that included ushering veteran investment bank and markets head Samir Assaf to the exit.

Quinn was the nominal point man for the announcement of an acceleration of cost cutting and further rebalancing of HSBC’s focus towards Asia in February. But Tucker took the presentation stage before Quinn – another signal of who is really in charge at HSBC.

And soon after the business update was delivered – and greeted with a distinct lack of enthusiasm by investors – reports emerged that UniCredit chief executive Jean Pierre Mustier was being considered by Tucker as an alternative to Quinn as the next CEO of HSBC.

Mustier then publicly spurned Tucker with a statement that he would remain at UniCredit, giving HSBC the dubious distinction of having both a chairman and a chief executive with growing credibility issues.

A trend towards impulsive decision making was also seen in the appointment of Ralph Hamers as next chief executive of UBS.


There is a perception that Barclays hired the wrong JPMorgan veteran when it appointed Staley as chief executive in 2015 and that Bill Winters, now the chief executive of Standard Chartered, would have been a better fit 

Axel Weber, the dour chairman of UBS, is not a man who is often accused of being flighty or prone to following fashions. The former Bundesbank head projects an air of Teutonic rectitude and is widely believed to have declined to be the German nominee for European Central Bank (ECB) president in 2011 because he objected to plans for quantitative easing.

The central bank’s loss was Europe’s gain, as Mario Draghi instead took over at the ECB and deployed policy flexibility to avert a looming regional financial crisis.

Weber’s stint at UBS has mostly been a success, however, as he supervised a shift to downgrade investment banking and emphasize wealth management that was made while many other European banks were muddling along with business models that barely changed after the 2008 crisis.

Weber also drew plaudits for his firm treatment of mercurial investment bank head Andrea Orcel, who tried to broker a deal for UBS to pay some of his deferred compensation in an ultimately botched move to become chief executive of Santander.

Weber stuck to the legally unimpeachable position that UBS did not owe Orcel a Swiss cent in the event of a voluntary departure. When Orcel departed anyway the main question became how he imagined he would get a golden goodbye from his forbidding chairman.

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Ralph Hamers

But the appointment by Weber of ING banker Ralph Hamers to succeed Sergio Ermotti as UBS chief executive was an unexpectedly quirky choice that is arguably due to the current fashion for lauding any financier who can deliver a convincing pitch about the digital future. 

Hamers lacks experience running a significant wealth management business, which will present challenges in overseeing the preeminent global franchise at UBS. It is already looking like 2020 may be tough for wealth management revenues, which could produce tensions between co-heads Iqbal Khan – recruited from Credit Suisse last year – and veteran US manager Tom Naratil.

There was also plenty of drama surrounding the replacement of Tidjane Thiam as chief executive of Credit Suisse in February, although chairman Urs Rohner seems to have decided that the best way to move beyond the unwanted excitement of Thiam’s last year in charge was to choose an uncontroversial Swiss candidate in the form of Thomas Gottstein.

If ‘Back To Boring’ is the new motto at Credit Suisse, at least Rohner is likely to save some money on chief executive compensation with his new appointment, just as UBS is unlikely to bump pay for Hamers to the same level as departing chief executive Ermotti – who earned close to 10 times as much as his Dutch replacement was paid at ING.

Barclays

There are also potential savings on offer for the board of Barclays, as the search for a chief executive to succeed Jes Staley gets under way.

Barclays is currently indicating that Staley will step down in 2021, in an attempt to project an air of orderly change. Staley may be forced out sooner, however, if UK regulators decide that he was less than frank in disclosing his ties to disgraced one-time financier Jeffrey Epstein.

There is a perception that Barclays hired the wrong JPMorgan veteran when it appointed Staley as chief executive in 2015 and that Bill Winters, now the chief executive of Standard Chartered, would have been a better fit.

Winters – and later current JPM co-president Daniel Pinto – deserve more credit than Staley for the gradual evolution of JPMorgan’s investment bank into the dominant global revenue generator it is today.

But both Winters and Pinto would have to be highly compensated to take over Barclays and Pinto might still hope to succeed Jamie Dimon at JPMorgan, despite signals that a younger woman may be the preferred choice for next head of the biggest US bank.

Barclays chairman Nigel Higgins is in some ways a throwback to an old-fashioned board head – a safe pair of hands, rather than a strongman executive like his predecessor John McFarlane, who earned the nickname Mack the Knife.

Higgins will no doubt be keen to avoid a debacle like the botched attempt to hire Andrea Orcel by Santander chairman Ana Botín. He will also be keenly aware that activist investor Edward Bramson can be expected to condemn any chief executive appointment that involves paying deferred compensation to an investment banker.

There is one veteran potentially available who combines experience of investment banking with knowledge of the inner working of Barclays, in the form of Jonathan Moulds.

A stint as chief operating officer at Barclays for Moulds was cut short when Staley was selected as chief executive in late 2015, but another crack at the top job would tick a number of boxes, including avoidance of a need to buy out an existing banking contract.

Or Higgins could simply crank up the random European bank CEO generator and see which name it spits out.