Finance: Peak performer

Following the purchase of Lehman Bros., Jerry del Missier may climb BarCap’s corporate ladder to the top and prove himself a worthy successor to Britain’s most celebrated banker.

Bio: Jerry del Missier – Born May 16, 1962, in Sudbury, Ont. President of BarCap. Runner and mountaineer.

1987 Earns an MBA from Queen’s University to add to an honours B.Sc in chemical engineering obtained from Queen’s in 1985.

1987-88 Joins Bank of Nova Scotia and rises to associate in the derivatives product group.

1988 Joins Bankers Trust in Toronto; leaves for London three years later to trade in European rate derivatives for the bank.

1997 Joins BarCap, then known as BZW, as global head of derivatives; named co-president of the investment bank in 2005.

2008 With the resignation of co-president Grant Kvalheim, becomes BarCap president and heir apparent to BarCap CEO Bob Diamond.

Jerry del Missier, president of U.K. investment bank Barclays Capital, loves to climb mountains. He scaled the 6,476-metre Mera Peak in the Himalayas in December. “It’s the highest you can climb in two weeks,” del Missier explains. He’d love to climb Everest, but “it’s not conducive to this job.” Del Missier didn’t just ascend Mera Peak, however — he climbed it with a colossal BarCap flag in tow, which he planted at the summit. It’s now hanging in his London office. “I’m a company man,” he says with a smile when asked about the feat.

The endeavour may sound a bit like a publicity stunt, but 46-year-old del Missier is notoriously media-shy, and just the type to hide behind the company flag, acquaintances say. “It would be about BarCap and not about him in his mind,” says David Saunders, dean of Queen’s School of Business. “He has the quiet pride, but he’s not the sort to wave his own flag.”

The Canadian banker is going to have to get used to the limelight, however: he’s poised to become the face of BarCap. He was named sole president of the investment bank in January, making him the likely successor to flamboyant BarCap CEO Bob Diamond, a media darling and Britain’s highest-paid banker, who was awarded £21 million in pay, shares and bonuses last year.

Del Missier faces a climb in his new role. In March, he was moved to New York to head BarCap’s U.S. expansion, aimed at giving the investment bank a top-tier presence there — an expansion that began spectacularly with BarCap scooping up assets of bankrupt Lehman Bros. Holdings in mid-September. It’s an ambitious plan. BarCap may have made a splash on Wall Street, thanks to its new acquisition, but del Missier’s U.S. offensive is still happening during a rough year for the investment bank and its parent company, which suffered £5.9 billion in writedowns and credit losses since last November. And BarCap’s success is vital to drive shares at parent Barclays PLC (LSE: BARC), which are down 45% on the year. BarCap is the group’s biggest earner, accounting for 31% of its profit last year. Del Missier couldn’t be coming to prominence at a more critical time.

Born and raised in Sudbury, Ont., del Missier left for Queen’s University in the early 1980s to study chemical engineering. “I thought I wanted to work in the oil business, but the oil business sorta collapsed shortly after I arrived at university,” he says. He discovered an affinity for financial markets — “There was a lot of really interesting stuff going on at the time” — and made up his mind to pursue investment banking while still an engineering student, remaining at Queen’s to complete an MBA after earning his B.Sc in 1985. (He sits on Queen’s board of trustees today and has donated $1.5 million to the university.)

In 1987, del Missier landed a spot in the Bank of Nova Scotia’s training program, but not before receiving rejection letters, including a generic one from Barclays that now hangs framed in his New York office. Del Missier ended up on Scotiabank’s derivatives products desk in Toronto. Derivatives “was a really new area of finance, very exciting and technically very challenging,” he says. “I found that I could relate with my engineering background to this very mathematical part of finance, and it was a market that was growing, and you could just see the potential for it.”

Fifteen months later, Bankers Trust, then a leader in derivatives, recruited del Missier, who began trading Canadian-dollar derivatives in the company’s Toronto office. He developed a reputation as a whiz and, in 1991, was transferred to London to trade European-rate derivatives; by 1993, del Missier, who speaks fluent Italian, was head of European derivatives products. “He was one of the early people on the derivatives, really understanding and doing modelling when the derivatives were just really coming to their head in the late 1980s,” says Queen’s dean Saunders.

