Morning Coffee: How the world’s best FIG banker does a deal. The tiny fintech company making more money than BlackRock

There’s a slightly cynical proverb in the investment banking industry, to the effect that the better a banker is at arranging deals for other people, the worse they will be when they become a CEO and have to be the one making the decisions rather than giving advice.  So far, Andrea Orcel seems to have been the exception that proves the rule; his first term as chief executive at UniCredit has been a resounding success. 

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Now Orcel seems to be starting his second term with a bang.  His move on Commerzbank has been executed as a masterclass in financial institutions group (FIG) banking. It came out of a clear blue sky – Unicredit hadn’t spoken to Commerzbank beforehand, and it didn’t give any indication that it was going to bid for the 4.5% block of shares that the German government was selling until suddenly it did.  It caught the target at a moment of weakness, as Commerzbank CEO Manfred Knopf had just decided to step down.  And it leaves Orcel holding all the options – UniCredit has applied for permission to take its stake above 10%, but says that further purchases will be subject to “strict financial parameters” and in the meantime it’s just going to “engage” to “explore value-creating opportunities for all stakeholders in both banks”.

For their part, Commerzbank have engaged Goldman Sachs to advise them on merger defence, but realistically, there is not much they can do proactively, other than sit and wait as the labour unions complain and ask the government not to sell any more. This transaction certainly bears all the hallmarks of a master, showing off the skills he learned while advising on deals like Royal Bank of Scotland’s acquisition of ABN Amro.

Of course, mentioning that deal (one of the great disaster stories of European banking; Orcel was advisor to RBS when he was at Merrill Lynch) suggests there might be something to that old proverb.  The urge to do deals can be a costly one, and in his long career, Andrea Orcel has been associated with bad deals as well as good. (Even the series of domestic mergers that created UniCredit itself were often struck at valuations which didn’t look great in hindsight).  It’s noticeable that up until yesterday, he had achieved his results at Unicredit without doing many deals; famously, he walked away from the acquisition of MPS and considerably annoyed the Italian government by doing so.

Commerzbank is something of a graveyard of ambition; over the years, many banks (particularly Deutsche Bank) have come close to acquiring it, but always changed their mind after taking a long look at the data room.  Andrea Orcel, and his strategy team led by long-term lieutenant Fiona Melrose, seem to think that it might be a better way into the German market than their current subsidiary HVB, which has been cut in size and staff over the last business plan. (And which was another FIG deal that Orcel advised on, when he was at UBS).

What next?  Many commentators seem to think that this is the first step in consolidating the whole European banking sector. That would mean more acquisitions, possibly bigger in scale.  The taste for M&A, once acquired, is not easily lost – soon we’ll see whether Andrea Orcel’s return to the fray is the act of a deal connoisseur taking advantage of an excellent vintage, or of a reformed deal addict falling off the wagon.

Elsewhere, if profit per employee is the measure of success, nothing in the whole of financial services comes close to Tether, the company behind the stablecoin of the same name. The Wall Street Journal notes that with fewer than 100 staff, it made $6.2bn of profit last year – that’s 12.7% more than BlackRock managed, practically all of it earned by investing a “float” of $120bn in US Treasury bills, and providing crypto bros with a similar quantity of magic numbers to pass back and forth between each other to settle their transactions.

If you prefer metrics like “good relationships with law enforcement”, “transparency” and “confidence that your clients are all good people”, Tether might not light up your ESG scorecard quite as brightly, though.  Although the company says it has “a proactive approach to safeguarding our system against illicit activities”, its currency is visibly on the ground and in use in some pretty shaky places.  Perhaps ambitious fintechs wanting bragging rights on profits-per-employee should stick to comparing themselves to Jane Street.

Meanwhile …

Are three co-heads better than two?  Goldman Sachs must hope so – it’s appointed Raghav Maliah, Yoshihiko Yano and Ed Wittig as co-heads of APAC M&A with the aim of expanding and deepening coverage. Although this does mean that there are three times as many interpersonal relationships to manage, there seems to be a logic to it – “Asia-Pacific” has aways been something of a strange geographical concept and reading between the lines one might guess that the division is Greater China / Japan / Everything Else. (Reuters)

PwC is making lay-offs in the US for the first time in 2009.  The program isn’t that big in percentage terms (2.5%) but it means 1800 redundancies. (WSJ)

Despite having worked in banking themselves, the writers of “Industry” employ consultants to make sure their trading floor jargon is exactly right and up to date. (Fast Company)

UBS has developed an “M&A co-pilot” AI app that can apparently scan a database of 300,000 companies in 20 seconds.  It’s not clear what it’s scanning for – “Tests of AI-powered tools to support company evaluations, benchmarking and financial analysis did not yield satisfactory results”, but it can apparently identify potential buyers for a target and “generate buy side ideas”.  Although so can a hat full of pieces of paper.  (Bloomberg)

The Saudi government is beginning to insist its officials wear traditional national dress in the office; yet to be seen whether local bankers will follow suit.  (FT)

Bao Fan, the former Morgan Stanley and Credit Suisse banker who founded China Renaissance, is still in official detention, while his company has lost 93% of its value.  The “common prosperity” program is understandably a source of fear for Chinese bankers. (Bloomberg)

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