This month brought the shock announcement that Trevor Loewensohn was leaving his role as co-head of JPMorgan's investment banking operations in Australia to spend more time with his family on the beach. Kevin Jacobson, Loewensohn's long-time friend and the bank's head of consumer and industrials, also resigned. The vacuum left by the departures presents some challenges to the bank which was slowly making a name for itself as an M&A powerbroker. Sean Wallace, co-head of Asia Pacific, has flown to Sydney to sit in while a replacement is found. And Tim Fletcher has moved from Hong Kong to take over Jacobson's role. Here Wallace and the co-head of JPMorgan in Sydney, Rob Priestley, talk about finding another Loewensohn and keeping the momentum going at the bank.
How are you dealing with Loewensohn's departure and finding a replacement for him?
Wallace: We wish Trevor all the best in his new endeavours but it is important to understand that this was a leadership change and we continue to have a large team of capable bankers. From a regional perspective, our Australian business remains important to us, representing about one-third of our Asia-Pacific ex-Japan activities. We are taking a methodical and aggressive approach to finding a replacement. We've hired an executive search firm and we're looking in the local market as well as globally.
We'd like to hire an Australian but we also want to hire the best person for the job which is why we have cast the net so wide. Another thing we are doing is looking internally, speaking to our own senior people about the opportunity. The person we are looking for is someone that understands the global nature of our business and is well versed in a variety of different products. Whoever takes the top investment banking role will be charged with matching our performance in the US and Europe and making JPMorgan in Australia a top three player in the full mix of products and industries.
How close is JPMorgan to achieving this top three slot?
Priestley: We think the team has played an important role in bringing together the predecessor firms that make up JPMorgan today. 2000 and 2001 was the local merger of Ord Minnet and the global merging of JPMorgan and Chase. Trevor and the management team handled this integration period well. As is the case globally, we are now strong in debt and derivatives, our equities business is growing and we have built a solid advisory capability. The challenge now is to further develop our client relationships locally to deliver more global financial solutions.
Wallace: We have an established track record in taking Australian corporations overseas to the US dollar market. Year to date in the public market we have lead or joint-lead A$3.5 billion in deals which is 90% of the market share. We have also built a great metals and mining franchise. We have worked with big firms like BHP Billiton and Newmont, and this year we were involved in Xstrata's acquisition of MIM.
Tim Fletcher has moved down from Hong Kong to take over Kevin Jacobson's position? Why was he the right man for the job?
Wallace: Tim represents the local/global nature of the firm. He is an Australian and worked in this market for six years before spending five years gathering valuable international experience through jobs in New York, San Francisco and Hong Kong. So Tim has good contacts and understands all of our products. One of the first deals he is working on is with Caltex. Caltex is trying to maximize its distribution system in Australia and has announced a joint venture with the Woolworths food chain to run and brand their gas stations.
Will Loewensohn's replacement fit into the same hierarchical structure, ie will he work with Rob Priestley as co-head of investment banking?
Wallace: Some banks have Australia reporting directly into the New York office but because this market represents one-third of our Asia-Pacific business we believe that it is important for this market to report into Hong Kong. We are integrating Australia into the region and taking advantage of flows between here and the rest of Asia
Priestley: Globally, JPMorgan operates along industry and product lines with a geographic overlay; the same applies to Australia. Trevor looked after the client franchise while I looked after the products and the running of the branch. Sean has taken over the client side and we are working in close partnership on this front.
Sean, how are you handling your Asian responsibilities while overseeing Australia?
Wallace: I co-head investment banking in the region with Bong Consing who is more than capable of running things while I am down in Australia. I have always spent a lot of time travelling down here but now I will be spending a couple of weeks each month in Sydney. Once a replacement for Trevor is found there will be a handover period. After that I will continue to travel here to bring Asian expertise and contacts to this market.
Where is JPMorgan placed in the competitive field against other investment banks in Australia and where would you like to be?
Wallace: There are some great competitors that are very much focused on the local market. We do well locally but our big strength is our global reach which allows us to offer a different product set and worldwide distribution. And we think this combination of abilities is attractive to clients. Let's face it: if you are an Australian mining company you can't afford to ignore what is happening in markets like China or South Africa.
Priestley: The advantage we have is that we are strong globally. In this sense, the strategy is a local/global one, delivering global solutions to clients including of course a local $A solution if that is the best outcome. We feel we have a competitive advantage in this regard. There is perhaps only one other bank in the world who could really claim this.
What comment do you have on the merger between Goldman Sachs and JBWere?
Wallace: Mergers are always interesting to watch because they aren't easy to manage and not all are successful. JPMorgan has been through the process so we know first-hand the issues and challenges involved.
What deals are in the pipeline that you can talk about?
Wallace: We believe there will be three big themes playing out in the Australian capital markets. The first is the continued internationalization of Australian companies and their re-orientation towards the China market. There are a lot of local companies looking at the natural resources sector in China and asking how they are going to capitalize on the growth potential. The second theme will be an adjustment of capital structures to match the international nature of assets. And the third is on the buy-side, the need for Australian capital to find a home in good investments. From a sector perspective we see great opportunities in real estate, consumer products, building products and the financial services industries.
What will happen if the Reserve Bank raises interest rates?
Priestley: There has been a lot of talk about this but we don't expect the Reserve Bank to lift rates any time soon. In fact, we feel that the next move is likely to be an easing in 2004 but only if the housing market cools. On the US treasury side, there has been volatility over the last month or so with a severe back up in rates. We are watching this closely given our position in the new issuance market. The window for Australian issuers this year has presented opportunities to borrow offshore on both a fixed and floating basis. Although some borrowers may have missed the opportunity to lock in all-time low fixed coupons on a floating basis (which represents the large proportion of Australian borrowers) the all-in cost remains compelling. In this respect, although credit spreads have moved wider, swap spreads have also moved commensurately.
What about the equity markets? What will encourage investors to buy stocks again?
Wallace: Australian companies are still reporting solid earnings growth so we expect equities to make reasonable gains. The tepid IPO market should change too as investors move out on the risk spectrum and start looking for returns from higher risk stocks. The next 12 months will see a more active IPO market; the pipeline is certainly building.