In 1997, with Bankers Trust facing problems — it would be acquired by Deutsche Bank the following year — del Missier moved to BarCap, then known as Barclays de Zoete Wedd, as global head of derivatives. Many saw BZW as a dying company when Bob Diamond joined as head of global markets in 1996, and some of its businesses were sold to Credit Suisse the following year; what was left reportedly became known around Barclays as “the rump.” Del Missier knew of Diamond and was up for the challenge of building a new investment bank at Barclays. “BZW had never really succeeded in replicating its success in the U.K. anywhere else. And it wasn’t really a clearly focused organization, and then there were a lot of underperforming businesses,” he says. “So I would say the [biggest] achievement that we’ve had as a management team, and some of the toughest work that I was involved in, was taking underperforming businesses and transforming them.” In Barclays’ 1997 annual report, improved performance in the derivatives business was already credited with helping income growth. And the transformation would continue: BarCap expanded by an average of 25% a year between 2000 and 2007, making it the fastest-growing major investment bank in the world.

Del Missier, who had assumed responsibility for the firm’s commodity and equity businesses, was named co-president of BarCap in 2005, sharing the role with Grant Kvalheim, an American who had joined the company from Deutsche Bank in 2001 as head of credit products. Observers saw the pairing as the creation of a succession race to replace Diamond, who was now BarCap’s CEO, and two years later, del Missier started to emerge as the probable winner. In August 2007, sub-prime investments made in some of Kvalheim’s units went sour. The bank’s share price plummeted from an August high of 712.50p to below 600p later in the month, lowering the value of Barclays’ bid for Dutch bank ABN AMRO. (Barclays had unveiled a €67-billion offer in April, which was dubbed “the largest merger ever in global financial industry” by Barclays Group CEO John Varley.)

Kvalheim’s responsibility for credit products was reassigned to del Missier in September 2007, prompting speculation that Kvalheim would leave BarCap. Then Barclays lost ABN AMRO in October to a Royal Bank of Scotland–led consortium with a stronger bid. By early November, it was rumoured Barclays could report as much as £10 billion in writedowns, but a Nov. 15 conference call provided some relief: writedowns would total only £1.3 billion. During the call, Diamond praised del Missier for “building a machine” with commodities, foreign exchange and equity derivatives, businesses that had provided a balance to credit-related losses. BarCap’s foreign-exchange business was “absolutely cooking,” Diamond said. “The technology that Jerry del Missier has built in our government and swap businesses has been producing record performance in volumes and profits since the summer.”

In January, it was official. Kvalheim resigned, leaving del Missier as Diamond’s heir apparent.

Ask del Missier how he feels about being called BarCap’s next CEO and he smiles, but doesn’t reveal much. “Well, you know, I have enough to worry about with my current job without thinking about what’s next,” he says.

London’s financial press, however, has spent a lot of time speculating that Diamond, 57, could leave the CEO spot vacant soon. A devoted Republican from Massachusetts, it’s been rumoured he might return home to switch to politics. (In February, a source told the Guardian that Diamond’s connections could land him a role like U.S. treasury secretary, or even chairman of the Federal Reserve.) It’s also been said Diamond could replace the next Wall Street boss who’s given the axe.

Then there’s Diamond’s rumoured rivalry with Barclays Group CEO Varley. In 2003, Varley, then finance director, beat Diamond in a contest for the top role. But Diamond, who was earning as much as £13 million more than Varley by some estimates, was given the new title of Barclays president to go along with his BarCap CEO role, and his responsibilities were extended beyond the investment bank to include Barclays Global Investors and Barclays Wealth. This has created a tense “two-headed beast,” with Diamond wielding almost as much influence as Varley, sources have told the press. “John is not allowed to talk about certain things by Bob. And everything Bob asks for, Bob gets,” one source told the Guardian. The Times of London reported in February that Varley, a quiet, bookish Brit, has been frustrated with media-loving Diamond’s high profile, and that the pressure of the sub-prime mortgage crisis and failed ABN AMRO bid has renewed tensions. Some have reported a recent shift in power toward Varley, sparking rumours that Diamond could leave this year, according to the Times. But other sources have said they believe Diamond could still rise to take the helm of Barclays Group.

