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Europe’s bank bosses under pressure

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Bank bosses will be the subject of intense scrutiny when Europe’s earnings season kicks off this week.

Across the continent, executives are struggling to shake off lingering regulatory probes, shareholder pressure and boardroom bust-ups that could lead to further upheaval among the industry’s power players. 

Just over a year ago, the European banking sector underwent the biggest shake-up of its top ranks since the financial crisis. Following a spate of industry scandals, boards turned to a crop of low-key leaders.

But already questions are being asked about how long those replacements will last. Ongoing dramas surrounding some banks are proving an unwelcome distraction for those tasked with steering them through the biggest global crisis for a generation.

“During the coronavirus pandemic we need bank CEOs to be looking through their front windscreen rather than their rear-view mirror,” said Joseph Dickerson, an analyst at Jefferies. “This crisis has thrown up huge strategic opportunities and challenges for banks — CEOs must not get distracted.”

CEO tenure has varied dramatically at European banks since the crisis

Here are those in the spotlight:

Ralph Hamers, UBS

Ralph Hamers will present his maiden quarterly results as chief executive of UBS on Tuesday. But his future at the world’s biggest wealth manager is already in doubt.

The surprise decision by a Dutch court last month to reopen an investigation into his personal role in a huge money-laundering scandal at his previous employer, ING, threatens to derail his first year running the Swiss lender — even if he is exonerated.

The prospect of regular meetings with prosecutors in The Hague — combined with Mr Hamers’ aversion to air travel and restrictions amid the pandemic — only add to the potential disruption.

Ralph Hamers, new chief executive of UBS, is being investigated over his personal role in a money-laundering scandal at his previous employer, ING © Walter Bieri/EPA-EFE

Discussions have taken place among board members about potential replacements should Mr Hamers have to step aside. A person briefed on the talks insisted they were informal, and said the 54-year-old had the board’s full backing.

One top-20 shareholder described the situation as “surprising and annoying”. This person added: “The bad optics of money laundering matter a lot. The board should have known and they should have found somebody else. They are getting a free pass on this.”

Mr Hamers was handpicked by UBS chairman Axel Weber, and his appointment was given the green light by headhunters and Finma, the Swiss financial regulator. 

Despite having joined UBS nearly five months ago, with his first two months spent shadowing predecessor Sergio Ermotti, Mr Hamers has made just one public appearance so far. The Dutchman will not provide a strategic update this week to coincide with his first three months in charge, as analysts had hoped.

Jean Pierre Mustier, UniCredit

Jean Pierre Mustier may have left his role as chief executive of UniCredit by the time the Italian bank reports its full-year results on February 11.

When the 60-year-old former paratrooper announced last month that he was retiring from UniCredit after falling out with the board over strategy, he said he would leave no later than the group’s annual general meeting in April.

But Mr Mustier has agreed to step aside as soon as the bank names a successor, which the board hopes to do by the time it meets to sign off the results on February 10. It is a tight deadline given there is no obvious, baggage-free successor in a crowded field of candidates.

The frontrunner is Andrea Orcel, the former head of UBS’s investment bank, who has been out of work since leaving the Swiss lender for Santander in 2018. When Santander withdrew its offer because of a disagreement over pay and profile, Mr Orcel began a €100m lawsuit against the Spanish bank, which is due to restart in March.

Jean Pierre Mustier, chief executive of UniCredit, has agreed to step aside as soon as the bank names a successor © Jason Alden/Bloomberg

In order to take up the UniCredit post, the 57-year-old Italian would need to untangle himself from that high-profile lawsuit and potentially forfeit millions in deferred pay still owed to him by UBS. Mr Orcel is favoured by UniCredit’s international shareholders, who are drawn to his global banking experience and are increasingly frustrated by the board’s domestic focus and lack of tech expertise.

He is also the preferred choice of some Italian backers, including the billionaire businessman Leonardo Del Vecchio, a top-10 shareholder at UniCredit and an influential voice among its other investors.

