Joseph P. Bauman left New York and the high-profile chairmanship of the International Swaps and Derivatives Association two years ago to slip behind the scenes of Bank of America's derivatives business.
Now he's back in the limelight, unveiling his new vision for the operation.
Under Mr. Bauman's leadership, the bank's derivatives unit is evolving away from trading for trading's sake. Instead, the bank is marketing derivative products as part of a menu of services available in its one-stop shop for corporate clients.
Under the new approach, derivatives have become "the grease for other wheels," Mr. Bauman said.
In February, the former Citicorp executive announced a segmentation of the BankAmerica Corp. unit's derivatives marketing effort.
One unit of the derivatives group, called the risk-management applications team, will serve the hedging needs of clients. The other unit, called the structured securities team, will work with the bank's investment banking subsidiary to design derivative securities to meet specific investment strategies.
Mr. Bauman aims to use the reorganization to raise its profile in trading and derivatives to the level of some of BankAmerica's biggest competitors. In 1995, the bank's trading revenues amounted to $519 million, or 3.8% of its $13.8 billion in total revenues. By comparison, Citicorp reported $1.6 billion in trading revenue, 5.1% of its $31.6 billion in revenues.
Raphael Soifer, an analyst with Brown, Brothers Harriman, said he expects Bank of America will quickly bring its trading operations more in line with its peers.
"Trading is a relatively small piece of their business, though a growing piece," the analyst said. "Dave Coulter, the new chief executive, comes from the wholesale side of the bank and I expect him to build up the trading and corporate finance part of the business."
Mr. Bauman is one of many bankers who have refocused their derivatives practices in recent years. Buffeted by bad publicity over missteps in some highly complex products and trades, the industry has been toning down its product offerings to match the needs of a clientele that has become more cautious.
"What we see banks doing is generally breaking down their derivatives business by products," said Andrew Lese, a vice president with Emcor Risk Management Consulting of Irvington, N.Y.
The goal is to allow each of several product groups to tap into the expertise of the institution's specialized trading desks and then use that knowledge to generate income by meeting client expectations, Mr. Lese said.
Among the changes implemented at BankAmerica in February was an increase in sales staff that will enable the bank to focus its marketing efforts along functional lines.
"We've taken a finer cut of our market sectors and put our sales force into the areas we're talking about," said Mr. Bauman.
The effort was designed to coordinate the creation of new derivatives products with the bank's securities origination and distribution teams.
This linkage is expected to play an important role in the bank's structured securities unit. This team is to identify newly issued or existing securities they can repackage specifically to suit customer needs. This side of the business will target mutual funds, pension funds, and other institutional investors looking for yield enhancements.
Some observers see the move as risky. Mr. Lese of Emcor said end users have been reluctant to reenter the structured securities business in light of problems that rocked the market in 1994.
Mr. Bauman said he expects this business will have a growing influence in the future.
"More and more, the world is moving to a philosophy where the interests of investor A and issuer B do not have to match 100% because of derivatives innovations," said Mr. Bauman. "In 10 years, there will still be one-off swap transactions, but there may as well be as many securities-like instruments where you have swaps, caps, and floors embedded in the transaction to help make it happen."
