When Bank of America-Merrill Lynch hired Alexander Wilmot-Sitwell from UBS last year to front its Europe and emerging markets (excluding Asia) operations, it caused a stir. As he explains to The Banker, the move has been mutually beneficial.
Bank of America-Merrill Lynch’s (BAML's) hire of Alexander Wilmot-Sitwell from UBS in May 2012 was a significant event on a number of levels. The Swiss banking group is arguably in Mr Wilmot-Sitwell’s veins, as his father chaired SG Warburg, the respected UK investment bank that was subsequently absorbed into UBS in the late 1990s.
Mr Wilmot-Sitwell (junior) had spent the majority of his career at UBS, rising to the top of its investment banking arm and then to group head of Asia-Pacific. And the role he stepped into, as president of Europe and emerging markets excluding Asia, had originally been crafted for Merrill Lynch veteran Andrea Orcel, who instead moved in the opposite direction, to UBS. While Mr Wilmot-Sitwell says he was happy to return to London from Hong Kong, he puts his emphasis on the institutional story at BAML, rather than his personal story.
“This was a very good opportunity to take on a senior role covering a region that I know well, in a bank that I believe is extremely well positioned for the future, at a stage in its recent history and development that is particularly interesting – post financial crisis and post the integration of Bank of America and Merrill Lynch – led by a group of people that have a clear, committed vision for the future and a strategic plan that makes sense. Everything I have found since joining reinforces my initial impressions that this is an extraordinary franchise that can emerge as one of the clear winners in the industry,” he says.
Competing in Europe
There is no doubting the strength of the bank’s balance sheet compared with many European rivals. By the first quarter of 2013, BAML had surpassed Basel III capital requirements with a Tier 1 ratio of 9.52%, and its vast US deposit base provides it with more than $370bn in surplus liquidity. Mr Wilmot-Sitwell says the US Federal Reserve’s approval for the bank to buy back $5bn in common equity and more than $5bn in preferred stock underscores regulatory confidence in BAML’s ability to generate shareholder value and pass capital stress-tests.
“US banks are better placed in the context of capital than European banks, partly because US banks entered the process of recapitalisation and capital management earlier and partly because of a stronger home market. It is a hard reality that the only market that has the characteristics right now of sustainability, profitability and scale to support a full-service corporate and investment banking platform is the US,” he says.
He believes Europe remains a challenging home market because client conviction and risk appetite is still low, while in Asia the growth dynamics are strong but very fierce competition is suppressing margins. The largest emerging market investment banks such as those from Brazil and Russia are still mostly focused on their domestic or nearby regional markets, but he notes that “history suggests they will set foot outside those markets in due course.” For now, he expects those new players to take up the empty capacity left by retreating European banks, rather than competing head-on with the American giants.
His own arrival at BAML was part of a broader strategy, to build on its strength at home, and to expand the bank into regions where it has historically had a lower profile. The overall aim is to identify above-average growth markets across the globe, and position the bank to seize the opportunities in those markets.
Global coverage
At a time when so many investment banks have been shrinking, BAML’s hiring has been eye-catching. Diego de Giorgi joined from Goldman Sachs just a month after Mr Wilmot-Sitwell, to become co-head of corporate and investment banking in Europe, Middle East and Africa, while December 2012 saw the arrival of Arshad Ghafur from Nomura as head of the Middle East and north Africa, and Alexander Pertsovsky from Renaissance Capital as head of Russia. Most recently, Joaquin Arenas has joined BAML as head of Iberia after more than two decades at Morgan Stanley. Mr Wilmot-Sitwell has been impressed with the speed at which the bank has integrated the significant numbers of new staff taken on over recent years – including himself – to maintain what he calls a collegial atmosphere.
“These new hires show our confidence, our conviction, and that this is a franchise that is able to attract outstanding talent. We are not being specifically more aggressive than our competitors, not looking to invest more than everyone else or across the entire network. Where we are investing, it is more a reflection of our previously undersized business, such as in Russia. We are looking for immediate economic returns, rather than accepting negative run rates to enter or grow in a given market,” says Mr Wilmot-Sitwell.
The practice of charging uneconomic fees to win market share may have been common in the industry as a whole during the boom years, but today he says every investment decision must justify itself. Nonetheless, BAML has genuine capacity and balance sheet available to grow in markets where others are pulling back. European banks have traditionally exerted a tight grip on clients in their home markets, making it difficult for US banks to gain decisive market share. But Mr Wilmot-Sitwell says clients at the top end of the spectrum, which is BAML’s focus outside the US, have very specific needs that play to his bank’s strengths.
“What global clients want is the ability for global coverage, they look at us as a provider of services. They do not much focus on whether they reward us for our coverage by giving us business in Hong Kong, London or New York, we are simply a counterparty that provides services around the world. They want to know that we will be there for them consistently wherever we do business, so the ability to provide a full service is critical. Changes in coverage, inconsistent or sporadic coverage can all undermine a client-focused franchise, so long-term commitment is very important,” he says.
Regulation looms large
Developing the client franchise, and the internal talent needed to service it, each account for about one-third of Mr Wilmot-Sitwell’s time. He says the focus on corporate clients has become essential for all investment banks as regulators have clamped down on proprietary trading and made trading activity in general heavy on capital consumption. He believes BAML’s strengths as a corporate lender are well suited to that new environment, and client trust in the industry as a whole has also been enhanced by the perceived reduction in possible conflicts of interest.
To avoid slipping into sporadic coverage, BAML is committed to a full-service model, without shutting off specific markets or products in a downturn. Mr Wilmot-Sitwell says this diversity is also a natural countercyclical protection.
“The rates business may be the winner one year, foreign exchange the next. The days of carrying surplus capacity for long periods are gone, but we need to remain a full-service bank through the cycle, so it is vital to have a fungibility of resources, to dynamically manage the headcount,” he says.
The other third of his time is dominated by managing the constant flow of new regulation and its impact on the business. While BAML is well positioned in terms of new capital requirements, Mr Wilmot-Sitwell says other aspects of regulation affect all the players in the market equally, with the bar set high for everyone. What is not equal is the precise nature of regulation in each market, which is a particular challenge for such a global franchise.
“Spending a lot of time working out how and where to operate across so many different regimes is one unfortunate outcome of the post-crisis regulatory framework. It is disappointing that we do not yet have more of a harmonised set of global rules. Instead, there is a patchwork with little cohesion that adds to the costs and complexity without necessarily improving risk management,” he says.
Mr Wilmot-Sitwell singles out the proposed European Financial Transaction Tax as a new initiative that could have a particularly damaging impact on the volume and cost of finance available. This is especially risky at a time when the European macroeconomic environment is still difficult, and the financial system still fragile. Anything that further weakens European banks could ultimately be to BAML’s advantage. But Mr Wilmot-Sitwell says that for now, the picture remains one of relative strength for the bank offset by tough absolute operating conditions in the market as a whole.