But lurking in the background for any incoming chief executive is the prospect of UniCredit being forced by politicians to take over the beleaguered state-owned lender Monte dei Paschi di Siena — a deal heavily opposed by shareholders. 

“Every candidate for the CEO job has said that if the right conditions are met, they would pursue the takeover,” said a person involved in the talks. “But the board are scared of how shareholders will react.”

Line chart of Price-to-book (x) showing European bank stocks have traded below book value

Mark Tucker and Noel Quinn, HSBC

The duo atop HSBC have endured a chastening few years. Mark Tucker and Noel Quinn are under pressure from shareholders to show they can better harness the lender’s position in fast-growing Asian markets, while slashing costs and simplifying the sprawling behemoth.

Since Mr Tucker took over as chairman in September 2017 — firing his first chief executive within 18 months and installing Mr Quinn in his place — the shares have plunged 46 per cent. HSBC has also become caught in the geopolitical tensions between the US and China.

Mark Tucker and Noel Quinn are in charge of HSBC, which is cutting 35,000 jobs © AFP, Getty, Bloomberg

Alongside the bank’s results on February 23, Mr Quinn will unveil a second strategic refresh in as many years. This may include the sale or exit of its US retail business and a further shrinking of its struggling European operations and investment bank. The capital freed up will be redeployed in Asia, where it already makes 90 per cent of its profit.

HSBC — which employs 233,000 people in 64 countries — may also have to increase its programme of 35,000 job cuts, announced barely a year ago, as ultra-low interest rates and slowing global trade continue to weigh on revenue.

Mr Tucker said at a conference last week that “the world had changed” in the 11 months since its last strategic update. “Economic realities mean that what we were planning to do in February we need to be even more urgent in doing.”

Line chart of Share prices rebased showing UBS has fared better than some of its European bank rivals

Thomas Gottstein, Credit Suisse

Credit Suisse’s results on February 18 will cap Thomas Gottstein’s first year as chief executive, which has been a baptism by fire for the 57-year-old banker.

Mr Gottstein in December told the FT he hoped Switzerland’s second-biggest lender would start 2021 with a “clean slate” after his first year in the post was pockmarked by the fallout from a succession of embarrassing legacy compliance and lending failures.

But already this month the bank revealed it has had to set aside $1.1bn for legal costs related to US residential mortgage-backed securities, in addition to a $450m impairment charge on the value of its holding in hedge fund York Capital Management, which is closing down its European business.

As a result, Credit Suisse will post a fourth-quarter loss, despite strong performance for its investment bank in the final three months of the year.

Thomas Gottstein of Credit Suisse is hoping the lender will start 2021 with a ‘clean slate’ © Fabrice Coffrini/AFP/Getty

Further bad headlines are to come. Mr Gottstein rose to chief executive after his predecessor, Tidjane Thiam, was forced out following revelations of corporate espionage. A Finma probe into the affair is due to conclude this spring.

Meanwhile, Mr Gottstein’s main ally in the boardroom, chairman Urs Rohner, will be replaced by outgoing Lloyds Bank chief executive António Horta-Osório in April. Mr Horta-Osório will press his chief executive to close the gap on fierce Zurich rival UBS. “You can hardly accuse Antonio of being a pushover,” said a person who has known the Portuguese banker for years.

Frédéric Oudéa, Société Générale

As the longest-serving chief executive of one of Europe’s largest banks, Frédéric Oudéa’s future at Société Générale has been the subject of speculation for several years.

Last spring the French lender was hit by heavy losses as revenues in its equities trading division collapsed almost 99 per cent as a result of companies cancelling dividend payments during the early stages of the pandemic.

In the face of criticism that under Mr Oudéa’s leadership SocGen had become too reliant on complex equity derivatives products, the 57-year-old Frenchman said the bank would slash the risk being taken by the structured products teams. He has also set about closing 600 branches in an attempt to cut €450m of costs.

Société Générale’s Frédéric Oudéa is the longest-serving chief executive of one of Europe’s largest banks © Chris J. Ratcliffe/Bloomberg

SocGen is one of the worst-performing European bank stocks over the past 12 months, down 44 per cent. Its price-to-book value is less than half of its peers.

