JPMorgan has re-configured its Asian markets business ahead of its forthcoming merger with Bank One. After brain-storming within the bank, it will institute an array of changes to take advantage of its new position and the changing nature of its own business.
Third-party structuring in Hong Kong will be combined into a single team across the equity derivatives and credit-and-rates teams, headed by David Long. In Tokyo, trading will be combined across the same teams under Partick Moisy. Moisy will also have responsibility for risk, while Ken Nakashini will take care of the client side.
Kim Hong will lead a new team that brings together convertible bond distribution and credit sales. Hong, in tandem with Chester Kam, will also run credit and rates in Asia ex-Japan, with responsibility for clients and risk respectively.
Client relationship and client management functions will be combined under the leadership of Chee Ram Yong.
Marc Jones will continue to lead debt capital markets and corporate derivatives, and Naoto Ichiki stays in charge of the real estate finance business. Nick Andrews and David Hancock will split up the Asia-Pacific equities business, with Andrews heading up emerging Asia and Hancock will oversee Japan and Australia, and will also be responsible for client connectivity.
Chris Nicholas will take responsibility for the distressed/high-yield debt trading business and will remain on the regional credit underwriting committee.
Where did the motivation for these changes come from?
Broadman: There was quite a lot of enthusiasm for the notion that you can integrate some things in a non-traditional way if you don't overly-emphasize product. We came out with a list of things to do and the first three or four were the easy wins. And we'll continue to look for some things to do differently that we'll roll out over time. My sense is the buy-in will be quite strong from the JPMorgan team. The real test will be to see if we can take more market share. A year from now you can judge if I made a good or a bad call, but I'm confident this is the right direction and our model will be a winner.
Can you explain a bit about the logic behind the changes?
There are a couple of drivers from my perspective, almost all of which are related to the theme of investors. But let me first say what this is not. Over the past couple of years lots of people looked at combining equity and debt capital markets businesses, and I think that was largely a cost-driven exercise. That's something I'm explicitly not doing here.
You have a few things happening on the investor side of the business that make it pretty compelling to work hard to get better integration across the major lines of business: equity, credit and rates. First, Asian investors are definitely growing in importance relative to their European and US counterparts.
Second, in Asia you tend to have single decision-makers across the product range much more frequently than you do in large US institutions, for example, where everything is very segmented. And thirdly, in Asia the phenomenon of retail investing, particularly in structured products, has really become a significant activity.
So our view is that if we can provide investors with much more of a one-stop shop, at a firm that's strong across the full range of businesses, it just maps a lot better to the way the investors are set up. So the thrust is initially in some obvious places around the derivative products, where we've combined the credit, rates and equity derivatives teams in both Hong Kong and Japan. That allows us to be much more innovative in embedding credit and rate views, or rate and equity views, into derivatives products.
In some ways the investment environment is becoming more complicated now, rates are going up, equities in Asia have had a big run up, but where do they go from here? Credit spreads are very tight, though they have been widening, so the combination of a more challenging investment environment with the growing importance of the investor base just made it made it feel like the time was right to put things together and really try to deliver a very full product range to these clients.
Are your competitors organized this way?
We don't see any major competitors aligning the full suite of derivative products together yet, so we feel this gives us an edge. Time will tell.
What's happening on the equities side of the business, splitting up the region between emerging Asia and Australia and Japan?
The business was formerly run in a totally co-mingled fashion. If you ask what's our real strength as a franchise today you would point to our emerging Asia business, which is largely built off the old Jardine Fleming platform. So really the objective is for Nick Andrews to focus on that and really try to take advantage of what a uniquely broad footprint in the market we cover there, while at the same time letting David Hancock focus on the complex issues around Japan and Australia. These are much more developed markets and are in some ways going through a different set of challenges, largely cost pressures that you're seeing globally around the cash equity business, so I see those two markets as much more of a technology challenge, which is why he'll lead the technology effort.
What's your strategy behind the change with Chris Nicholas on the distressed debt side?
In some ways distressed has been a winning model for everybody in Asia, it almost didn't matter what your business model was. So long as you were long the asset, you made money. We believe it will get harder from here. Chris runs a very intensive research-driven model, which is different to some of our competitors. But we do have a different goal. As a firm we see putting more capital to work behind Chris's new initiative.
And now you're buying into distressed assets China?
We've made our first couple of acquisitions of non-performing assets through Huarong and that gives us an opportunity to learn and get more comfortable as we grow the business. All of the early players, which at the moment would include us, are clearly still in the learning phase around this business in China.
And are you looking to extend the derivatives business into China too?
Yes. It's obviously very early days but it is something that you would expect to become quite large over time. At the moment there's barriers to entry for anyone who doesn't have a bank there, so since we have a bank we can be an early mover.