Ogden, Joan, Global Finance
Derivatives have gone mainstream. Consider this year's ward of the Nobel prize in economics to two men who developed the Black-Scholes option pricing model; the public protest by Hershey Foods and other highly respectable US corporations that the Financial Accounting Standards Board's new derivatives accounting proposals could hinder their hedging practices; the Bank for International Settlement's new rules on capital adequacy for market risk, which come from derivative traders' value-at-risk formulas; and the people who are now heading capital market operations or even entire investment banks, many of whom have risen to their present responsibilities via derivatives posts.
David Solo, 32, SBC Warburg Dillon Read's chief operating officer, started out at O'Connor Partners, where he developed proprietary risk trading before O'Connor was acquired by what was then Swiss Bank. Allen Wheat, 49, now head of Credit Suisse First Boston's US operations, assembled, at Bankers Trust, the pioneering derivatives team that first demonstrated derivatives could be a profit center in their own right. Michael Rulle, 47, who heads CIBC World Markets in the United States, built up the Canadian investment bank's derivatives prowess virtually from scratchafter making his mark at Lehman in equity derivatives.
Others on the list of upwardly mobile derivatives bankers are Jeffery Larsen, 44, head of international capital markets at Chase Manhattan in New York; Edson Mitchell, head of global capital markets at Deutsche Morgan Grenfell in London, and Dipak Rastogi, 43, executive vice president of capital markets at Citibank in New York.
Count in, too, Peter Hancock, 38, who heads fixed income capital markets at J.P. Morgan; Anshu Jain, 34, who now leads Deutsche Morgan Grenfell's institutional client group from London; and Andrew Siciliano, who oversees interest rate and foreign exchange activities at SBC Warburg Dillon Read from the bank's new Stamford, Connecticut, headquarters.
How did specialists in complex instruments arrived at by abstruse mathematical formulas rise to the broader level of investment and commercial banking? The question, they say, is just framed wrongly.
"Derivatives have the image of being extraordinarily arcane, but I think they are the most general thing you can do," says CIBC's Michael Rulle. "Derivatives touch all areas of the [banking] business, even those that other sides of the business don't touch, like operations."
Jeff Seltzer, 41, Rulle's deputy and another who took the derivatives route to higher-level responsibilities, adds that derivatives are general also in the sense that they are the most global of all businesses. Consider cross-currency swaps, notes that pay the return of one country's stock market index in the currency of another, or a raft of other derivatives that link markets. Seltzer points out that derivatives people who have made it to the top "have run global books, not just, say, US dollar books."
"Derivatives people by definition need to have a broad understanding of financial markets," says Anshu Jain. "Derivatives were never an independent asset class."
Jain heads institutional sales for all Deutsche Morgan Grenfell interest rate and currency products, marketing both derivatives and the underlying instruments to corporate hedgers as well as investors ranging from central banks to money managers. That entails supervising a staff of 650 at 40 locations around the world.
He moved up to that post from DMG's relative value group, where he led a global team helping investors to "optimize security selection." Says Jain: "Naturally there was a heavy disposition toward derivatives." Before DMG he was a member of the legendary Merrill Lynch derivatives team assembled by Edson Mitchell, his present boss at DMG.
Jain notes other advantages of a derivatives background. "Derivatives people tend to bring an analytical and disciplined approach to solving even nonmathematical problems, which can be a huge competitive advantage," he says. …