When Mr Oudéa presents the bank’s results on February 10 shareholders and analysts will be looking for signs that his risk and cost reduction plans are bearing fruit. Elsewhere, talks between SocGen and Amundi over the sale of the former’s fund management arm have cooled in recent weeks.

Though Mr Oudéa’s contract is due to run until 2023, the sudden availability of his former Ecole Polytechnique classmate Mr Mustier has reignited speculation over whether Mr Oudéa will see it through to the end.



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Analysis

The UK mental health crisis coming in Covid’s wake

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Owen O’Kane grew up well-acquainted with the psychological damage that bombs and bullets inflict on communities long after their immediate impact, having witnessed first-hand the troubles in Northern Ireland.

Now a psychotherapist and author based in London, he is convinced that Covid-19 risks leaving similar long-term distress in its wake. In anticipation, he has given the phenomenon a name: “Post pandemic stress disorder.”

“A lot of people have been affected by trauma. Whether its PTSD (post-traumatic stress disorder) or PPSD you won’t see the full impact at the time. You only see it a few months later. If we don’t take this seriously we are going to have a very unwell group in the population for years to come,” said O’Kane, who was formerly mental health lead for the NHS in west London.

With Boris Johnson, UK prime minister, setting out England’s gradual and cautious exit from lockdown earlier this week and the rollout of the country’s vaccination programme still going well, there are some causes for optimism.

But O’Kane and his peers worry about the long term toll the pandemic is taking on the nation’s mental health.

Owen O’Kane: ‘If we don’t take this seriously we are going to have a very unwell group in the population for years to come’

By the middle of 2020, one in five people in the UK was suffering from depression, twice the number in 2019, according to the most recent data released by the Office for National Statistics.

The Centre for Mental Health, an independent UK charity, has predicted that this will translate into up to 10m people needing new or additional mental health support as a direct consequence of the pandemic. But that may be a conservative estimate given that these figures predate the latest and deadliest wave of the virus as well as a winter of intensified lockdown.

“Why I am on my soap box at the moment is that I feel all of the energy is still on getting the R (the disease’s rate of reproduction) down when we have this other pandemic brewing,” O’Kane said.

Part of the answer, he and other specialists argued, will be in allocating sufficient resources to deal with rising demands on services. Another part, argues O’Kane, will be clinical.

“A pandemic is invisible. It’s not like bombs dropping,” he said. But cumulatively its effects are no less traumatic. “If you don’t address the underlying trauma [in patients], they will relapse,” he said.

The stress associated with home-schooling children while sustaining work, of indebtedness, loneliness, or of being forced to confront at close quarters relationships that are fatally cracked, alongside the continuous threat of the virus itself, for many people has taken a grim toll.

“When you have 120,000 families who have lost someone, many of whom have not been able to say farewell; hundreds of thousands of doctors and nurses who have struggled . . . why would you not expect there to be a large number of people with psychological problems?” said Alastair Campbell, the writer and former director of communications to Britain’s former prime minister Tony Blair. “It would be very weird if you didn’t.”

Campbell, who published a book last year on his own experience of severe depression, is frustrated at the lack of preparation for this crisis in the making.

“It’s not just that services are terrible in some parts of the country. It is also that the government is missing a massive opportunity,” he said, arguing that the shock of the pandemic has brought mental wellbeing to the forefront of everybody’s minds except, apparently, those in government. “They still think that if you talk about mental health it makes it worse,” he said.

The government has pledged £500m of extra spending on mental health services this year to address waiting times for specialists, which can stretch to months and more, and to invest in the workforce.

“As part of the long-term plan we have committed an additional £2.3bn a year,” said Nadine Dorries, the minister for health, suicide prevention and patient safety.

Dr Adrian James, president of the Royal College of Psychiatrists, said that it was vital this funding sustained increases in trained psychiatrists, and other specialists while addressing a hangover from years in which mental health has been treated as the poor cousin to its physical relative.

