Archive for January, 2010

That Mr Obama seemed like such a nice man (and not a crack whore in sight)

January 29, 2010

Mr Obama seems not to like the banks. You can hardly blame him. Banks’ reaction to news that they will be prevented from trading speculatively (prop trading), cut down in size, not allowed to be too big to fail, and be forcibly separated from their retail banking arms was strangely muted. Perhaps they are in shock. Perhaps they think it’s not going to happen.

This all goes back to the concept of “casino” banks. Banks lost stackloads of money because they gambled it all away like a crack whore with a misappropriated suitcase of laundered drug money.

In reality, the casino analogy is quite neat (not so sure about the crack whore comparison though), not because investment banks are gamblers, but because they are the casino. Banks put up capital and risk money, but like any casino they should always end up on top (back to the crack whore again?) as long they keep an eye on the numbers, are careful about the risk and don’t get over-excited … which they unambiguously failed to do. In that sense investment banks and retail banks are not that different: don’t be stupid and it’s a guaranteed money-earner, get stupid and, well, credit crunch all around. Much is said of their complexity, but banks are no more complicated than, say, a hospital – an institution most people feel more than qualified to comment on.

The separation of investment bank and retail bank is a red herring. In the UK it was the retail banks (Northern Rock, HBOS, RBS) which lost devastating amounts of money, on retail business! Follow this technical detail carefully: they loaned money to people who could not pay it back. Oops! But, strangely, the massive shift in regulation could actually be good for banks. By forcing a true political conflict and getting into the detail, the banks may force some people to be on their side and, even, win an occasional debate. It could be even better for London; most US banks have a huge London presence, and it should not take much to move there. Alistair Darling will be pleased. There is even speculation that some of the banks will turn themselves into hedge funds and so side-step the regulation.

Is this a good thing? After all, banks can be destructive, but then  so can hedge funds – anyone remember LTCM?* – but then so can building societies, and car companies, and pension funds, and tulip bulb markets, and … and crack whores? Well, they’re strictly a bilateral transaction, when it comes to getting fucked on a big scale, you need larger institutions.

* Long Term Capital Management, a hedge fund that went spectacularly wrong, losing almost $5bn in 1998. There were significant fears its bankruptcy would cause a chain reaction in the markets, and so the Fed organised a bail-out, funded by, errrr, investment banks.

Goldman staff have the last laugh on bonuses

January 27, 2010

» Goldman staff have the last laugh on bonuses

They’ve called it the $30bn speech – that’s the value wiped off shares in top US companies in the minutes after President Obama announced on Thursday that he was to introduce measures to reduce the size of financial institutions and limit their ability to take on risk.

Almost without exception, big bank shares headed south on the news, with stock in Goldman falling some 8% Thursday and Friday. But Goldman staff are doubtless delighted at the effect Obama’s statement had on the firm’s shares, as the award price used for calculating the number of shares that go into individual bonus packages (as deferred equity) is thought to have been based on Friday’s close. In other words, thanks to the President’s obsession with bankers and their bonuses, Goldman staff will actually receive around 8% more stock in their bonus sacks than they would have before he opened his mouth. Such is The Law of Unintended Consequences.

It seems too neat to be true – which probably means that it isn’t. It’s a sign of our obsession with Goldman that a speech which implies the end of its business model, has its stock fall significantly and put its very future in doubt is seen as being in its favour.

The blood-sucking vampire squid

January 22, 2010

… or Goldman Sachs, as they are more affectionately known (surely being blood-sucking and a vampire is a bit of a truism?). The alternative moniker came from Rolling Stone magazine, not a publication widely noted for insight into financial affairs, but that’s just being picky. Some may consider it a slander on vampire squids.

So is this awe (and disgust) shared by those within the industry? After all, relationships in this industry are a bit like those in a soap: constantly changing, complicated and sometimes stretching credulity.

Well, no. But is this surprising? They’re not like MI5 or the Mafia: you are actually allowed to leave once you enter. And when they leave, they join competing firms … and vice-versa. Do these ex-Goldmanites have an aura (the mystical kind, not the strange sensation that pre-empts an epileptic fit)? A strange other-worldly knowingness which can be applied to financial markets with profitable consequences? Tentacles? Well, no. I’ve found them disappointingly dim and, more irritating, lacking in subtlety (shouting at people seems to be their only method of managing people). When I speak to them as competitors / clients / cooperator is there a bit of a lisp from their vampiric canines? Well, no.

