The top level of investment banking is notoriously a Game of Thrones, where seeming colleagues are in fact engaged in all manner of intrigues and office politics to reach a position of first among equals. But there is one main rule of the game – he, or she, who is closest to the biggest potential fee pool is the king, or queen of the hill for the time being.
And that means that in order to understand the power struggles at the top, you need to understand the stage of the cycle. The capital markets and advisory business, as a rule of thumb, is usually in one of three phases. It’s in a tech cycle. It’s in a natural resources cycle. Or it’s in a financial institutions group (FIG) cycle. Going into 2018, it looks like it’s likely to be in a FIG cycle.
The banking industry now has a stable set of Basel Accords to aim at, for the first time in ten years. Even more than this, we have a public policy environment in Europe which is actively encouraging M&A activity. We will also see a substantial change in the rules on securitisations, which is specifically aimed at resurrecting a market which is currently moribund, but which accounted for US$450bn of annual issuance within living memory.
But wait, there’s more. The finalisation of the TLAC and MREL standards for bank unsecured debt means that a significant proportion of the sector’s outstanding bonds need to be refinanced, and the introduction of Basel 4’s “output floor” for internally modelled capital requirements means that there are now three potential constraints on bank capital, tripling the opportunities for regulatory arbitrage transactions. And the insurance industry has regulatory change of its own through Solvency II. And then there's the fact that FIG will have at least as good a claim as Tech for whatever response the industry makes to the ICO and cryptocurrency gold rush...
All of this suggests that the new power brokers in investment banking divisions (IBD) will be the Heads of FIG at banks which are prepared to make an investment in chasing the growing financial fee pool. Within FIG, the regional franchises in EMEA will be in the spotlight. Expect, therefore, to hear a lot from Max Mesny and Armando Rubio-Alvarez, recently promoted co-heads of FIG EMEA at Credit Suisse. Or from Jose Enrique Concejo at SocGen, recently promoted to global head of FIG. BAML appears to be a little ahead of the curve here, promoting Jim O’Neil from Global FIG to co-head of all EMEA investment bankin[, although the loss of Henrietta Baldock as chair of European FIG may leave a gap
These high-level moves are likely to prefigure considerable hiring and firing activity among the MD and ED ranks as the new head bankers start to set their priorities for the 2018 fee pool. Even at the boutique level, former HSBC FIG banker Ben Leonard appears to have been enticed back from his organic vineyard to set up a fintech boutique called Meta.
Dan Davies, is a senior research advisor at Frontline Analysts and a former banking analyst at Cazenove, Credit Suisse and BNP Paribas.
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