“There is a huge backlog of investment in the mental health estate,” he said, adding: “We need to be on the front foot around mental health in relation to Covid rather than reactive.”

That means taking into account what’s to come. While Johnson’s plan for lifting lockdown aims to remove all restrictions by the end of June, the end of economic support for workers and businesses will cause fresh anxiety.

“As some of the measures that have protected employment security and finances of those in unemployment come to an end, we are facing a cliff edge,” said Catherine Seymour from the Mental Health Foundation, the think-tank. It is calling for temporary £20 weekly increases in welfare payments to be made permanent in next week’s Budget and for a ban on evictions to be extended.

The Samaritans, often the last resort charity for people in distress, has been making similar pleas, pointing to the proven link between recession and increased suicides,

Jacqui Morrissey, the charity’s assistant director of research, said 1.7m people had called on the Samaritans for emotional support between March and December last year, a period, she said, when many people had been deprived of their usual coping mechanisms.

It was imperative, she said, that the voluntary sector, which provides an essential supporting role to the state when it comes to mental health, remains afloat. “We need to make sure that there is a fully funded mental health renewal plan as we come out of that pandemic and that this is at the top of priorities with government working in collaboration with the sector to deliver it,” she said.





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‘Their hair is on fire’: Trump fans await return to political stage

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On his final day in the White House last month, Donald Trump told a small crowd of supporters at Joint Base Andrews, the military airport, that he had no intention of leaving the stage quietly.

“I will always fight for you, I will be watching,” the outgoing president said before boarding Air Force One for the last time. “We will be back in some form . . . we will see you soon.”

Now the 45th US president is set to make a splashy return to the fray on Sunday with a keynote speech at the Conservative Political Action Conference (CPAC), an annual gathering of Republican politicians and media personalities that has become a kind of rock festival for rightwing activists, especially college students.

Ford O’Connell, a Trump supporter and former Republican congressional candidate, said attendees were “dying” to hear from Trump, whom he described as the “leader of the Republican party, even if he is not in office in the traditional sense”.

“These folks are unhappy about how the 2020 elections turned out, but their hair is on fire after a month-and-a-half of the Biden administration,” O’Connell said.

“What they want to hear from Trump is: how do you move forward in 2022 and 2024,” he added, referring to the midterm elections in two years and the next presidential contest.

Trump’s speech will end an unprecedented stretch of near silence for the former reality TV star, who built his political career on regular cable television appearances and constant tweeting. After leaving Washington, he took off for Mar-a-Lago, his resort in Palm Beach, Florida, and has stayed there since, playing golf and shunning the spotlight.

Shorn of his ability to communicate with to his millions of supporters on Twitter and Facebook — which banned him for his role in the deadly January 6 siege on the US Capitol — Trump has made just two notable interventions: he called in to Fox News to eulogise the late rightwing radio host Rush Limbaugh, and released a blistering statement attacking Mitch McConnell, the top Republican in the Senate.

Advisers had encouraged Trump to keep a low profile during his impeachment trial, which ended this month with his acquittal.

Trump will be the final speaker at the four-day conference, which is being held in Orlando, Florida — a city that is just two-and-a-half hours drive from his home and that has looser Covid-19 restrictions than CPAC’s usual location of Washington, DC. The former president is expected to speak in person, although event organisers have not confirmed the details of his speech.

Ted Cruz, Republican Senator from Texas © Getty Images
Ron DeSantis, Governor of Florida © AP

The list of the other CPAC speakers reads like a who’s who of his fiercest defenders, including Florida’s governor, Ron DeSantis, and Republican senators Josh Hawley and Ted Cruz — all of whom have been suggested as possible 2024 contenders that could carry Trump’s torch if he does not run again for president.

Trump has not ruled out another bid for the White House, despite mounting legal troubles, including criminal investigations in New York and Georgia.

His appearance at CPAC — an event dating back to a speech by Ronald Reagan in 1974 that has become increasing populist and Trump-centric in recent years — has also drawn attention to Republican party infighting.

