Collaboration - wing men and matchmakers 

#partnership #createdemand #crossdivisioncollaboration

May 2020

When I joined the workforce fresh out of graduate school, I was all into being at the best private banking franchise and cornering the market. Call it the success of indoctrination.  

Very soon, I figured out the ecosystem of the industry and learnt to appreciate how so many banks can coexist in such a small town.  Each institution is inherently different and has its own unique selling proposition. And clients are largely individuals, families and clans, occasionally corporates and charities and foundations. Their circumstances are different so they don’t all have the same needs.  Even if their bankers offer services and products chosen from a fairly similar menu, the when, what, how, how much and how often will vary dramatically from client to client. 

After the financial crisis of 2008, the number of banks shrunk. Despite all the mergers, no bank was outstanding enough in every service and every asset class product offering to corner the market. Most banks had a full shelf offering but they have also developed concentrated expertise in a particular asset class or a particular service offering.  Just as the bankers themselves have taken pride in honing particular skills. After all it is human nature to want to do better, to be a recognised expert.  Where work can be compartmentalised and corporate infrastructure makes for division of labour, “practice makes perfect” takes real meaning.  Perhaps it was against this backdrop that the willingness to collaborate became a thing.  Everyone is more aware of his / her own niche and more eager to rally others who can bring complementary (different) skills to the table.  

Most banks have full shelf offering of services; but even long time clients are not fully aware of what all the divisions of the bank can do for him, his family, his business or for his business partners.  So banks go all out to market the “One Bank” idea to frontline employees. The goal is to cross-sell other divisions of the bank to existing clients.  There are generally 2 approaches to cross-division collaboration, the push approach and the pull approach.  

The push approach is often led by a small functional unit with wall-crossing authorities. This person or team is dedicated to sourcing partnership opportunities and might promote deal specific or non-deal specific partnerships.  

Non-deal specific marketing is likely led by the team responsible for partnership.  This “Matchmaker” needs unrestricted access to the entire database of the private banking clients and drives the dialogues. The Matchmaker identifies a client with an industry-leading business and requests the private banker to set up a meeting for a team of investment bankers. The goal is for the investment bankers to showcase what they could do for the client.  Sometimes a private banker could initiate this meeting if (s)he senses that the client is ready to benefit from capital markets fundraising activities.  And when the private banker has a prospective client who is in that league, bringing in the investment bankers as part of the team can flatter and impress.  

A deal-specific referral could be initiated by either the private banker or an investment banking team.  A private banker could approach investment bankers with an invitation to client’s IPO beauty contest. The investment bankers will have a much higher success rate if the introduction is made early in the chairman’s thinking process. Or the private banker can work “upstream” and fish for deals by periodically inviting the client to regular dialogues with an economist. A client toying with these landmark business decisions will try to get the timing right and such regular conversations on macroeconomic environment will plant ideas in their heads and / or reveal much about their long term plans. Or it could be investment bankers acting on behalf of a corporate client seeking to acquire smaller competitors; in which case a private banker can arrange for meetings with chairman and members of the founding family.  This will put the investment bankers directly in front of the decision maker(s) instead of working with the CFO. Some investment bankers will also initiate private banking relationships; bringing in a private banking partner early on in an IPO deal can help with pre-listing structuring and estate planning.  From my personal experience, a Matchmaker is not a necessity in a deal-specific referral as long as the private bankers and investment bankers already have a working relationship and understand when to step back.  

Sometimes the Matchmaker will drive the referral process.  The Matchmaker’s team may request the private banker to set up a meeting with the client to pitch a specific deal such as a public listing to a privately held company.  Selling an expansion plan to any business-owner is at least a happy meeting.  Even the most determined-to-be-private would be flattered by the idea that other people see potential in his company and want to be a part of it.  This is the best case scenario.

Now picture this: an investment bank gets a mandate to look for cross border acquisition targets; the Matchmaker scans the private banking database and identifies a national industry leader.  The Matchmaker broaches this matter to the private banking team. The private banker dutifully calls the client to schedule a meeting for the investment banking team; the client naturally asks what this is about. Once the founder, still in his prime and definitely lucid, states point blank that he doesn’t wish to sell out, then what? How does one pretend the client never said no and insist on setting up a meeting for the sole purpose of putting more people in front of the founder for that inelegant repeated ask? After all this is no senile senior citizen. 

There are only so many ways to ask a founder to part with his baby.  

An Investment banking deal usually brings in revenue of at least USD 3 million for the bank.  Private banking relationships rarely break even.  Given this huge disparity in earning power, private bankers would do anything to help investment bankers cinch deals. Some banks offer material benefits for the private bankers such as revenue sharing, brownie points on year-end score card and bonuses.  Even without those carrots, the bragging rights afford the private banker lots of thought points and touch points with the regular clients. There can only be two possible outcomes in a physical meeting: the investment banking team changes the client’s mind or they all hear, in person, the resounding “No.” Some meetings are destined to be triple lose scenarios.  I’m glad it was not my lot. This is the mother of all cold calls.

How did I get involved in these confidential discussions?  After the private banker called the client to set up a meeting for investment banking colleagues and got shot down, he asked me for advice. I was by then the unofficial bridge to the investment bank and thought to be his only hope. The client was neither flattered nor amused by the investment bankers’ attention.  And he had to juggle boardroom politics with another partner.  The last thing he needed was a bunch of investment bankers sashaying up to his office attracting unnecessary attention from the other founding partners.  The official bridge between the investment bank and the private bank refused to take no for an answer. The private banker didn’t want to offend his client by refusing to believe the client meant what he said and making the already strained boardroom relations even more awkward. I suggested my usual soft-sell approach—setting the stage for story telling.  If he could spend some time to research stories of other entrepreneurs bringing in strategic partners when the business was expanding; then he could illustrate how those partners brought expertise and contacts with them when funding was not an issue.  But this meticulous set-up would take at least a couple of months. And the dysfunctional functional unit in charge of partnership demanded face time with the client right away. Seeing the private banker wouldn’t be able to capture any upside, we worked on protecting his downside risk.  He could not afford to offend his client; so I suggested telling the client the investment bankers were experts covering his industry and the client could potentially get some sector intelligence from them. 