I once went for an interview there (the following may contain elements of fabrication mixed with elements of truth, such as the fact people were speaking):

“Ninja, you’ve come across well in all the interviews, but I just get the impression you want a job. You should want to work for Goldman.”
“That seems reasonable. You are just another investment bank.”
“But we’re Goldman.”
“Indeed. My life would be an unhappy one if my only wish in life was to work for yourself, as currently I do not.”
“But we’re Goldman.”

Needless to say, I didn’t get the job. You can dismiss the rest of this blog as sour grapes, but some things are undeniable: they’ve made loads of money and they are perennially successful. So if it’s not their people, perhaps it’s their culture? And on that subject, there are three commonly raised “facts”:

  • They subject people to hundreds (well, maybe not hundreds, but more than average number) of interviews before hiring them;
  • They have a “dead wood” policy of trimming a certain number of people every year, i.e. making it easy to get rid of poor performers;
  • They’re a giant hedge fund with a bit of customer business attached to the side.

I’ve never really bought the first item as a good thing, if true. In fact it makes them sound as if they have Alzheimer’s. The second one, though, does make me wonder. Firing someone is a difficult thing to do, aside from the purely humane there’s the problem of being without a member of staff for several months, the bad morale and the possibility you may not be allowed to hire a replacement.  The idea of having it built into the culture would overcome a lot of these advantages and would make it a lot easier to get rid of poor performers. It is, though, ruthless, unhelpful, morally ambiguous, and quite possibly not true, as well as being far from certain to succeed: a climate of fear has its downsides, although, I suppose, if you’re supremely self-confident then you will think it will never happen to you.

As for the final “fact”: I am not convinced. When I bump into Goldman as a competitor their actions seem to be more than just a sham … or, at least, a very good sham with made-up clients and everything, and really this is heading towards paranoia.

There is one other possibility: luck. Are Goldman just lucky? I doubt it’s that simple. Will they continue to be “lucky”. Perhaps. But now their reputation as the investment bank is coming back to haunt them, perhaps it’s not the kind of luck they’re after.

Goldman says reports of CEO testimony improper

January 17, 2010

» Goldman says reports of CEO testimony improper

There are two ways to interpret Goldman Sachs’ activity here:

  • They ruthlessly and unpleasantly sold products they knew were going south
  • They hedged their position

Personally, I believe the latter. Mostly because, as a broker, Goldman’s main job is to help its clients buy or sell the assets the client wishes to buy and sell. Deciding an investment strategy is the client’s job (or their adviser, or asset manager, or whatever). Judging the quality of the assets is the job of a credit ratings agency. Obtaining the assets is Goldman’s job.

If you go to a fishmonger and want to buy salmon – and the fishmonger tells you he thinks salmon is disgusting and you’d be better off going for cod – then you may be wondering when you invited the fishmonger to lunch or asked him for advice on your menu (you may do many other things, from follow his advice or, if you are a serial killer, batter him to death [batter – food pun, ha ha] with a lump of fish, but you get my point). You want salmon, he sells you salmon. He then buys more salmon from his supplier to restock – and his activities of buying and then selling at the same time are unlikely to lead to him being denounced by, well, everybody.

The fact is, investment banking is not a commune. Some hedge fund wants to go long CDOs or the latest cool stocks? Let them. Just don’t expect the broker to do the same thing. We don’t expect our doctors to get our illness, lawyers to become a party to our contracts, estate agents to move in with us. Brokers are risk averse. They’re not going to pin their entire profits on their clients’ investment strategies or even ask them what they are. Many businesses are the same – they are there to help you buy and sell, they are not there to share your tastes. It is when those riskless businesses screw-up, like Lehman, that things get very fishy indeed.

Sorry is the hardest word to say (at least, meaningfully)

January 15, 2010

I am, apparently, overpaid. My employer does not think so, I am less certain, the public is really rabidly, absolutely, 100% doubt-free need-no-truth-drug call-me-a-liar-if-an-atom-of-doubt-crosses-my-mind certain. This is odd, because they do not know me and most people find my job difficult to describe. However, their basic assumption that I am not saving the world is safe, so this is hardly a Batman-esque public anger at the anti-hero ironic situation; other assumptions that I am as evil as a James Bond super-villain probably need further scrutiny in the court of public opinion.

