Can you explain the new structure?
Calello: John Mack joined the firm nine months ago, and since that day he's been saying he truly believes and is quite passionate about the opportunities in this region. He has a long history of being very committed to Asia. He said we should put more resources here and started talking to me. I've run a global product area for the last four or five years and it's one of the largest and most consistently profitable areas in CSFB. So at first when John asked, I said, "Why do you want to take me out of this division and put me into Asia"? But in the end, it didn't take much convincing. I think it demonstrates his commitment to the region.
You have been based in Asia before?
I've been with CSFB for over 12 years, and I spent 1987 to 1992 in Tokyo, then 1992 to 1994 in London, and then back to New York.
So what will be your title?
I am going to be chairman and CEO of the Asia-Pacific Region including Japan, and Stephen [Stonefield] is going to be a vice-chairman.
CSFB has been well organized around global product areas. Information flows well within the global product areas, but what we probably haven't done so well is to develop strong regional management. We didn't have the CEO title out here, and that's an important distinction. John Mack felt strongly that we needed to strengthen regional management.
Stonefield: Previously we had a more informal matrix structure than an empowered one. That's critical. John is giving Paul a lot of power and in this context wanted to find one of our best business managers, which Paul is. He also asked me if I would focus solely on clients, and I'm delighted because that's what I really like to do and it plays to my strengths. I will be based out of Singapore and spend all my time working on our relationships with Asian corporate and government leaders.
Calello: The difference is that John has empowered the regional CEO role. The senior heads of fixed income, equities, and investment banking will still have a global product reporting line, but they will also have a reporting line into me.
So you will have P&L responsibility and power over bonus allocation, which is the only way to get any respect I suppose?
Calello: Yes you're right. That's the only way to get any respect!
Stonefield: Force of personality only goes so far.
Will the main focus for you be China and Korea?
Calello: We're very committed to making sure we have a full service throughout Asia, but right now the markets which are largest and most liquid would include those.
John Mack seems to be very keen to get China right.
Stonefield: China is his priority in Asia, followed closely by Japan.
You come from the derivatives side, and my understanding is that CSFB has always been two firms: the investment banking side and the derivatives side.
Calello: That's really old history. Quite frankly the advances we've made in derivatives have been as a result of a full integration of the derivatives products with the rest of the bank. Some people have asked, wouldn't you typically take a banker for this role as a regional Chairman and CEO? The reality is that having worked through the integration of derivatives with the rest of the bank, I've had the opportunity to work with many groups within the bank.
What's driven the growth in structured products and convertibles has been working with the banking side. Working with corporates to monetize cross-holdings has been an enormous business for us and where we've been successful such as in Korea, for example, we worked very closely with the bankers there. We've done away with the lines that have traditionally separated the derivatives product from the cash [equity] product or the credit product. Our success in convertible bonds has been a result of this.
Stonefield: Derivatives has consistently been our most profitable business and it's profitable in Asia right now. Paul also has a familiarity with the region, which means that his appointment is perfect in my view.
Calello: I do love this region. Every every time I came back I was tempted to try and find an opportunity to be here. Not only did I live in Tokyo and come out here as much as any of the other executive board members in the firm, but I have significant personal interest. I have three boys that were born in Japan, and a daughter born in China, so I have a great affinity with the region.
You are going to look after Tokyo too. That's a big brief.
It is. But it makes sense. We want to make sure this part of the world has representation with senior management. We have that for Europe.
Is it a big issue for CSFB that this region has to start contributing to the bottom line?
The region already does, but we want to focus our resources better on where we are making money.
We've heard a number of managing directors have been asked to leave. Can you explain how this affects the structure?
We have a policy of not discussing the specifics of personnel matters, but our head of of IBD is on the record as saying that he was evaluating staff levels globally, as are most of our peers throughout the industry. It's not particularly difficult to understand. Throughout the firm and the industry, we are trying to rightsize. We are trying to get our cost-to-revenue ratios right. This includes some redundancies, but we are doing this with a close eye on maintaining our client service model.
There will be realignments of the resources. Even with the management changes that are taking place, it's important for me that we maintain depth of experience in the region. Stephen will stay in the region and he has 20 years of experience here. We have a corps of people who have a lot of experience, such as Eric Varvel, who has been here for over 10 years.
So Eric Varvel is going to run investment banking now that Neil Harvey is going? And who will run M&A?
Yes, Eric will run investment banking and M&A will report into him too.
I suppose the departure of some managing directors will leave more on the table for everyone else, in terms of bonuses.
We don't have any announcements to make at this time. But we will ensure we align our best resources with the focus of the firm and provide good opportunities for our young professionals. None of the changes we make are going to change our overall client service model, nor will they be of a magnitude that will change the firm's overall commitment to the region.
