Investment banker CEOs need to learn new tricks

September 28, 2010

It’s as if the credit crisis never happened. Despite being one of the most vilified professions on the planet, investment bankers are taking charge of some the world’s largest financial institutions. The promotions are not as barmy as they may seem. But if regulators and investors get their way, the new bosses will quickly need to learn some old-fashioned retail banking skills.

The latest name in the frame is Andrea Orcel, one of the leading contenders to take the top spot at UniCredit . If he lands the job, the Merrill Lynch dealmaker be the third investment banker to be appointed CEO of a large European lender in a month,following the promotions of Stuart Gulliver at HSBC and Bob Diamond at Barclays .

Other investment bankers who have risen to the top since the crisis include Oswald Gruebel, the former Credit Suisse boss now in charge of UBS; Royal Bank of Scotland chief Stephen Hester; and Vikram Pandit, the ex-Morgan Stanley executive who runs Citigroup . None of these six giant institutions was previously run by an investment banker.

Though the promotions may horrify some politicians, they are not without logic. Investment banking remains a large and profitable business for most banks. Barclays Capital generated four-fifths of its parent’s pre-tax profit in the first half. At HSBC, the investment bank accounted for half the total.

Senior investment bankers who have survived so far also tend to have a good understanding of markets and risk management. Diamond and Gulliver were instrumental in steering their employers through the crisis. Those skills are equally important today.

Many assume that the new chiefs will look to expand their old empires. This looks unlikely. Investment banks are already being squeezed by higher capital charges and new rules that will make trading businesses less profitable. Volumes are also slowing: analysts at Morgan Stanley reckon that most investment banking divisions earned a post-tax return on capital of just 5-10 percent in the third quarter.

Investors would prefer most banks to shift the balance towards retail and commercial banking, where returns are less volatile. Barring another boom, the rise of the investment bankers may signal the high water mark for their trade.


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Sooooo, what you’re saying is that a leopard can change his stripes??? Wanna bet????

Posted by edgyinchina | Report as abusive

“Tricks” are indeed what some of them used in their previous incarnation as investment bankers.We can only hope for all our sakes that the new “tricks” that they learn will include less reliance on fancy schemes that are more worthy of Ponzi schemers than of venerable banking institutions.

The promotion of these investment bankers to CEOs when as you note,”None of these six giant institutions was previously run by an investment banker,”
may actually be quite ominous.It may suggest that some may have already forgotten the painful events of 2008.

The good news is that none of those you listed are from either JPMorganChase or the now defunct Lehman.

Posted by MHB | Report as abusive