This link has been bookmarked by 1 people . It was first bookmarked on 27 Mar 2008, by Zhuu Ming Ang.
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27 Mar 08
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FT: Have you changed all of that?
JT: Yes, actually all of that. We’ve brought in another person, Noel Dunahue, who actually has a lot of experience. Most recently he was at a hedge fund, but he had ten years of experience at Goldman’s risk management before that.
We’ve combined the credit and market risk management functions. They now report directly to me so it’s clear to all the businesses the importance of the risk management functions.
We actually have a weekly risk committee meeting that includes the heads of all the businesses and we’ve changed the compensation philosophy so that now people get paid first based upon how well the firm as a whole does. That will fundamentally change behaviour.
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FT: The character of some of these new structures and also some of the individual people you’ve brought in are very typical of Goldman. Has there been any resistance to sort of the Goldmanisation of Merrill?
JT: Well, I think it’s important to distinguish two different things. We’re not trying to Goldmanise Merrill. Merrill has a unique culture. It has a unique mix of businesses. It is a very client-driven franchise. It of course has a high net worth business that really is better than any in the world.
But the piece that we are trying to do, which is still Goldman-like, is focusing on team work, getting a much more collaborative effort across the firm, making sure that everyone understands what our direction is, what our strategy is, where we’re going and really open up the organization so that no one feels that they can’t ask about any other part of the business.
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FT: Should we expect a relative shift back to Merrill’s retail roots? Is that going to become more important?
JT: You know, it’s funny. There was never a shift away from those retail or really high net worth roots. If you look at the high net worth business, it’s a great business and it continued to grow even in 2007. At the end of 2007, we had 1.75 trillion assets under management. We have 16,000 plus financial advisors.
Even in the most difficult time, in the fourth quarter of last year, which was difficult in the market environment, also obviously difficult for Merrill Lynch, the net new assets raised, $30bn. So that financial advisor network has continued to function, has continued to grow, its margins actually improved last year. So, its always been a very important part. We’re just re-emphasizing it.
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FT: That wealth management business though has been overshadowed particularly in recent quarters by newer ventures, newer areas that Merrill got into that maybe wasn’t so good at managing. Are we going to see a pull back from those riskier areas of business?
JT: Well, there’s no question as it relates to the asset backed CDOs in sub-prime areas. Yes, we’re bringing those dramatically down.
We’re also going to focus on managing the risk of the firm so that it’s sized properly to the businesses themselves. So, you will see us pull back from that slice, but that’s a relatively narrow slice.
If you looked at the ABS CDOs and subprime businesses and things related to that, even back in 2006 it was only 15 percent of fixed total revenues. So the rates business, the currency business, the commodity business, the commercial mortgage business, all of those businesses are good businesses and they’ll continue to grow. It’s really just the sub-prime related pieces that we’re going to shrink.
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FT: You’ve said that you don’t need to raise more capital. Can you imagine wanting to raise more capital? And if so, what sources are the most interesting for you?
JT: Well, I don’t think we would want to raise more capital in the foreseeable future. So certainly for the next year. We deliberately raised more capital than we needed. We actually in the second round, we could have raised twice as much capital.
We had people who we turned away. We had people who we scaled back in terms of the amount of capital that we raised with them. So, we deliberately raised the $12.8bn that we did, but we really didn’t want anymore. That’s really not going to change.
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