If del Missier has the chance to take Diamond’s place, BarCap is in for a very different chief executive. Whereas Diamond is a brash, charming extrovert — and has been known to bully to get results, an anonymous source once told the Guardian — del Missier is quiet and has been called geeky. “If you put Bob Diamond in front of 1,000 people, Bob probably loves speaking to 1,000 people,” says Gay Huey Evans, Barclays’ vice-chair of investment banking and investment management, who has known del Missier since they worked together at Bankers Trust back in the 1990s. “Jerry appears quiet, but if you get him talking, he is very specific and very good at engaging in conversation.” Huey Evans says the “geeky” description stems from del Missier’s days as a “derivatives geek” at Bankers Trust, and his amazing ability to retain figures and other knowledge. “We were having Thanksgiving dinner one time, and his knowledge of trivia, in particular television trivia, was overwhelming,” she says. “He’s got a mind like a steel trap,” agrees Queen’s dean David Saunders. “It’s almost computer-like, his precision.”

Though work seems to consume most of his day, del Missier, who is separated from his wife, somehow finds the time to enjoy other pursuits. Aside from mountain climbing, he has competed in the Rotterdam marathon many times and runs about five times a week. He occasionally fences, having been captain of the varsity team while at Queen’s, and enjoys fine wine. He recently returned from a horseback safari in Botswana.

Del Missier is a skilled manager and great listener who has won many followers, his acquaintances say. But one criticism appeared in the news stories that greeted his appointment as sole BarCap president in January. “Some say [del Missier’s] lack of charisma may be a handicap in moving higher,” the Financial Times reported. BarCap doesn’t have to worry about leadership at the moment with Diamond, “the P. T. Barnum of U.K. investment banking,” at the helm, a Euroweek columnist wrote. “However, Jerry del Missier, for all his brilliance in derivatives, is simply not cut from the same bolt of cloth.”

Diamond has set a high standard that will be difficult for a successor to replicate; seen as the man who built BarCap, he’s hugely respected and the face of the company around the globe. “I’ve certainly learned a tremendous amount from Bob; he’s been a fantastic boss,” del Missier says. “We have a lot of similarities, I’d say, in terms of values, the importance that we put on culture, openness. I guess charisma is one component of leadership. I have a large organization that I’m already responsible for, and you know, I guess several years down the road, we’ll see,” he adds with a chuckle.

Del Missier is not uncharismatic during his June interview with Canadian Business at Barclays headquarters in London’s Canary Wharf. He sometimes looks down and fiddles with his tea bag, but also smiles and laughs easily. He’s been getting settled in New York, he says, but still spends about one week each month in London.

From BarCap’s New York office, del Missier will oversee “a once-in-a-lifetime opportunity” to compete with Wall Street heavyweights, taking advantage of their current weakened states to bring BarCap’s U.S. businesses into the top tier over the next two years. The company made huge strides toward that goal on Sept. 17, when Barclays announced it was acquiring newly bankrupt Lehman Bros.’ North American investment banking assets for US$1.75 billion. The deal — which includes North American fixed income and equity sales, trading, research and investment banking businesses, as well as Lehman’s New York head office — thrust BarCap into a Top 3 position in U.S. capital markets.

“The proposed transaction will reinforce our position as a premier integrated global bulge bracket investment banking firm with a leading presence in all major markets and across all major lines of business,” del Missier says. “It will also significantly build our business in the Americas, home of the world’s largest capital markets.” To finance the acquisition, Barclays unveiled plans for a £701-million share issue alongside a £600-million capital injection from existing shareholders.

