Reuniting the previous crew at a brand new financial institution is hard | USAEMALL.com

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer, a former global head of equity capital markets at Bank of America, is now a managing director at Seda Experts

In the 1980 film The Blues Brothers, Jake (John Belushi) and Elwood (Dan Aykroyd) embark on a “mission from God” to save an orphanage from foreclosure. They hatch a plan to reunite their old R & B band and put on a show to raise the $5,000 needed to pay property taxes. “We’re putting the band back together,” Jake famously tells his old bandmates.

Investment banking has its own version of this story: a new leader arrives at a bank and asks former colleagues to rejoin him to help revive a faltering institution. This week, the Financial Times reported that Citigroup’s new global head of banking, Viswas Raghavan, has already hired at least 10 ex-JPMorgan colleagues as part of his turnaround plans. A few recruits have also come from other institutions, but the bulk of new arrivals are his old crew.

Anyone who has spent time in the industry will recognise this script. The new honcho surrounds himself with trusted lieutenants to consolidate his authority, enforce his edict, and — incidentally — make him harder to remove. The hires are advertised as a talent upgrade, but once in place, they serve as a kind of poison pill: if the bank ever fires the new boss for underperformance, it still faces a sizeable rump of disgruntled loyalists embedded throughout the organisation.

Hiring star leaders and letting them bring their own posse has had mixed results. It succeeded for a brief while at UBS under Andrea Orcel, while other banks, such as Deutsche Bank and HSBC, have spent several decades trying — and failing — to crack the corporate finance big leagues, with HSBC eventually throwing in the towel this year on key parts of its North American and European investment banking business.

More often than not, the strategy delivers bumper pay packages rather than durable market share gains. Individual hires may be capable, but in my experience, only a handful of lateral recruits ever moved the needle.

Client relationships in investment banking are heavily institutionalised; corporate and private equity clients hire the franchise (and balance sheet) more than the coverage banker. Senior recruits also typically require at least a year before generating new business. Besides, the investment bankers with the deepest C-suite relationships are increasingly found at boutique firms rather than large banks.

In the meantime, the bank suffers the immediate impact of higher costs and lower morale. Hiring sprees require big compensation guarantees to lure talent. They also alienate existing staff, who see their long-standing service rewarded with what’s derisively called a “loyalty discount”. A significant segment of insiders bide their time, humour the nouveau regime, and quietly plot their exit — or failing that, their new colleagues’ demise.

Even if Citi assembles a top-tier troupe of bankers, “origination” is the bigger hurdle. Banks usually gain market share when rivals implode or when they deliberately take more risk. Citi has tried the latter before and it still bears the scars. Back when my equity capital markets teams were bidding on block trades a decade ago, we’d feel confident in our pricing if the client paired us with Goldman Sachs or Morgan Stanley, even if those firms were far from infallible. But if we found ourselves alongside Citi, the internal reaction was different: we’d worry we had bid too aggressively. That perception still lingers.

In investment banking, brand carries enormous weight, and perceptions only shift over years, if not decades. Lower-ranked firms usually stand out by putting balance sheet on the line. Matching JPMorgan isn’t enough; Citi will have to be demonstrably better, and the top-tier banks will fight ferociously to defend and expand their turf.

Beyond client work, internal headwinds are often formidable. Large banks have entrenched fiefdoms and control functions (risk, credit, legal, compliance, HR) that may pull in different directions from the bankers. Hiring allies for sector teams won’t change this dynamic. Citi, for example, has historically focused more on businesses like treasury and trade services, leaving its investment bank a perennial also-ran among the US M&A bulge brackets.

Raghavan is resolutely determined to transform the narrative. But durable success won’t come just from reassembling old colleagues. It also requires consistent client coverage over many years, strong internal alignment, and an ability to put on greater risk without repeating past blunders. That’s much easier said than done. As The Blue Brothers reminds us, getting the band back together sounds great, but if you’re not careful, you can leave a trail of value destruction everywhere.