A pull approach marketing effort usually centres on advertising functional unit capabilities, sector expertise and a parade of previous deals. Open to all who needs more information in order to enhance client touch points. This is particularly useful for larger banks where most people have difficulty finding the right person and the right information.  

To me, a working partnership is having a dependable wing man.  My preferred modus operandi is to have a network within the organisation so I have a pool of wing men to fall back on every time I feel I need to the take a client relationship to the next level. 

A partnership that works can be led by any party and different parties can assume the lead role at different stages.  For example, a real estate developer’s listing deal at the Investment bank can lead to a new client relationship for the private bank and from then on, the private banker can use her regular conversations of economic updates to gauge client’s desire to launch potential bond deals or other spinoff activities.  The industry and competitor analysis that creeps up in these discussions will give the client a better idea of how other developers’ bond issuance and redemptions were faring.  Nothing fuels interest like other developers’ successfully redeeming and refinancing bond issues with lower coupon rates.  Economic data might be pseudoscience, presenting the information in context is an art, and finessing a deal is high art.  Clients focus on evaluating operational risks and opportunities for their businesses; keeping an eye on capital markets is not necessarily their forte and rarely a priority. As a result such dialogues often create the demand for capital markets expertise which can be matched by the cultural capital of the investment bank. For me personally the year end holiday season is perhaps the most important for relationship building.  This is the opportunity to remind clients that I, or other members of my team, have had the privilege of supporting their personal and business endeavours all these years.  And I always thank them for welcoming us into their families (letting us stay by their side through thick and thin.) The Christmas cards and corporate gifts I send out all bear the signatures of everyone on the team including the investment bankers.  Once a year, we can right every mistake, trading error, immaterial miscommunication and lacklustre proposal in December and start the new year on a clean slate.  Investment bankers may have deep faith in their platforms’ distribution power (ability to line up institutional and corporate investors eager to subscribe to the equity and bond offerings.) But it is a relationship business after all and social fabric matters. A private banker who can smell potential deals brewing will buy the investment banking partners precious prep time and face time with the client before other firms send teams to sit outside the client’s office sans appointment as a knee jerk reaction.  

The beauty of having a webbed network of wing men also allows one to focus limited time, energy and mental space for the right opportunities.  The world is full of myriad opportunities and the greatest disservice we can do ourselves is to get distracted; and unable to give what we really want to do, our undivided attention.  I once ran into a former client at a high profile regional finance conference and he introduced me to his friend, a leading South East Asian property developer, who was clearly a potential investment banking client.  I called the most senior banker covering that country and asked her to meet us at the hotel connected to the conference centre.  The four of us sat down for coffee and by day end, we had figured out the prospect’s business plans, reasons for having an interest in capital markets activities, and written memos on these opportunities. It was by far the easiest, smoothest, quickest and most promising referral.  My colleague covering SE Asia asked me why I didn’t take up that promising prospect from one of the most prominent families with both private banking and investment banking opportunity.  By then I had already spent years focusing on the Greater China market, and that deserved my all.  Perhaps that’s why the bank kept sending me to industry forums and conferences..

The real collaboration effort critical for the ecosystem of the industry however, needs to pool both financial and cultural capital from across the sector with  contribution from regulatory authorities. While some seasoned professionals have a deep seated distaste for all kinds of interactions with regulators, I see them as a necessity for our survival. We need entities to hold us (or our competitors) to high industry standards.  We also need to ensure benign competition doesn’t ferment into dog-eats-dog annihilation of the species.  The idea is to prevent existential threats from within and ward off external disruptive threats.  

I once got a call from the dealing desk with intelligence from a counter-party that my client would sometimes price identical equity structured products rates at 4 banks. My colleague was sent into a frenzied rant so I calmly told him I knew about it.  Whenever he or his gatekeepers initiated an idea they would request prices from all the bankers.  If I recommended an idea or product he would not waste time getting quotations from other banks.  This client’s philosophy was transaction execution was a cheap commodity and advisory was a unique service.  That was 2005, before the financial crisis and before the number of counter-parties for equity derivatives dwindled. Fast forward to 2018, one still has to pay for transaction execution but some clients are no longer willing to pay a premium for advisory.  As a result, this business model has little chance of survival unless we can shed the labour intensive flow of information.  But it seems our prayers were answered.  By now banks have finally got together to outsource and centralise a few functions.  In Asia we have an electronic trading platform for equity derivative structured products, providing messaging capability to connect market participants.  It brings transparency and commoditisation to an over the counter (OTC) business that has shrivelled since the financial crisis.  The platform was funded by a consortium of 2 American banks, 2 British banks and 2 French banks active in the region.  This is the kind of cooperation we need-by the industry, for the industry; outsourcing certain functions to a central platform to let the employees focus on client servicing.  

Two decades ago everyone wore a watch. Now we rarely do. Of the many watchmakers that disappeared, some survived. Those are makers of diving and navigation watches and of mechanical watches at the top end, prized for craftsmanship and far removed from the utilitarian function of telling time.  The decline of the watches industry was brought about by cellphones, an externality, rather than any patented technical breakthrough allowing a traditional player to corner the market.  The lessons of the watchmaking industry should hopefully stay with us.