It has been a tough week to be a banker. Well, no. It’s been a tough week to be a solider, or a Haitian, but bankers? I appreciate the public isn’t exactly in love with the banks (which is a shame because they used to be soooooo close) but it has been tough in the same way that the coffee shop running out of your favourite syrup has been tough. The investment banks are outraged but are not saying so for fear of being lynched (an unusually self-aware move): the world, strangely, did not tremble.

The rest of the script is supposed to work this way: I express remorse at mistakes made, look awkward on the subject of bonuses but insist they are necessary, try not to be too obnoxious and hope it all goes away.

Except I am not sorry. I did not take the government’s dollar. I am happy with the salary I am paid (although to be fair, I still have the mental age of a teenager so find being paid at all is a somewhat perplexing experience) and my employer is happy to pay it (as are others would-be employers). I did not create a housing bubble, encourage mortgage dealers to lend money they would never, ever get back. I did not gave credit ratings to unsound securities. I did not take out a mortgage I would never repay. I did not speculate on house prices (either by buying personally, or trading). I did not create regulators who are too proud to admit they do not understand the markets. I did not change how I viewed risk dependent upon my salary (or my bonus). I did not put my money in Icesave accounts. I spend some of my salary and when I do I try to benefit others. I pay tax. I try to do the right thing. I am not sorry.

Death by tutu

January 8, 2010

“It’s a very masculine world.” People say this to me when they learn that I’m gay and I work in an investment bank. There are a number of ways to be insulted by this:

  1. I may be gay but I’m still a man, I don’t flounce into work in floral prints and tutus (except, of course, on casual day when the tutu is virtually a uniform);
  2. last time I checked, the rest of the world was not a Utopia of mutual respect and gay rights, so I don’t think investment banking is any better or worse than most industries;
  3. since when did you base your opinion of a particularly industry on what you saw on television;
  4. masculine does not mean intolerent.

We have a gay network. It remains a gay network despite my determined attempts to turn it into a mafia, awarding promotions and favours to its most deserving members (i.e. me). This plan is hindered by a few pertinent facts:

  • None of the network/mafia are very important, so their ability to award favours – outside of a charming interior design advice – is very limited;
  • We are the worst gay stereotype and enormously bitchy (I can’t see any gay mafia lasting longer than a few days before an internal battle breaks out, marked by a vicious wave of assassinations, car-bombings and double-crossings, sparked by a suspected sleight over shoes);
  • The firm generally disapproves of a network called a mafia.

The chip-on-shoulder attitude of my fellow network members would be more understandable if they went through some genuine hardship. It’s not that the bank is remarkable forward looking – although it does seem to take the whole “people are our most important asset” thing a lot more seriously than it needs to – it’s just it doesn’t care. Or it does care: about the money.

I find it amazing to think of anyone as saying “don’t give that work to Ninja, he’s a shirt-lifter” because it’s missing the point: where’s the money? We all know how much banks care for money.

And that’s how I thought it was everywhere, except on a recent event run by a financial company (a consultancy) about general gayness (that was not the title, I hasten to add) they were remarkable frank about the whole “he’s a shirt-lifter so let’s not promote him” issue. These things make me angry, not because I’m a fierce defender of equality or my cause (is it really my cause?) but because there’s few things more annoying than genuine stupidity when it slaps you in the face.

“I was thinking about this project to maximise our revenue. Who do you think should run it?”
“It’s a tough call Mr Senior Director, but I have a suggestion.”
“Yes?”
“I was thinking of lowering our revenue, damaging our brand and product, putting the project at risk and making our management practices look questionable to our investors and clients.”
“You’re really selling it Mr Similarly Senior Director, what do we have to do?”
“Well the current plan is to give the project to Smith.”
“The one who wears the tutu?”
“That’s him. He’s a safe pair of hands, really knows his stuff and will deliver the project on time, under-budget and will maximise our bang-for-buck.”
“What do you suggest?”
“I was thinking of giving it to Jones.”
“Ah yes, the idiot responsible for Project Secret.”
“Yes, that’s the chap. You see, Smith is a shirt-lifter and I thought I’d let my own prejudices lead to spiralling costs and lack of delivery.”
“Good call, Mr Similarly Senior Director, let’s do it! We can’t have poofs maximising our profits.”
“I agree Mr Senior Director.” [Pause] “Was that a double entendre?”
“No.”
“Still disgusting though.”

