Creditflux Newsletter

The US car market has perked up nicely after the government introduced its cash-for-clunkers scheme, taking ageing rust buckets off the road and boosting buyers’ ambitions to own a new Toyota Corolla or Chevrolet Cobalt. The amount of new cash is small, but the multiplier effect has been impressive.

Something similar has been happening in another sector of the global economy: the market for financial market talent, especially in credit. Here, the influx of new capital has come not from governments but from commercial banks in Asia and Europe, puffed up by ambitions to become players in investment banking.

It may seem a little harsh to compare a fixed income distribution specialist possessing a wealth of experience in executing complex structured finance transactions to a beaten-up 1998 Ford Explorer, but the effect is the same. The new cash is bidding up the price of the product – in this case labour – across the market and across the world.

Perhaps the best known example of a new buyer of banking talent is Nomura, which has been hiring aggressively in the US and bought much of Lehman Brothers’ business in the rest of the world. But a growing number of other commercial banks, notably UK-based Standard Chartered and Japan’s Mitsubishi UFJ, are also making moves.

What every potential employee wants to know is which of these banks will become a global credit powerhouse.

History shows that neither hiring brilliant individuals nor buying whole firms is any guarantee of success. Plenty of commercial banks have tried the growth-through-hiring strategy – especially European and Asian banks hiring in New York – with little to show for it.

For example, BNP Paribas and SocGen are decent-sized players in Europe but minnows in the US. Others, such as Credit Suisse, RBS and UBS, have more of a footprint in the US through their acquisition of local investment banks (DLJ, Greenwich Capital and Dillon Read respectively), but they are not quite in the US bulge bracket.

The outstanding example of a European bank that has become a truly global player in credit is Deutsche Bank. Its expansion in credit dates not from its acquisition of Bankers Trust in 1998 but from its earlier decision to hire a team from Merrill Lynch in 1995.

Back then, Deutsche Bank was as much an outsider in the global investment banking business as, say, Industrial and Commercial Bank of China is now.

The fact it succeeded is a testament to the then head of the investment bank, Josef Ackermann, who saw the need to give free reign to the Merrill team, and to the abilities of that team, led by the late Edson Mitchell and his right hand man Anshu Jain, and including a credit salesman by the name of Rajeev Misra.

Now that Misra, who later became Deutsche Bank’s head of credit, has moved to a similar role at UBS, there is feverish speculation that the Swiss bank will seek to emulate Deutsche’s ascent.

Don’t hold your breath. Misra’s success at Deutsche Bank was not down to his personal qualities alone. It was also because senior managers at the bank supported the push to be a leader in credit.

The whispers are that UBS’s senior management is much less focused on that goal, which could leave Misra fighting internal political battles rather than getting on with the job in hand.

To stretch our car analogy a little further, consider that, no matter how shiny your new car is, if it’s poorly designed, poorly made and never serviced, you may as well stay with your old clunker.