The corrupt, greed, loving world of investment banking is characterized by flamboyant financiers, idiot analysts and the fat cat bonus-obsessed millionaires with their massaged and inflated egos.
Bankers, with an eye on bonuses and the morals of a dishonest market trader selling fake goods, tout deals to any company prepared to listen.
Tricks of the trade within banks include league tables engineered to inflate their track record an out and out con. Banks can pick any time period, measure by volume or by financial size, exclude large or small transactions and separate stand-out deals. “Many an analyst has spent many a sleepless night cutting and re-cutting the data to come up with the least ridiculous ways to demonstrate number one market share.”
Stuff Investment Bankers Like:
#1 Multiple Trophy Wives
For the investment banker, trophy wives are required due to both pride andnecessity.
Pride: What kind of rich, successful guy only has 1 wife? Come on, even in third world countries polygamy is common place, so why can’t you get yourself another wife or 3?
Necessity: Bankers always need to replenish their wife counts. Excessive drug usage, long hours, and constant travel means that multiple divorces are just as common as multiple wives.
With hard luck falling on many financiers these days, some senior bankers have resigned themselves to a mere 2 or 3 wives rather than the 5-10 that were common in years’ past.
Don’t let this fool you, though: underneath their calm exterior, these bankers are secretly running detailed Excel spreadsheets mapping the rise in bonuses as the economy recovers to the number and quality of trophy wives they can procure with their new-found plunder.
#2 Talking About Cocaine
You might be under the impression that all investment bankers actually do cocaine on a regular basis. Hey, I don’t blame you, but there are 2 main flaws with your theory:
- With the way bonuses were last year and this year, most bankers are more worried about affording their mortgage rather than buying an extra hit or two.
- Fundamentally, bankers don’t do things. They talk about doing things. It’s just like how they don’t actually create value – they just help other people sell value, and take a cut of it for themselves.
There’s no subject that bankers and wanna-be-bankers love to discuss more than doing drugs – and cocaine is the perennial favorite.
Just be aware that if someone starts talking about doing cocaine or recounting a story about cocaine, he’s just lying to make himself look better (see #6 below).
#3 Pls Do
Being creatures of sloth, investment bankers love taking shortcuts to avoid actual work while making themselves look better in the process.
This leads to giant email chains between your deal team, the Managing Directors, and your clients that always end with someone senior emailing you the infamous“Pls Do” request.
Typing, “Please spread these comps for Brazilian mining companies with between $100 Million and $1 Billion revenue and look at EV/Revenue, EV/EBITDA, and P/E” would take far too much effort – why not just rely on the email below and attach a simple “Pls Do” request above it?
Just as senior bankers enjoy whipping out the “Pls Do” on junior bankers, so too do junior bankers enjoy crushing interns with a strong dose of “Pls Do” whenever there’s work they really don’t want to do (Converting PDF to Excel, I’m looking at you).
#4 Buenos Aires
You might think that Rio or Amsterdam are the leading destinations for former bankers with a lot of time on their hands now, but you’d be wrong once again.
The winner is neither of those places – it’sBuenos Aires, the city in the developed world with the best ratio of models to cheap bottles (and cheap models too, but let’s not go there).
And yes, I know Thailand, India, Eastern Europe, and other places are “cheaper,” but those destinations are not “developed” and are therefore unsuitable for bankers.
Even Playboy Magazine came to the same conclusion recently: Buenos Aires is the preferred destination for newly unemployed bankers, especially those who have a nice nest egg saved up and ready to spend on beautiful Argentinian women.
The only problem with Buenos Aires is that there are so many other bankers there now, you’ll probably want to kill yourself when you walk into certain bars.
#5 Making Empty Threats
If talking about cocaine and plotting to move to Argentina are second-nature to bankers, “making empty threats” has to be #3.
The most common empty threats are variants of the following:
- “I can’t stand [Insert Name of MD/VP/Associate Here]! If he gives me one more stupid assignment, I’m going to quit even if I don’t get my bonus!”
- “This place sucks so much, I’m going to move to [Insert Name of Competitor Here] tomorrow!” (more plausible in boom times)
These threats are typically made either late at night in fits of anger, or during one of the 10 daily trips to Starbucks that are required in investment banking.
