Investment banker CEOs need to learn new tricks
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.