Mike Pence, the former vice-president, who fell out of favour with Trump supporters after he certified Biden’s election win, is not attending the event. Nor is Nikki Haley, the former South Carolina governor who told Politico in an interview that ran earlier this month that Trump could not run for office again because “he’s fallen so far”.

The party’s divisions were laid bare in an awkward encounter on Capitol Hill this week, when reporters asked House Republican leader Kevin McCarthy whether Trump should be speaking at CPAC.

McCarthy replied, “Yes, he should,” before Liz Cheney, one of his deputies, interjected: “I’ve been clear in my views about President Trump . . . following January 6, I don’t believe he should be playing a role in the future of the party or the country.”

After Cheney contradicted him, McCarthy abruptly ended the press conference, saying: “On that high note, thank you very much.”

Cheney was one of 10 House Republicans who joined all House Democrats in voting to impeach Trump last month, and is among a handful of critics on Capitol Hill who have openly castigated the former president despite knowing they run the risk of losing the support of party voters.

While a few elected Republicans, like McConnell, have joined Cheney in rebuking the former president, CPAC will serve as a stark reminder of how popular he remains among party activists.

A Suffolk University poll out this week found 46 per cent of people who voted for Trump last November said they would abandon the GOP if the former president broke away and formed his party. Half of those polled said the Republican party should be “more loyal to Trump”, compared to one in five said the party should be less loyal.

Matt Schlapp, a Trump ally and chairman of the American Conservative Union, the group that organises CPAC, told Fox News this week the Republican establishment should recognise that it must now cater to a much broader church; one made up by the old party faithful and the supporters that Trump brought into the fold with his “Make America Great Again” movement.

“It’s Republicans, it’s conservatives — who are this big, big minority in this country — and then it is these new MAGA supporters,” Schlapp said. “This is now a coalition.”

But more moderate Republicans warn that by sticking with Trump, the party will never be able to win back the centrist conservative and independent voters who abandoned the party at the ballot box in November.

“It is important to remember there is a whole other wing of the party, and virtually no one from that . . . wing is being represented at CPAC,” said Whit Ayres, a veteran GOP pollster. “It is a gathering of the most conservative and some of the most active members of the Republican party, but it represents only a portion of the party.”



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McKinsey partners sacrifice leader in ‘ritual cleansing’

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The news this week that Kevin Sneader would be McKinsey’s first global managing partner since 1976 not to win a second three-year term stunned many of the consultancy’s partners and influential alumni. 

Few could point to any one mis-step that had felled the 54-year-old Scot. “It added up,” one veteran said simply of the litany of reputational crises he had tried to resolve. 

But nor did many think that Sven Smit or Bob Sternfels, who beat Sneader to the last round of voting, would represent a cleaner break with the past — or that whoever won the final vote in the next few weeks would face an easier task than he had. 

Within days of taking over in 2018, Sneader flew to South Africa to apologise for failures that had embroiled the firm in a corruption scandal. “We came across as arrogant or unaccountable,” he admitted in a speech that began with the word “sorry”.

That set the tone for a tenure defined by the need to make up for other crises that largely predated his promotion, from damaging headlines about McKinsey’s contracts in authoritarian countries to US states’ lawsuits over its work to boost sales of highly addictive opioids

Speaking to the Financial Times less than two weeks before senior partners voted him out, Sneader said he had focused on making the private firm more transparent, more selective about which clients it took on and better structured to avoid surprises in a global group whose rapid growth had made it more complicated. 

According to people who witnessed those efforts, though, pushing them through consumed much of the political capital Sneader needed to win re-election. For some, particularly younger staff, his reforms did not go far enough. For an older group more prominent among the 650 senior partners who vote on their leadership every three years, they went too far.

Kevin Sneader’s failure to win a second three-year term as McKinsey’s global managing partner has stunned many at the consultancy © Charlie Bibby/FT

Sneader’s downfall looked like a case of “the partners not wanting to take the medicine”, one former partner said. Another argued that Sneader’s push for more oversight over partners who prized their freedom had made the firm “too corporate”, while some Sneader allies saw the “protest vote” as a rejection of his reforms rather than a clear mandate for Smit or Sternfels. 