You can glance at these for 2 seconds and realize that both are empty threats, because:
- As mentioned above, bankers like to talk a lot without taking action and are extremely risk averse – they don’t like doing anything that might be remotely interesting if it could result in full or partial failure.
- Even if bonuses are a measly $10-$20K, no banker in his or her right mind would give up money just to prove a point. It’s all about the dollars.
There are countless other empty threats indigenous to banking culture, of course. But threatening to give up money or prestige – the only 2 things that any banker really cares about – are at the top of the list.
#6 Lying to Make Themselves Look Better
There are a number of standard items that bankers lie about, but here are some of the most common ones:
- Bonus #’s. Notice how this year (2009) there haven’t been solid, widely reported and consistent bonus numbers anywhere – that’s because the numbers were so low that bankers felt compelled to lie to each other simply to cover up their misery.
- Girls (or guys if you happen to be the lone Banker Chick). Sure, she was a Top Model… and she spent the night at your place… and, and… oh wait, you just got drunk and passed out on your couch once again, I forgot.
- Future jobs. Sure, you got the offer at KKR but you didn’t want to accept it due to “lifestyle reasons.” Yeah right, you just screwed up your modeling tests with your meager technical skills and got hosed by that guy at Goldman TMT.
Lying to make yourself look better is essential in many fields, but bankers do it better than most anyone else.
#7: Reminiscing About the “Good Ol’ Days” or the “Bad Ol’ Days”
If it’s 2008-2009, senior bankers love to talk about “the good ol’ days” when deals were actually happening and when they were actually getting paid more than plumbers.
If it’s 2005-2006, senior bankers love to talk about “the bad ol’ days” when nothing was happening in 2001-2003 and when they were lucky to get 1 closed deal for every 100 pitches.
And as soon as you get interns, you’ll be reminiscing and feeding them the same stories of how many trophy wives you had, how much cocaine you did, and how many trips you took to Buenos Aires back in the good ol’ days.
So we find ourselves in a global economic crisis Europe franticly attempts to fend off the inevitable collapse, the bankers continue to gamble with little to no consideration for the outcome for those of us who do not receive a 30 million bonus win lose or draw.
The latest scandal we see is Libor.
Libor is now finished as the benchmark. The composite rates the banker vampires use to create short-term interbank loans and base non-bank borrowing in the capital markets has been exposed as a giant scam. Would the world come to an end if there were no interest-rate derivatives? No.
The majority have forgotten that most of the trappings of today’s financial markets are relatively recent. The super-rich bankers that live life like kings with property, cars and women. All of this tempting them to the life of an overindulgent consumerism based greed.
Shameless—Executive Greed and the Economic Crash
What’s happening around Libor has certainly raised many fundamental questions about the goings on in today’s financial markets. The markets during 1970s and before were no more dysfunctional for their lack of modern-day tools and instruments. We may have gained sophistication but it came accompanied by convolution.
UK regulators and the British Bankers’ Association have been dragging their feet for years on imposing reforms. I fail to understand why the BBA doesn’t pursue the idea of using actual trades as a basis. The concern most often expressed is that there’s no guarantee that a sufficient number of banks will borrow in all Libor currencies across all maturities every day. Fine, well expand the panels. The biggest Libor panel is the US dollar panel, with 18 banks. Euribor, by contrast, has 43 contributing banks.
Mervyn King, governor of the Bank of England, favours the actual trades approach. At his Treasury Select Committee hearing, he referred to the notion that there will always be a benchmark interest rate against which to fix derivatives as an illusion.
What is clear, however, is the Bank of England, Financial Services Authority and British Bankers’ Association have been made to look like a trio of dangerously inept buffoons who were asleep at the wheel. The Bank and FSA repeatedly denied knowledge of any wrongdoing around Libor submissions until recently and did very little in the face of media coverage from 2008 that the fixings were unreliable. Their testimony was scarcely believable.
