When one becomes two

Co-heads: Bankers love to talk about how one plus one is three. But sometimes in investment banks, one plus one equals just one. Morgan Stanley, Credit Suisse and UBS have replaced their sole heads of investment banking in Asia with double-acts in the space of a few weeks. Goldman Sachs’ decision not to replace its departing M&A co-head, leaving one banker in charge of Asian dealmaking, looks positively unfashionable by comparison.

The co-head model has a pretty good track record in investment banking. Doubling up can reassure clients that there won’t be a hole in the franchise when a big-hitter leaves. When Morgan Stanley’s Matthew Ginsburg, one of the region’s longest-serving expat bankers, jumped ship in June to join Barclays Capital, drafting in two replacements compensated clients generously for their loss. Likewise, UBS wasn’t left in the lurch when veteran Rob Rankin quit, to later resurface at Deutsche Bank as Asian chief executive.

The double-headed structure works better in some markets than others – and sprawling regions like Asia fit the bill. More hands make lighter work when bankers spend more of their time in planes than they do on the ground.

Twosomes also work well when each side brings different skills. Goldman Sachs has tended to get that right. Consider Richard Gnodde and Michael Sherwood, the strikingly dissimilar co-heads of Goldman’s European business. Gnodde is the suited rainmaker, Sherwood the open-shirt trading whizz. Goldman’s securities business has no fewer than four co-heads.

BUT more often, co-heads are a fudge, designed primarily to prevent an also-ran from quitting. It would not be surprising if some recent appointees as Asian M&A co-heads had been on the same shortlists as those who left.

Bunking up can pay off, but it needs to be handled carefully so partners don’t tread on each others’ toes. That risk is especially high when times are tough. A shrunken M&A market suggests Goldman may be wise to fly with a single pilot. As for investment banking overall, if business gets worse rather than better, Credit Suisse, UBS and Morgan Stanley could find co-heads is no-heads.