Recent Client Assignment News

(Carolyn Brocherie led the Research function for this assignment)

Chamomile sets the tone for Merrills’ great raid

Scott Murdoch | August 29, 2009

Article from: The Australian

THERE were no beers in tucked away inner-city bars, as Merrill Lynch’s Kevin Skelton pulled together one of the largest and most audacious investment bank poaching raids that many in the industry could recall.

Instead, he spent nearly two months drinking coffee — or chamomile tea if it was late in the day — with each of the nine high-profile rival bankers he wanted to lure across to the roaring bull.

For months, Skelton, a 20-year industry veteran, was keen to build up his property banking team and make the newly merged Bank of America-Merrill Lynch the only investment bank in town when property companies wanted to do deals.

In its home market on Wall Street, Merrill Lynch has always been the leader in real estate transactions, but in Australia it was a laggard. The bank holds domination in the real estate investment trust (REIT) sector in the US, and the underperformance in Australia, where Merrills was ranked just 10th on the league tables, was seen as a slight on the domestic business.

Making the poaching even more audacious was the fact that, until now and over the past three years, Merrills held just 1.25 per cent of the market — well behind UBS at 21.7 per cent, JPMorgan at 15.7 per cent and Macquarie’s 12.3 per cent.

But with the commercial property market tipped to turn as the majors look to their junior rivals for consolidation, Skelton eyed a sector he felt was about to boom.

The only problem though was that his property team was understaffed. There were just three bankers — David Williams, Rahul Bharara and Michelle Lim — to take on the Australian market leaders.

So Skelton turned his sights on who he thought were the best in the business — nine of UBS’s 16 property bankers — and put in place an intricate process to bring them across from the powerful Swiss bank.

The problem, though, was that delicacies exist in hiring one banker, let alone an entire team.

As part of every investment banker’s contract is a clause that ensures they cannot solicit their colleagues to jump ship. So when a potential employer wants to hire a team, it’s done on a banker-by-banker basis.

In early June, as the end of the financial year approached, renowned investment banking search consultant Margaret Doman was retained by Merrills to advise on the project.

Merrills identified the UBS bankers it thought were the top deal-makers and would prime the investment bank to cut down the market domination of its rivals. Typical of team hirings, the calls were made individually and each banker came to their own decision.

Darren Rehn, a 13-year veteran at UBS, was at the top of Merrills’ list followed by his senior colleague Simon Shakesheff. From there, Adrian Sheldon, Russell Cowley, then Ben Boyd, Emma Parker, Paul Ryan, Michael Ryan, Steve Duncan and finally their assistant Sarah John received a call. The raid was successful. Ten out of ten. The team that Skelton wanted he got.

But it was not necessarily a smooth path. Each of the bankers met and held discussions at the recruiter’s CBD office in Hunter Street, a nondescript building nestled between the investment banking district of Sydney’s inner-city.

The location had to be discrete. Merrills is located in Governor Phillip Tower, on level 38, just four below that of rival Goldman Sachs and near emerging bank, Nomura.

Bankers know bankers. Being spotted marching into a rival’s building would surely spark rumour.

Meeting near UBS bought its own problems. Next door, virtually, is Deutsche Bank and across the road is Royal Bank of Scotland. As a result, each one of the individual discussions was carried out, almost clinically, from the offices of the recruiter.

Dozens of phone calls — and plenty of coffees and teas — brought on the largest poaching raid seen among investment bankers since Credit Suisse hired the Deutsche property team at one fell swoop in 2006.

The Merrills hires came at a price. The figure for the 10 hires in total was, reportedly $27m, guaranteed for two years. Many industry observers link the decision by the bankers to move to UBS’s tiny bonus pool that was on offer this year.

Once all signed, then came the next step of resigning. On Wednesday, August 12, each of the UBS 10 gave their notice from home and couriered in their BlackBerries and UBS passcards to the bank’s Chifley Tower offices.

There was speculation that UBS was working over-time to retain some of those due to depart. But the group left and most are now on gardening leave for between one and three months.

The departures, naturally, left a hole at UBS. Keen to maintain its bullish reputation, the bank moved swiftly.

JPMorgan’s property team had deteriorated because of the defections of four bankers, headlined by Chris Wyke and Julian Biggins, to emerging US investment bank Moelis & Co, which has opened an office in Sydney. There is ongoing speculation that JPMorgan’s Australian boss Andrew Pridham is on his way to the organisation.

Either way, UBS took a more casual approach and pitched individually to the seven bankers it hired to rebuild its property team. From JPMorgan, it hired Tim Church to become a managing director and head of real estate, along with Ian Richards, Nick Thomson, Ben Roberts, Mitchell Schauer, Amy Toepher and executive assistant Jessica Alchin.

There is an expectation that to rebuild its ranks, JPMorgan could now turn its attention on Credit Suisse’s property bankers, led by David Dixon and Stephen Burns.

Neil Dyball, banking and financial services recruitment manager at Robert Walters, says the prevailing market conditions and industry talk of meagre or non-existent bonuses makes it an opportune time for investment banks to poach rival teams. “The investment banks, firstly the more international investment banks, the European and US banks, they in hiring mode,” he says.

“They key aspect is that we are seeing revenue-earners being hired whether they are moving as whole teams or individually. There is hiring activity. I do think now is the time if you are looking to hire a whole team. A lot of people are not expecting bonuses or minuscule bonuses so whole teams are able to be moved.”

Melbourne recruiter Graeme Jones said rounds of investment banking appointments naturally followed the round of redundancies and hiring freezes put in place over the past year.

It has been estimated that the job cuts among the investment and then retail banks numbered at least 2000 over the past six months at least.

“You have organisations that are reorganising themselves,” Jones says. “It is the old thing that in difficult times good people stay. Headhunting organisations want to employ people that are already employed. If you are bringing someone in who hasn’t worked for six months, there’s going to be queries. There may be very, very valid reasons. But it is fair to say that demand has picked up.”