Sneader was not helped by the timing of this month’s $574m opioid settlement with 49 US states, added Yale School of Management professor Jeffrey Sonnenfeld, who said that consultants outside the US did not understand why he agreed to the payout.

Sneader might have been able to reassure them in person, but with McKinsey’s frequent-flyers grounded by a pandemic, “there are limits to what you can do with Zoom”.

‘In business, as in poker, there is uncertainty’

Laura Empson, author of Leading Professionals, said one question now was whether the vote against Sneader was “a ritual sacrifice to appease the bad PR” or a sign that McKinsey’s partners were willing to take more radical action. 

The run-off between Sternfels and Smit may not resolve that issue, say people who know them both, who note that they are of a similar age to Sneader and members of the leadership council that signed off on his reforms. 

Sternfels, a California-born Rhodes scholar who joined McKinsey in 1994, was the runner-up to Sneader in 2018. As head of “client capabilities”, he has a role akin to that of a chief operating officer and is closely associated with the rapid expansion of the firm under Dominic Barton, Sneader’s predecessor. 

Based in San Francisco after six years in Johannesburg, the former college water polo player is known as an effective operator and, the second former partner says, “the guy who built the new business models”. 

But some of McKinsey’s newer activities have dragged him into controversies: last year, he was called to testify in litigation brought by the restructuring specialist Jay Alix — the founder of rival consultancy AlixPartners — over McKinsey’s disclosures while advising clients in bankruptcy. 

When a frustrated judge asked whether he was dealing with “a group of people who are so educated, so arrogant, that they just can’t admit that they’re wrong”, Sternfels apologised, insisting that “we try and not foster arrogance”. 

Smit, who joined in 1992 and is based in Amsterdam, is known inside McKinsey as a more cerebral figure. Now co-chairman of the McKinsey Global Institute, the consultancy’s research arm, “there’s not a university campus he couldn’t parachute into and be received as one of the smartest people in the room,” Sonnenfeld said. 

The Dutch mechanical engineer earlier ran McKinsey’s western European operations and may attract less support from US peers, but the first former partner describes him as “the conscience of the firm”, who will say no to ideas with which he disagrees. The second thinks he may “take the firm back to more of an old-school McKinsey”.

Smit’s writing on topics from urbanisation to the future of work made him popular with clients and provided a glimpse into his thinking on strategy, which he likened in one report to poker. “In business, as in poker, there is uncertainty, and strategy is about how to deal with it. Accordingly, your goal is to give yourself the best possible odds,” he wrote.

Discontent runs deep

Whether the cards fall for Smit or Sternfels, colleagues past and present question whether either will reverse the reforms that seem to have triggered unrest about Sneader. 

“I don’t think Kevin had any choice but to centralise,” said one Sneader ally.

One of the former partners added: “What were the alternatives? It’s a large firm to govern and you do need structures.”

What the election result has already revealed, however, is that discontent with the state McKinsey finds itself in runs deeper than had been obvious outside the firm. 

Whichever candidate triumphs, they will need to listen seriously to the concerns of alumni, clients and policymakers and make clear that he plans meaningful cultural reforms, Empson says.

Sneader’s successor will also have to defy the odds in professional services firms, she adds. “Often with partnerships, when something goes wrong, they appoint someone else in reaction to the problem and that isn’t the solution either and they cycle through another round of leaders quickly,” she says: “It’s almost as though they have to go through this ritual cleansing.” 

McKinsey, which does not disclose its financial performance, earned annual revenues of $10.5bn in 2019 by Forbes’ estimate. Sonnenfeld points to the irony that the firm, which charges a premium for its services, has stumbled in this way.

“It’s odd that McKinsey doesn’t create the kind of leadership that would thrive in a crisis,” he reflected. Before the succession process starts again in 2024, “they need to go into overdrive on leadership development”.



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