RISK

      BofA break-up
      Original headline: Bank of America

      Author: Simon Boughey
      Source: Credit | 01 Apr 2004
      Categories: People, Investment
 
Cutbacks in Bank of America’s London-based credit research team and the departure of John Brewer from his position as head of European credit trading have given rise to speculation about the bank’s commitment to its credit function in Europe. Simon Boughey reports
 

The recent sidelining of John Brewer from his role as head of European credit trading at Bank of America (BofA) in London comes on the heels of a series of defections from the bank and has aroused suspicions that the bank may have given up on credit flow trading in London.
     

According to a BofA spokesperson, Brewer is “technically still an employee”, but sources confirm he is no longer at his desk. It is thought to be only a matter of days before his departure from the bank becomes official. In view of the fact that he was, at time of press, still an employee of Bank of America, John Brewer declined to comment to Credit.
     

What is undisputed is that the global credit research function at BofA is being completely reorganised and consolidated in the US. Whether this move is related to the discord among the credit trading team in London is open to question, but BofA claims it is designed simply to focus on its traditional strengths.
 
Brewer was hired from Goldman Sachs, where he was co-head of credit trading in London, in May 2002 to run the combined credit trading team at BofA in London. Within a year the greater part of the original team he had inherited had left, says a source who watched these developments closely. Brewer responded by hiring three traders: Anthony Wainer from Goldman Sachs to trade utilities, Franck Sylvain as a cash trader and Lee Richardson from Dresdner as a flow trader.
 

After a relatively short period, Wainer and Sylvain had left, with Sylvain joining London-based Duet Asset Management and Wainer moving to Morgan Stanley. This left Richardson as the most senior member of the team. In addition, the desk now comprises Andrew Lally, Neil Kadagathur and Mike Cook, but bankers claim the changes in personnel represent a drastic diminution of experience.
      

is thought that Brewer’s working methods have been partly responsible for the rapid staff turnover. “Brewer is a tough character. He is difficult to work with,” says one who knew him at BofA. Even a source sympathetic to Brewer concedes: “It’s true that he put a lot of pressure on his staff.”

Other sources also comment on management shortcomings at BofA during this period. “There was a lack of direction, a lack of motivation and a lack of foresight,” says another.

     

There are unsubstantiated rumours of large-scale losses in BofA’s credit trading book. Some sources speak of aggressive trading positions which resulted in a sizeable hole in the P&L. Bankers who worked at BofA at this time generally decline to confirm or deny such speculation, although one enigmatically comments: “Silence speaks volumes. However, a current employee who occupies a senior position at the bank denounced the rumours of losses as “completely unfounded”.

Supporters of Brewer claim that he inherited a difficult situation at BofA. “John had to transform a team that had no direction. A lot of people saw BofA as a soft touch, and he had to change that,” says one banker who was at Bank of America. “Brewer had a very tough job,” comments another ex-BofA employee. Senior bankers at BofA deny that the recent departures represent a disintegration of the London credit team. “Every firm in the world experiences turnover. This is within normal parameters,” says one.
     

Structure

     

In reference to the specific changes afoot in the credit research department, David Goldman, global head of research in New York, explains that a two-pronged approach has been adopted. First, the bank is to concentrate the fundamental research function into a single team in the US; second, the bank is to expand its quantitative research capabilities. The expansion of the quantitative research function involves further development of Lighthouse, BofA’s in-house credit option-adjusted spread model. The model, similar to CSFB’s Cusp model, was launched in June of last year. According to Goldman, the Lighthouse team has added personnel in London to help more customers evaluate their portfolios with the model.
      

The consolidation of research in the US recognises the fact that BofA’s European credit business is not in the same league as its US business. In fact, points out Goldman, in a recent survey by Orion Consultancy, BofA was ranked number two in US investment-grade credit research behind only Lehman Brothers. “BofA was a late starter in European credit. Our resources aren’t infinite and we had to concentrate them in a unique manner and distinguish ourselves from the competition,” he says.
     

Peter Plaut, who is returning to the US to head up BofA’s financial institutions research group after four years in London, stresses that the consolidation of research does not represent a scaling-back of operations. “We’ve made a strategic decision to play to our strengths. It’s about how to best serve the customer, how to best leverage what we have,” he says. All telecom credit research, for example, will now be handled from the US, which, according to Plaut, makes sense given recent and expected M&A activity within the industry.
      

The London team will retain one strategic analyst, Raja Visweswaran, one financial institutions analyst reporting to Plaut, yet to be appointed, and two desk analysts, Jeffrey Burch and Agnes DeRoyere, with a client focus. Overall, there will be no reduction of staff in fundamental research; in fact, the bank is adding staff, says Goldman.
     

Both Goldman and Plaut are also keen to emphasise that the reorganisation of the group and the addition of desk analysts has nothing to do with imminent regulatory changes regarding the function of the research department in banks, such as the FSA’s CP205 which proposes to limit interaction between research and other areas of the bank. The latter issue has been the focus of intense scrutiny by regulatory and legal authorities over the last couple of years.
      

Goldman says that, independent of the personnel changes that have already been made, BofA is in the process of formulating procedures to deal with CP205 and other regulatory changes. “It’s a problem a lot of sell-side firms are grappling with. The traditional role of research is to protect traders, but if they [the researchers] can’t speak to traders then they might as well be desk analysts,” says one source who worked at BofA.
      

The bank is keen to point out that its commitment to European credit research customers remains as strong as ever. “We are expanding, not reducing, our research services to European customers,” says Goldman. In late March, the bank announced five new appointments to its European debt platform: “The bank continues to expand its Universal Bank strategy into Europe,” says Goldman.
     

The bank has hired Piya Abayaranta from BNP Paribas with responsibility for originating and structuring ABS transactions. She reports to Steven Gandy, European head of global structured finance. Iftikhar Ali joins from Citigroup and becomes head of credit arbitrage trading in Europe and Asia. He will report to Alex Bernand, global head of structured credit trading. Rommie Bhutani joins from CSFB as co-head of financial sponsors/leveraged finance origination in London. He reports to Arrington Mixon, head of international debt.
      

Michael Coppock comes from Citigroup to be head of financial institutions debt capital markets, and he will report to JC Perrig, head of international debt capital markets. Finally, Vincent Moge has joined BofA from CIBC and will be a senior salesperson in the credit sales group. He will handle all credit products, including investment-grade debt, CDS, structured credit and high-yield assets in French-speaking countries.
 
Given that several of these appointments could well be described as high profile, it appears that Bank of America is sending a message to the rest of the market that, despite what anyone may have heard, its commitment to the European credit markets is undimmed. But what happens to its credit trading function in London remains a subject of market speculation.

 

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