The world’s securities firms are poised for 10 years of growth, according to Hans-Joerg Rudloff, the former chairman of that business at Barclays Plc.
“Investment banking has a brilliant future,” Rudloff, 73, said in an interview in Milan on April 16, making his first public comments on the business since retiring from Barclays in February. “The industry is looking at a golden decade.”
The growing need for capital will propel profits, once securities firms finish adapting to tighter rules designed to prevent a repeat of the financial crisis and shield depositors from trading losses, said Rudloff, who during his five-decade career helped foster the expansion of the Eurobond market in the 1980s.
“It isn’t about trading with the firm’s money, but about allocating capital and playing the intermediary” by originating, packaging and distributing all types of securities, including derivatives, he said.
Wall Street firms, constrained by regulations that ban proprietary trading and capital rules that more heavily weight risky assets, are facing a prolonged slump in fixed-income trading, which has fallen in nine of the past 13 quarters.
Barclays has retreated from that market since 2011, leaving the London-based bank with a roughly 12 percent share among the eight biggest firms in 2013, according to data on the fixed-income, commodities and currency markets compiled by Bloomberg.
“What we’re seeing in FICC is the effect of derisking, adjusting to new leverage and capital rules -- they’re huge factors,” Rudloff said. “Where people are suffering now is in proprietary trading.”
Barclays’s management is facing demands from shareholders for a clear strategy for the securities unit, the biggest source of income for Britain’s second-largest bank, amid declining profitability. Barclays said this month that it will present a plan on May 8 to deliver “improved and sustainable returns and growth.”
While Rudloff was at Barclays, where he spent 16 years as chairman of the investment bank, the firm morphed into a fixed-income specialist, having sold its equities business in 1997. It returned to underwriting and trading stocks in 2008 with the purchase of Lehman Brothers Holdings Inc.’s North American operations out of bankruptcy.
“Investment banks are two-thirds down the road of adapting, and the U.S. banks are further down the road because they’ve been faster at adjusting,” Rudloff said. “The No. 1 winners will be the American firms, and the Europeans which are able to figure out their roles.”
Rudloff started as a trainee at Credit Suisse in Geneva in 1965. An economics graduate from the University of Bern, he joined Kidder Peabody International Ltd. three years later and returned to Credit Suisse First Boston in London in 1980. There he helped expand the firm internationally, including in Russia, where Credit Suisse grew to become one of the largest international investment banks.
For Rudloff, chairman of Marcuard Heritage AG, a Swiss wealth manager which oversees about $3 billion, Russia and the Ukraine crisis are the greatest threat to global economic growth and prospects for an investment-banking expansion.
“The attitude of western powers toward the crisis, if you analyze it, what they’re saying is that they’ll wage war with different means, financially, economically, diplomatically,” Rudloff said. “If that’s the intention, what has driven the last 25 years’ of development, that is, globalization, will come to an end.”
Four-way talks in Geneva ended April 17 with an agreement aimed at taking the first steps toward de-escalating tensions in Ukraine, after Russian President Vladimir Putin said he hopes he won’t have to send in troops. The U.S. and its European allies demanded Russia help calm the crisis or face new sanctions. A week earlier, the Obama administration told asset managers it was planning additional sanctions.
The existing measures are already starting to reverse capital flows. Investors have been selling Russian securities, causing its currency to fall 7.6 percent against the dollar this year, while Russia’s holdings of U.S. government securities fell to the lowest level since 2011 in February, Treasury Department data show. Retail deposits in Russian banks declined by 2 percent, according to central-bank data.
“Russian banks’ access to short-term funding has gone, they’re relying on the central bank,” Rudloff said. “There will be a huge credit crunch.”
Beyond Russia, “a divided world would come if we force countries into isolation,” he said. “Economic growth would take a huge hit. It’s the biggest regression the world could make economically.”