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The cosy club of European banking

It’s a well-trodden story of hubris and value destruction that has played out over the past 15 years or so in Europe. The sector’s downfall is well chronicled, as is the tale of US rivals that have marched on the continent to steal market share in certain parts of the business.

We are, of course, talking about European banks.

Line chart of Share prices, in £ terms (rebased) showing The underwhelming performance of European banks

But what remains so stunning about the sector — considering its performance — is that many of the top institutions keep hiring from within the same clubby ranks for top jobs.

The latest examples came this week. On Monday, the UK’s Lloyds Bank said that Charlie Nunn, who runs wealth and personal banking at HSBC, would replace its longtime chief executive António Horta-Osório.

Horta-Osório was named on Tuesday as the new chairman of Credit Suisse, having beat out a list of candidates that included Jean Pierre Mustier, the chief executive of Italy’s UniCredit, DD understands.

António Horta-Osório © AFP/Getty Images

Mustier for his part ruled himself out for the top job at HSBC earlier this year and then announced this week that he was stepping down from his role at UniCredit in April. Rumours are swirling about which European bank Mustier may end up at next. Candidates to replace him at UniCredit include former UBI Banca chief executive Victor Massiah

The musical chairs among European banks prompted one close follower of the sector to remark to DD that the industry had been a closed club of people for years, even as little value has been created over time. 

All of this has DD wondering if Europe’s top banks should look for talent outside of its inner circle.

That won’t be without a few obstacles, however. A newcomer would have to possess an executive understanding of the minutiae of banking capital rules and resolution, while also being enough of an outsider to challenge the status quo that has not served investors in banks.

Jean Pierre Mustier © Bloomberg

After Tidjane Thiam’s exit from the chief executive job at Credit Suisse due to a spying scandal earlier this year, the bank appointed a Swiss insider as his replacement. The addition of Horta-Osório, who is Portuguese, is about as far as the Swiss-headquartered institution was willing to go. Promising to move to Zurich was a key prerequisite of the job, DD has been told. 

One bank that tried to break the mould more aggressively was Barclays, which brought in former JPMorgan Chase banker Jes Staley in late 2015 to run the British bank. That has come with its own headaches, even if Staley appears to have managed to hold on to his position. 

Go deeper by registering for the FT’s virtual Global Banking Summit — broadcasting live today and tomorrow — featuring panellists including Deutsche Bank chief operating officer Chandra Mallika and UBS chairman Axel Weber.

Bruno Crastes: no pain, no gain

Before it all started to go wrong for Bruno Crastes, many devoted clients considered the silver-haired and tanned head of H2O Asset Management to be the finest European fund manager of his generation.

Whereas the UK’s fallen star stockpicker Neil Woodford was known as the “man who made Middle England rich” in his heyday, the 55-year-old Frenchman generated outsized returns for a truly international base of investors.

Column chart of Net return (%) showing Bruno Crastes's track record

H2O marketing materials claimed that Bruno made close to 2,500 per cent returns in the 25 years to the end of 2019. During this dazzling run of success stretching across three decades, he won acolytes that stretched from retail investors in France and Italy to professional money managers in Switzerland and South Korea.

In Crastes’ telling, this success hinged on following a “very simple rule” to investing: “If you are not able to get poor, you will never get richer. When you don’t want to lose, you will never make money.”

This “no pain, no gain” investment philosophy is now being put to the test. A year of drastic losses, renewed scrutiny around risk controls, and regulatory difficulties pushed H2O’s majority shareholder Natixis to cut ties.

Regular DD readers will remember that much of H2O’s recent pain stems from one man: Lars Windhorst, a financier who had previously weathered the collapse of two companies, personal bankruptcy, and a suspended prison sentence.

Left to right: Nicolas Namias, the new chief executive of Natixis, Bruno Crastes and Lars Windhorst © FT Montage

When DD’s Robert Smith and the FT’s Cynthia O’Murchu exposed the scale of H2O’s exposure to the controversial financier’s businesses last year, Crastes coolly assured investors that the German businessman was “extremely talented”.

But in a new profile of the troubled star fund manager, the FT reveals that the H2O head has recently conceded to clients that investing with Windhorst has “created more problems than it has created performance”.

Get the full story here on how the suave and charismatic Frenchman is fighting for the future of his €20bn investment group, complete with trips on superyachts and dinners in private members’ clubs.

