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Inside the exit of Bank of America's investment bank chief

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Bank of America parted company with its investment banking chief Christian Meissner after months of disagreement over what Mr Meissner perceived as the bank’s increasing conservatism and diminished risk appetite. 

The US banking giant announced the departure on Wednesday evening, but said little about the reason it was replacing him after seven years with the bank’s Asia-Pacific head Matthew Koder. 

Several people familiar with the situation told the Financial Times that Mr Meissner’s departure followed a fundamental clash with group chief executive Brian Moynihan about the investment bank’s ambition and resourcing.

Mr Moynihan has made “responsible growth” the slogan of Bank of America, which makes the bulk of its money from US retail banking commercial lending and wealth management and whose 24 per cent share price rise in the last year is the highest of the top six US banks.

Mr Meissner had been “quite unhappy for a while”, said one former BofA banker who worked closely with the departing executive until recently. “He has felt that the bank has somewhat pulled back from its support of, and commitment to, building a genuinely international investment bank.”

The former banker added: “He was very frustrated by the way in which risk and risk management have dictated control of some of the strategic developments of the firm, and he feels that the firm has pulled back too much from being able to support clients.”

A friend of Mr Meissner’s said the banker felt that BofA’s “thinking has changed from the perspective of what it wants to be”.

“It used to want to be the next JPMorgan or similar in terms of risk appetite, client selection . . . a top-tier firm,” he said. “Over time that has shifted to a much more conservative (approach).”

The former banker cited BofA’s approach to its $292m losses on the doomed loan to the South African home retailer Steinhoff as an example of its attitude to risk. Other lenders took their losses on the chin, BofA “turned it into an existential crisis” and had an external review, he said. 

The bank’s failure to vie for a place on the flotation of Saudi Aramco, which was on track to be the world’s biggest initial public offering before it was called off, is another example of its diminished risk appetite, he added. 

Industry monitor Dealogic has BofA in fourth place so far this year in a ranking based on fees for M&A, equity capital market and debt capital markets deals. BofA was in second place from 2010 to 2013 and in third place from 2014 to 2017. 

Some colleagues of Mr Meissner said his departure had been triggered by its sliding position in M&A and equity capital markets league tables, particularly in the US.

On BofA’s second-quarter earnings call in July, asked about advisory fees falling behind peers, Mr Moynihan said that “the team knows they can do a better job and are after it”.

The falls in market share have been sharpest in M&A, where BofA is ranked seventh globally based on net revenues this year, having been ranked fourth for each of the five previous years.

“They’ve slipped a little but not so much that it’s been a pain point for investors,” said Brian Foran, banks analyst at Autonomous. Other analysts pointed out that investment banking accounts for just 6 per cent of BofA’s group-wide revenue in its most recent earnings statement, so the division has not been front and centre for investors.

We are a top investment bank by any measure

The head of a rival investment bank said BofA’s vast balance sheet and close relationship with many big US companies meant it “suffered from comparisons with JPMorgan” which has built a much stronger position in investment banking from a similar position. The rival banker said BofA’s efforts to expand its investment bank in Europe and Asia had been plagued by low returns and high staff turnover.

“The mitigating factor is that this is a relatively small percentage of BofA’s revenues,” said Mike Mayo, analyst at Wells Fargo. “Also, we believe it is a positive that BofA does not sit on its hands when a change needs to be made, especially given increased competition among players for these lower capital-intensive revenues.”

“We are a top investment bank by any measure,” BofA said, citing recent wins including an advisory role in Saudi Arabia’s Public Investment Fund’s sale of its stake in petrochemicals company Sabic, in what will be the kingdom’s biggest M&A deal.

Thursday, 20 September, 2018

BofA has also won a string of financing mandates including helping Carlyle fund its leveraged buyout of Sedgwick, an insurer, and helping Blackstone finance its multibillion-dollar leveraged buy out of the Thomson Reuters financial information business Refinitiv.

The former BofA banker said that while further departures are likely to come, most of those eyeing the exits will stay until the new year when 2018 bonuses have been paid. “I don’t think Brian is going to lose any sleep over it,” he said, saying that Mr Moynihan would have a retort to frustrated investment bankers: “Look at the share price.” 

Additional reporting by James Fontanella-Khan and Arash Massoudi 

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