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Dan Goldman and Levent Kahraman, co-heads of BMO Global Markets, at their office in Times Square in New York City on June 17, 2022.Kellyann Petry/The Globe and Mail

Like many American bankers, Dan Goldman and Levent Kahraman are back working most days of the week at the New York offices where they run Bank of Montreal’s global markets business, now that COVID-19 lockdowns have lifted. What may be more surprising is that they still have offices at BMO BMO-T at all.

Mr. Goldman and Mr. Kahraman joined the Canadian bank in 2018 when it acquired their eight-year old broker-dealer startup, KGS-Alpha Capital Markets LP. After the businesses merged, the two men could have cashed out and moved on. They had worked side by side for much of their earlier careers, first at Salomon Brothers and then at Citibank, and selling their company no doubt came with a windfall.

Instead, they stayed and rose through the ranks of BMO’s capital markets division. First, they ran the global fixed-income, currencies and commodities desk. Then they were named co-heads of global markets last October, when previous head Deland Kamanga was tapped to run BMO’s wealth management division.

What convinced them to stay, they say, was the fit with BMO: It’s a balance of aggression and speed tempered by controls and restraint they hope will help them rapidly expand the bank’s markets business while avoiding the excesses of Wall Street trading. They have joined a growing number of U.S. executives in BMO’s senior ranks running key parts of the bank from Chicago or New York as the Canadian lender pursues an ambitious expansion south of the border.

“One of the things we’ve been really impressed with is the ambition at BMO,” Mr. Goldman said in an interview. “I think BMO looked at KGS or they looked at Levent and myself as agents of change. And they gave us agency to be that agent of change, and that was accelerating their process, that was building scale that they didn’t have before.”

Mr. Goldman and Mr. Kahraman founded KGS-Alpha in 2010 to specialize in the structuring, trading and distribution of mortgage-backed securities and asset-backed securities. Those instruments, which package assets such as real estate loans into financial products, got a bad reputation for helping fuel excessive risk-taking leading up to the 2008-09 global financial crisis.

By 2018, however, the securitization market was steadier and BMO was in the early stages of building up its own mortgage-backed securities business. Acquiring KGS-Alpha was a way to speed that up, adding 1,200 client accounts, 50 sales reps and 30 traders and structurers. Once Mr. Goldman and Mr. Kahraman were inside the bank, top executives saw they had a knack for running a business with an entrepreneurial mindset.

Promoting them to the top ranks of BMO’s capital markets arm ahead of long-tenured bankers is the kind of move that can put noses out of joint, but can also inject fresh energy into a business. In 2020, BMO hired chief financial officer Tayfun Tuzun from Ohio-based rival Fifth Third Bancorp FITB-Q, and earlier this month, it poached new chief risk officer Piyush Agrawal from Citigroup Inc. C-N

Those outside hires doesn’t always work – sometimes there’s “tissue rejection,” Mr. Goldman said. In their case, “there not only was tissue acceptance, but there was sort of recognition that a lot of the things that we were bringing to the organization were things that the organization was looking for.”

The markets business Mr. Kahraman and Mr. Goldman lead is changing rapidly. Technology is driving some of that upheaval, shrinking prices and adding volatility to markets that have already been shaken by a global pandemic, war in Ukraine, high inflation and persistent supply chain problems. Retail trading has been upended by upstarts such as the commission-free trading app Robinhood HOOD-Q and market makers such as Citadel Securities.

But BMO has some insulation from those forces as its markets business focuses mostly on institutional clients, such as pension plans and large money managers.

The first two years of the pandemic brought a surge in trading by clients, but markets are unpredictable and that business is now slowing down. In this new environment, Mr. Goldman and Mr. Kahraman know well that trading desks can get into trouble trying to overcompensate. So they have pushed some of the bankers they manage to reduce their overall risk-taking even as they chase more revenue, Mr. Kahraman said, in keeping with BMO’s risk controls.

“What is not excusable, and one thing that historically capital markets folks have fallen prey to, is client activity slows down and you try to make up for it by flipping coins and trying to guess the weather. And we don’t do that,” he said.

In addition to being more competitive in mortgage-backed securities (MBS), BMO is looking to build out adjacent areas of securitization and foreign exchange products. One big project for Mr. Goldman and Mr. Kahraman is expanding the bank’s U.S. rates business, focusing mostly on U.S. Treasuries and U.S.-dollar swaps.

“You really cannot be relevant to a fixed-income client unless you’re good at the thing that they trade more than anything else, which is U.S. Treasuries,” Mr. Kahraman said. “Upgrading that … gets us into the game in a way that, prior to this, we weren’t able to do.”

BMO would like to do more global markets business in Canada and Asia, but the greatest opportunity to expand is in the United States. That will mean going head to head with the largest U.S. banks, including trading giants such as Goldman Sachs Group Inc. GS-N and Morgan Stanley Inc. MS-N, but the sheer size of the market offers a huge target for BMO.

“Look, the good news is there’s a lot of white space here for us,” Mr. Kahraman said. “We have, call it, 1.5 per cent market share of that total pie. And we’re bigger than that and our aspirations are bigger than that.”

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