Taking advantage of weaknesses in the market is an approach del Missier is familiar with. In 1998, when most Wall Street firms were exiting commodities, he worked on growing BarCap’s commodities business, and he helped build the foundation for the company’s equity-derivatives franchise in the bear market of 2002 and 2003. “The U.S. will remain the single biggest investment-banking market for years to come, so we would see this cyclical downturn as an opportunity to accelerate the growth of our businesses in the U.S. and to really ensure we’re positioned when the cycle comes back,” says del Missier, who believes difficult credit conditions will continue to shape the market into 2009. He says BarCap wants to emerge with a strong presence in mortgage and structured credit, “businesses that are clearly under a significant amount of stress right now.”

The plan will also focus on growing BarCap’s existing U.S. businesses, which have had some success over the past 10 years. “If you look at corporate bond league tables, we’re in the Top 10,” del Missier says, adding that the company is one of the Top 3 commodity players in the U.S., and on the verge of being in the Top 5 in government bonds. (The company was recently ranked in the Top 3 in foreign exchange in a Euromoney survey.) “So we’re starting from a very strong point,” he says.

Before May 2001, del Missier notes, BarCap hadn’t done a single corporate bond for a U.S. client; this year it did 24 in March alone. Newer ventures, such as high yield and an advisory business, will be pushed as well. Del Missier says BarCap will challenge for a Top 5 position in high yield bonds in the next few years.

Cracking the U.S. isn’t easy, however. “Some of the U.K. banks have had historically some quite poor performances trying to get into the U.S markets,” says Collins Stewart banking analyst Alex Potter, citing cultural challenges and management commitments. It’s easy for European banks to withdraw capital from U.S. businesses during a downturn, whereas U.S. banks have no choice but to stay put.

Leigh Goodwin, U.K. banks analyst at Fox-Pitt, Kelton, says BarCap’s prospects for U.S. expansion are good in the face of weakened competitors. “They have a successful business model,” he says, noting Barclays has been relatively unscathed compared to U.S. firms in terms of writedowns. “So I think it’s got some momentum behind it,” Goodwin says. “And certainly, we know that, as a whole, BarCap at the top line is going quite well, and certainly in debt capital markets globally it’s gaining market share.”

Potter agrees BarCap is already “pretty much there” in many of its U.S. businesses. “Certainly, there is an ability to pick personnel up at the moment with the depressed state of the markets,” he adds. But whether taking advantage of the markets is the right approach is still open to debate, he says. “You’ve then got to make a judgment about whether we are ever going back to the sort of heyday of the credit markets in 2006, and arguably we’re not. So they might be able to take market share at the moment, but of a pie that’s smaller than it once was.”

The Lehman Bros. deal may improve Barclays’ outlook, according to some analysts, who greeted it with guarded praise. “On the face of it, paying 0.07 times price-to-book for Lehman’s North American business seems a bargain. The £40 billion in acquired assets appears relatively clean as well,” says Panmure Gordon analyst Sandy Chen. “If the U.S. bankruptcy courts approve it, we would view the deal as value-enhancing, albeit small in the group context.”

Citigroup analyst Tom Rayner, however, titled his Sept. 18 note “Lehman Deal — Not as Good as It Looks,” and said the deal adds more risk at a time when caution and a strong balance sheet are required. “Given the ongoing uncertainties surrounding broker-dealers in the U.S., and highly leveraged banks in general, we believe that Barclays has potentially made itself more vulnerable to bad news,” he wrote. “Whether this acquisition makes sense strategically will largely depend on conditions in financial markets, in our view. With significant uncertainty hanging over the industry, we believe this may turn out to have been a risk not worth taking.” And though Barclays Group secured £4.5 billion in funding through a share issue in June — half of which is earmarked for global expansion, including BarCap’s U.S. strategy — Rayner still believes the risk of further equity issuance is high.

None of which is news to del Missier. “Clearly, marketing conditions will be challenging,” he concedes. “We’ll certainly have to be on our guard.” As a young BarCap executive trying to prove himself a worthy successor to Britain’s most celebrated banker, del Missier will have to be on guard more than most. But that won’t stop him, Queen’s dean Saunders says. “One thing with Jerry is, he’s never failed,” says Saunders. “If you look at the overall trajectory, when he sets his mind to something, he’s always been able to achieve. And this is a big goal, and he knows it’s a big goal, and he’s a smart guy. So my money’s with him.” It looks like Mount Everest will have to wait.