The exodus of so many bank bosses may be a warning signal
From Goldman Sachs to UBS, changes in top jobs mark turn of the cycle
This week’s changing of the guard at Goldman Sachs — as Lloyd Blankfein, a former trader, handed over as chief executive to advisory banker David Solomon— has coincided with several other departures from top banking jobs. At BBVA, Francisco González, executive chairman for 17 years, has retired. Bank of America’s investment bank boss Christian Meissner has quit. Andrea Orcel, his opposite number at UBS, has left to be Santander’s chief executive. In recent months, two European heads of US banks — Bank of America and Citigroup — have left, too.
That a handful of senior bankers should resign simultaneously would not normally be so noteworthy. But this is not a normal juncture, either in terms of the state of banking, or the state of the economies and markets that banks serve.
At last week’s annual bank conference in London hosted by Bank of America, participants noted low attendance and a downbeat mood. “Everyone is waiting for something to go wrong,” one conference-goer noted. What that might be is an “unknown known”. Few financiers would deny that equity markets, bond prices, property valuations and lending portfolios are in bubble territory. A consensus seems to be emerging that something will burst in the next 18 months or so. It is just a matter of what.
The clutch of banker moves is to some extent a proxy for that turn of the cycle. At 74, Mr González may not feel like having to manage his bank through another downturn, but some of the other departing bosses are in their mid-50s or younger. Even if disaster does not strike, banks these days are not the exciting places to work they were before the crash a decade ago. Profits are diminished, and capital and conduct constraints tighter. Fixing the problems of the post-crisis years has been these executives’ mission. The prospect of routine management is as unappealing as another crisis.
The challenge in Europe is all the greater. While US banks are doing relatively well, most European rivals are struggling. According to the European Central Bank, the average eurozone bank generated a return on equity of 6.6 per cent in the first quarter of this year, compared with 11.2 per cent for a US bank, judging by St Louis Fed data.
One reason for the gap is the stronger growth of the US economy, spurred by President Donald Trump’s tax cuts. Another is the sheer scale and pricing power of US banks: JPMorgan today boasts a stock market capitalisation five times the size of Santander.
That has put the topic of European bank mergers on the agenda again. Chief executives frustrated by stagnant growth, slim margins and falling share prices seem drawn to the idea. Regulators are sympathetic, too: the ECB likes the idea of a pan-European bank to match its pan-eurozone supervisory responsibility. Yet European bank mergers hardly have a proud history. The biggest such deal, the three-way acquisition of ABN Amro in 2007, helped destroy two of the three: Royal Bank of Scotland and Fortis were only saved by nationalisation.
The decision by Mr Orcel to become Santander’s chief executive singles him out as the only one of the big-name bankers to be moving to another top job in the industry. It also chimes ominously with the M&A theme. While at Merrill Lynch, he advised the Spanish bank as the third acquirer in the ABN Amro carve-up. Though the deal was a success for his client, it was controversial for the broader fallout involved and heralded a global crash within a year. Alongside all the other flashing warning lights out there, this should illuminate another one.