BBH’s Christine Donovan puts the record straight on her future

Dec 15, 2010
by Dominic Hobson

Securities lending industry insiders were surprised by news that industry legend Christine Donovan might be leaving Brown Brothers Harriman (BBH), where her longstanding vision of how business should be conducted has proved admirably well suited to the post-crisis environment. It turns out, however, that Donovan is merely moving into a strategic role, with day-to-day management of the securities lending business at BBH passing to her deputy Missy Seidel. Donovan told Dominic Hobson about her plans, and the opportunities she sees in the current climate.

DH: Are reports of you leaving BBH true?

Donovan: No. I am remaining at BBH and I am still responsible for the securities lending business. I promoted Missy Seidel to run the day to day business because we are formalising the way we have been working over the last year. Missy has been my number two and has already been running much of the business. My desire now is to focus solely on client issues and other strategic areas of the business.

DH: What prompted you to step back from the day to day running of the business?

Donovan: There were a couple of reasons. Missy and the executive management team are seasoned professionals and are at the very core of what we do. They have proven they can run the day to day business without me being part of it – this has been a process that has been happening for the last year or so. I think this is an interesting time in our industry and the most benefit I can bring is by working with our management team to focus on the strategy side of it. It is a dynamic time in our industry and I am excited about it. We think there are some new and innovative ways in which we can re-shape the securities lending model as it exists today. I still retain ultimate responsibility for the business. However, I shall have more flexibility to focus on our strategic initiatives.

DH: What is Missy Seidel’s background at BBH?

Donovan: Missy has been here for 11 years and she has been part of my core management team throughout my time here. She was recently promoted to run global development and relationship management. Missy has been involved in the securities lending industry for close to 20 years and I have worked with her for the majority of my career. We started together at State Street and Missy joined BBH in 1999, where she has been part of the management team since the inception of the programme. Her contribution to the industry has been robust and she has served in several wider leadership roles, including on the RMA Executive Committee. The team will remain as it is and Missy will continue to report to me.

DH: Why have you decided to make this move especially after all the new ideas and approaches you have brought to the business – what is the logic of stepping back now?

Donovan: I am not stepping back. I am still responsible for the business. The move is just a way of ensuring I can focus on the strategic initiatives that BBH cares deeply about, which are important to our business and clients, and to driving our growth globally. Missy has been my deputy and number two for quite some time and this is just formalising that. It is giving me the freedom to focus on our strategic initiatives.

DH: What are these strategic initiatives?

Donovan: We are not quite there yet in terms of sharing them with our clients. However, we are in a market environment where we have pressures from both sides of the equation. From a supply perspective, we have the continued impact of global regulation that could alter the way large custodial providers go about the business. At the same time, the regulatory environment could impact how our prime brokers and investment banks operate. On top of that, we have beneficial owners, who are re-thinking how they want to participate in this business and are considering alternative ways of participating that might make sense for them. We have a lot of different things happening. In many ways it is tremendously exciting and I think it creates the opportunity for disruptive technology and for some pretty interesting innovations. These are things I have spent a career in the industry thinking about – most obviously, how can we deliver securities lending and borrowing services in a way that really benefits beneficial owners? Now, the conditions have been created for BBH to think about this in a new way.

DH: Does this mean you and BBH see opportunities in the development of trading platforms and possibly greater use of central counterparties (CCPs) in the securities lending industry?

Donovan: I think that could be one part of it. I do not have an issue with the notion of CCPs because if they are properly constructed for our industry they certainly could be a viable route to market. The issue I have had with CCPs is the manner in which the public discourse is evolving. There is a substantial issue in the sense that there must be a model that takes into account the priorities and considerations of the beneficial owners. To my knowledge, there is not yet a model out there yet which does this. There are nevertheless many benefits in a properly constructed model that caters to the needs of both sides of the market.

DH: With all the changes taking place in the securities lending business, how exactly is BBH rethinking its own ambitions?

Donovan: I think this is a time where we need to think about models and routes to market. I see tremendous opportunities for BBH, which we are excited about for a lot of reasons. We have reputational capital, resource capital, expertise and influential clients who represent the top asset gatherers globally. We are well positioned, especially in terms of liquidity. We are also well positioned to think about what the new business models may look like or what the business may evolve into. Furthermore, we are not constrained by the high costs of doing the kinds of business which might be thrust upon some firms. Looking at our position, by contrast, this is an incredibly exciting time. We feel we have a great brand and we are able to look at the opportunities, as well as think about continuing to innovate and deliver the best securities lending alternatives for our clients in the market.

DH: How has business been for BBH in 2010?

Donovan: 2010 has been a year in which our new business has been tremendous. This is our best new business year in the 11 years we have run our securities lending programme. That said, the demand side of the market is such that revenues have not rebounded from 2009. Our assets under management have gone up dramatically but we have not seen proportional follow-on financial benefits because of the state of the market.

But, as I mentioned, our team believes that the regulatory environment creates structural opportunities. It should also create the conditions for innovation. Yet, at the same time, regulations have created an environment where hedge funds are not trading. Hedge funds have a long bias at present, and many are sitting on the sidelines waiting to get a better sense of what the cumulative impact of the regulation will be. More importantly, people want to see what is going to happen with broader fiscal and monetary policy, not only in the US but globally. I think that impacts revenues. However, in terms of our business in the sense of client satisfaction, retention and growth, 2010 has been one of our best years ever. Unfortunately the markets have not cooperated, but we are not too worried about that. When our whole financial and regulatory infrastructure stabilises, demand will return. The question will then become, `who are the providers that have seized on the dislocation to innovate in such a way that they can deliver greater value to clients, given the new framework people may be working under?’

Christine Donovan is head of the securities lending business at BBH. She joined in 1999 as a managing director of the investor services and markets division. Prior to joining BBH, she co-founded Boston Global Advisors (BGA), a securities lending agent later acquired by Goldman Sachs Trust Company. She was BGA’s president both prior and subsequent to its acquisition. She holds a BA in Economics from Stonehill College and an MA in theological studies from Weston Jesuit School of Theology.

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