Gautam Adani and the bankruptcy bidding war

India’s bankruptcy code was hailed as a model reform when it was introduced in 2016, an ambitious attempt to tackle the country’s mountain of bad loans and entice foreign investment.

But the process has been tarnished by messy disputes, slowing down resolutions as ousted owners, creditors and bidders bicker in and out of court, write the FT’s Stephanie Findlay from New Delhi and Benjamin Parkin from Mumbai.

Embroiled in the latest controversy is billionaire industrialist Gautam Adani, one of India’s most powerful tycoons, who has been called prime minister Narendra Modi’s “Rockefeller”.

Gautam Adani and Indian prime minister Narendra Modi © FT Montage

In a matter of years, his group has grown to become a leading player in everything from airports to power, to renewable energy.

It’s now competing alongside global investors such as US distressed-debt group Oaktree and Hong Kong’s SC Lowy for the assets of the insolvent Dewan Housing Finance Limited, one of the country’s largest shadow banks.

The deadline for bids was mid-November. But investors cried foul after they alleged Adani subsequently put in a higher, “unsolicited” bid for all the assets, prompting creditors to vote on whether to have another round of bidding.

Critics argue the subsequent intervention raises questions over the respect for due process in India. “There is too much nonsense going on,” one said, though a person close to Adani said all rules were being followed.

The episode underscores the growing might of Adani, whose success critics say points to the concentration of economic power under Modi as politically connected tycoons muscle aside rivals and enjoy even more success.

Separately, the potential for corporate dominance could be raised even higher, Ben explains in this column, if the Reserve Bank of India goes ahead with a controversial proposal that would allow India’s conglomerates to own banks, giving them even more financial clout in the economy.

Job moves

  • Veteran venture capitalist Michael Moritz was named the next chairman of the Swedish fintech group Klarna. Omid Kordestani, the former executive chairman of Twitter, Sarah Smith, the former chief compliance officer of Goldman Sachs, and Lise Kaae, a former director of Swedish lender Handelsbanken, are also joining Klarna’s board. More here.

  • Law firm Fried Frank has hired Geoffrey Berman, former US attorney for the Southern District of New York, as head of its white-collar defence, regulatory enforcement and investigations practice. He will be based in New York.

  • Owl Rock Capital has hired Amy Ward ­as managing director in the group’s new London office, where she will oversee client services and business development for the European market. She was previously a partner at Pollen Street Capital.

  • Latham & Watkins has hired Rick Kline, Sarah Axtell and Navneeta Rekhi as partners in its corporate department. Kline and Axtell join the firm’s Bay Area offices from Goodwin Procter, while Rekhi joins from Kirkland & Ellis.

  • Law firm Squire Patton Boggs has hired Derrick Cephas in New York. He previously led the financial institutions regulatory practice at Weil, Gotshal & Manges.

  • Weil, Gotshal has hired Shawn Cooley as a partner in its corporate department. He joins the Washington DC office from Kirkland & Ellis, where he was an international trade and national security partner.

Smart reads

Feeding the beast New York City’s appetite for food delivery apps, and the army of gig economy workers behind them, has swelled during the pandemic. But while sales are surging, couriers are struggling to make ends meet as they endanger their health for below-minimum wages without benefits. (NYT)

Supply chain mismanagement Under its former private equity owner CVC Capital Partners, Taminco, a top producer of a chemical used by cartels to make methamphetamine, began a boost to drive sales. When a few shadowy Mexican companies emerged as eager customers, the company turned a blind eye. (Bloomberg)

There’s always a loophole Spacs carry more allure than just avoiding the fanfare of the traditional IPO — thanks to the US Securities and Exchange Commission’s “safe harbour” provisions, management are shielded from blame when multibillion-dollar projections don’t go as planned. (Reuters)

News round-up

Watchdog suspects EY knew it issued ‘factually inaccurate’ Wirecard audit (FT)

Debenhams faces liquidation after JD Sports ends talks (FT)

Airbnb looks to raise up to $2.5bn in IPO (FT + Lex)

UK government to ‘keep a close eye’ on Arcadia collapse (FT)

Nasdaq pushes its companies to appoint ‘diverse’ directors (FT) 

Zoom: Teams building (Lex)

Top ECB official privately called investors, banks after key policy decisions (WSJ)

Tesla to join S&P 500 in one swoop (FT)

U.K. court freezes up to $5 billion tied to alleged Kazakhstan Bank theft (WSJ)

SoftBank buys 10.1% stake in Sweden's Sinch (Reuters)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com


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