(Bloomberg) - As an example of why investment banks should listen to their risk managers, C.S. Venkatakrishnan’s experience at JPMorgan Chase & Co. is hard to top. Back in March 2012, just weeks into a senior risk job at the Wall Street giant, his team flagged the potential for $6.3 billion of losses from a murky derivatives trade in London.
The analysis was dismissed as “garbage” by the risk officer at the JPMorgan department responsible for the trades. But Venkat, as he’s known to colleagues, proved remarkably prescient. The trading strategy exploded spectacularly, giving rise to a $6.2 billion loss and the legend of the London Whale, the nickname for the banker who made bigger and bigger bets to try to cover his positions. A U.S. Senate investigation said some losses would have been avoided if the Whale’s unit had heeded Venkat’s warning.
It was this level of acuity that encouraged Jes Staley to make Venkat one of his first hires when he became chief executive officer of Britain’s Barclays Plc at the end of 2015. And it explains why the Indian executive has now emerged as front-runner to succeed his former JPMorgan comrade as Barclays CEO, according to colleagues who asked not to be identified discussing confidential matters. Barclays declined to comment.
Known for his genial unflappability -- and fondness for emojis -- even in the thick of a corporate crisis, Venkat was brought in initially by Staley as chief risk officer. The recruitment worked out well. Staley has praised the processes put in place by Venkat’s team for helping Barclays avoid this year’s blowup of Bill Hwang’s Archegos Capital Management.
It was a surprise nonetheless when the CEO anointed the risk expert as a possible successor last year by promoting him to run the Barclays markets division, home to the company’s all-important trading operations and contributor of almost a third of its revenue. The 55-year-old has since become the internal favorite for Staley’s job, though external candidates are being sounded out, too. Paul Compton, another JPMorgan alumnus, is also in the frame after taking the reins of the Barclays investment banking operations.
The rise of risk
While Venkat is still a long way from securing the top spot at the 331-year-old British institution, his emergence as a genuine contender tells its own story. Not long ago it would have been unthinkable for a risk specialist -- even one with a bachelor’s degree, a master’s and a PhD from the Massachusetts Institute of Technology -- to be considered as having the right stuff for running a global investment bank. It’s all very different from the days when Bob Diamond, a swashbuckling former bond trader with the personality to match, was Barclays boss.
Venkat’s rise speaks to the ever more central role that placating regulators plays in modern investment banking, with the ability to sniff out a future Archegos, Greensill Capital or London Whale deemed just as important -- perhaps even more so -- than a good nose for a trading strategy. Christian Sewing, the Deutsche Bank AG CEO who’s been trying to break with the German lender’s racier past, also held a number of senior risk jobs.
Mysore-born Venkat has plenty of admirers. “There is no technical topic that’s beyond his reach, whether it’s derivative pricing or risk mapping,” says Ken Abbott, who was Barclays’ chief risk officer for the Americas until 2018. “He’s got an enormous amount of regulatory experience.”
Other people who work with him say he’s someone who, though a consensus seeker, isn’t afraid of risk; an executive who’s comfortable with the complexity of trading and who’s open to new ventures and star hires. He’s considering shaking up parts of the Barclays global markets unit that are underperforming as volatility dries up after the pandemic.
Overall, the Barclays corporate and investment bank generated 3.3 billion pounds ($4.5 billion) of pretax profit in the first half of 2021, up from 2.2 billion pounds in the same period last year. But the happy days may soon be over: Revenue from fixed-income was down 39% in the second quarter, and the focus might have to switch eventually to containing costs as analysts predict a less benign trading environment. Meanwhile, the Barclays retail bank faces bitter competition in the U.K. Whomever takes over from Staley will have the difficult task of finding new avenues of growth.
And it’s here where the importance of finding the right person for the job strikes home. Staley’s decision to prioritize the investment bank in the face of opposition from activist investor Edward Bramson has been vindicated by its recent performance. Nonetheless, this was achieved in a rip-snorting market where not doing well was the aberration. More becalmed waters bring different demands when steering a bank.
Barclays’ future is likely to “primarily be in investment and corporate banking,” says Ismail Erturk, a senior lecturer in banking at the University of Manchester. “Venkat’s risk experience can come in handy, but as a CEO you are judged by delivering returns on shareholders’ equity and coming up with growth stories and initiatives.”
An audition for the part
For now, Venkat will carry on running the trading operations in his low-key manner, wearing his sober dark suits. He and Compton -- an Australian operations and IT specialist -- are effectively auditioning for the CEO role by seeing how well they can run the two fee-earning divisions.
Abbott speaks of his former boss’s modest tastes. “There was a little Indian place a couple blocks from the bank that would serve lunch on orange plastic trays,” he says. “He thought that was very authentic.”
The humble demeanor doesn’t paint the full picture, though. Like Staley, Venkat spent most of his career on Wall Street, meaning he’s at home amid the hurly-burly culture of Barclays’ New York corporate and investment bank, where many former Lehman Brothers traders work. His handling of the London Whale situation at JPMorgan shows he isn’t one to pull punches, when required. One of his promises is to dial back the testosterone in the trading teams, and he has made progress on promoting women, the people who work with him say.
His and Compton’s chances have been boosted by the smaller salary that’s on offer to a Barclays CEO than would be available at a U.S. rival, a state of affairs that makes an external search more difficult.
Staley said recently that Compton and Venkat are “two very accomplished professionals,” adding that: “Having people who are in a position to succeed as CEO is healthy.”
One remaining question is when Staley will actually stand down. He said in 2020 that he planned to stay for a “couple of years.” An ongoing investigation by the U.K.’s Financial Conduct Authority into his ties with the disgraced, and deceased, financier Jeffrey Epstein may have a bearing. But nobody would be shocked if he wanted to stick around longer.
By Stefania Spezzati