Greed is good. Gordon Gekko said in the hit film Wall Street, “greed is good”. This short phrase quickly became the mantra of investment bankers in the 1980s. In the US and UK, the decade became synonymous with greed, excess and corruption. Bankers in the major financial hubs played with exorbitant amounts of money that swelled their lust for the hedonistic lifestyle they had grown accustomed to. Sound familiar? We’re now three decades on, but in the City and on Wall Street, Gekko would still be lauded among bankers. Greed, it seems, is still good.
With this greed came the rise of dubious activities in investment banking. Insider trading was the buzz phrase of the 1980s. The stars of insider trading during the decade were financier Michael Milken, and arbitrage specialist Ivan Boesky.
Michael Milken, the ‘junk bond king’ was a financier operating as head of the junk bond trading department at doomed investment bank Drexel Burnham Lambert in the 1980s. During the decade, arbitrager Ivan Boesky became a client of Drexel. He was investigated by the SEC for insider trading and eventually agreed to a plea bargain that saw him fined $100 million and jailed for 3.5 years. The plea bargain also saw Boesky give up Milken to the authorities. Boesky is believed to have been the inspiration for Michael Douglas’ character in Wall Street.
In 1989, Milken was indicted on 98 counts of racketeering and fraud. He pleaded guilty to securities fraud and was sentenced to ten years in prison. He also paid a $600 million settlement to the authorities and investors of Drexel. The prison sentence was eventually reduced to just 22 months.
The rise of the rogue trader
Nick Leeson was a derivatives trader working in the Singapore office of Barings Bank, London’s oldest merchant bank. From 1992 to 1995, he made illegal unauthorised trades that eventually cost the bank $1.4 billion. Despite trading on the derivatives desk for the bank, Leeson was also head of settlement operations. In essence, this enabled him to continue the fraud through the life-cycle of the trade, by settling his own trades. His reckless trading resulted in the collapse of the 230 year old bank after an unsuccessful bailout attempt by the Bank of England.
Toshihide Iguchi is another stand-out example of a rogue trader operating in the 1990s. Over an 11-year period, beginning in 1984, Iguchi concealed losses at Daiwa Bank on the US Treasury bond market. By the time of his arrest, the losses incurred were $1.1 billion. Iguchi was fined $2.6 million and sentenced to four years in jail. For attempting to cover up the losses, Daiwa Bank was fined $340 million and ordered to cease all operations in the US.
The fall of the fat cat
So, will the 2000s be known as the decade of rate-rigging? The attempt by Barclays to manipulate Libor is arguably the largest fraud the banking sector has ever seen. The scandal has placed a black mark on one of the biggest investment banks in the world and threatens the reputation of a number of other major banks, including JP Morgan, Citigroup, Deutsche Bank and HSBC. And the full facts of the Libor scandal aren’t even known. We have only begun to scratch the surface on this market abuse. The fine that Barclays received may yet pale in comparison to what other banks could be forced to pay.
Even before this latest scandal, the public had grown weary of bankers. Since the global financial crisis, bankers have been viewed with a mixture of wariness and disgust. Today’s banker is often viewed like a cagey, manipulative animal. Never to be trusted, the calculating banker must be kept at a distance at all times.
It’s the culture, stupid
The problem with the banking sector is the culture that has been allowed to develop since deregulation began. Across the three decades discussed in this piece, greed is the common thread. Walk onto a trading floor in any of the major investment banks and the greed is palpable. The ruthless, pressurised environment allows for only the strong to survive. The cut-throat culture breeds fear and greed simultaneously as traders compete with each other to make the biggest profits with the most risk.
A twisted atmosphere that revels in excess and gluttony is the root of the problem. While more regulation should be welcomed in the sector, the rate-rigging scandal highlights more than anything else the failing of corporate culture at investment banks. The culture inherent in the industry needs a radical overhaul, and this must come from the top brass.
This is exactly why someone like Bob Diamond is a terrible fit to lead a bank like Barclays. There is no doubt that Diamond was a successful banker and businessman. But he is yesterday’s banker, consumed by greed and excess. In the aftermath of the global financial crisis, the City and Wall Street need a new breed of banker.
In the search for a new chief executive, Barclays needs to forget the status quo and look for a leader who is willing to begin the hard slog of eradicating the rotten corporate culture inherent in investment banking. Only then will we be able to have confidence in the industry again.