The gay mafia do not agree (which is hardly surprising, as cordial agreement is not something which characterises our views). Perhaps it’s not the same in all organisations, or even in all parts of this organisation, but however hard-earned that chip-on-the-shoulder and Princess Diana eyeliner, they do not advance the cause. But then you can’t trust them with any work: they’re all a bunch of poofs.

Goldman Sachs teams could quit the city over taxes and regulations

January 4, 2010

» Goldman Sachs teams could quit the city over taxes and regulations

Would anyone miss them?

Alongside its results last year Goldman highlighted that it paid £1.1bn in UK corporation tax, the biggest contribution from the UK financial sector. Its 5,000 London employees had also contributed hundreds of millions of pounds in income tax.

Well, yes, apart from that. The news is less serious than it seems: the organisation appears to be thinking aloud, and rather than making idle threats is wondering if it is viable to move (Switzerland is the most likely candidate) and if so, whether or not to do so. Hmmm, that’s actually a lot less comforting than an idle threat. Still, even Goldman appear unconvinced about the idea of moving, which means London may be safe – or, if that is your view, burdened – for a while yet.

With bigger bonuses, another upside for banks

January 2, 2010

» With bigger bonuses, another upside for banks

It’s a strange news story

For all banks and Wall Street firms, “I’m sure we’re talking $200 billion total compensation, which would create a tax savings for the firms of $80 billion,” said Robert Willens, an accounting and tax analyst in New York who runs a consulting firm, Robert Willens LLC. The figure does not include bonus plans by hedge funds, which are likely to reduce their payouts after a down year.

The tax deductions, which will increase the bottom line of the banks, are perfectly legal and not new. They come as compensation for 2009 has roared back after the largest banks paid back billions of dollars in federal aid, an outlay still fresh in the minds of taxpayers. As pay goes up, so do the deductions.

Its category as news is questionable – there is nothing new here – but it is an interesting example of outrage. The more companies pay people, the more tax-deductable costs that they have. This, though, is presented as an extremely sly tax fiddle. (One would think that paying out more costs is generally seen as a negative when it comes to the profit-hungry vampiric organisation that is an investment bank, but perhaps not.)

The most likely culprits are a slow news day or a self-publicist, or possibly both in a thrilling combination. Still, we all have to make our money somehow.

That’s money honey

January 1, 2010

I didn’t even want to be a banker. Not that there’s a pin-striped press gang wandering the streets of London, forcing people into a life of international finance against their will, coshing people with a stock portfolio before leaving them, possibly brain-damaged, in a marble foyer with a blackberry and a Charles Tyrwhitt loyalty card.  It’s just I sort of drifted into it.

They were handing out free beer. I didn’t even know who they were – they weren’t in disguise, it’s just my interest in banking was limited to my student overdraft – and as a student a free anything, especially beer, was of interest. I gave them my CV, and, not thinking I was their type I thought it was a pretty reasonable deal. When I returned from two interviews in London, the second of which made me absolutely certain I was not their type, I forgot about the first interview and did a rather good impression of a sour grape, swearing I was never going to work there even if they paid me, which does seem to imply I had misunderstood the basic premise of a summer internship.

At the time my views were social democratic / liberal. I could just short-cut that awkward phrase and describe myself as a lefty, but like so many labels it keeps bad company: Arthur Scargill, Harriet Harman … Stalin. It’s like describing yourself as a euro-sceptic, which, let’s face it, however sceptical you are about the European Union, is also shorthand for “I’m a right-wing xenophobic nut-job who dislikes foreigners”.

I did the internship for the money. I was a student and I needed it. Then I went back the following summer. Then they offered me a full time job.

So perhaps it was the money after all, but I prefer to think it’s more complicated than that. I used to have a manager who said “money only demotivates people, I’ve never met a person whose performance was improved by the prospect of more money“, and I suspect he is right. When it comes to remuneration people either seem to feel that they have got the right level or not enough, and that other people have too much. I have yet to meet anyone who feels they are overpaid. Money is like freedom: it’s always good to have more and it’s awfully easy to take it for granted when you have it.

I stayed for the work. I get bored easily and every day people would bring me new, intriguing, fiendish puzzles to solve – which brings forth a strange mental image of someone dumping a stack of “Puzzler Monthly” on my desk every day.

“More puzzlers, boss?”
[Through a cigar poking from one corner of his mouth] “‘Fraid so, Ninja.”
“This just ain’t right, boss.”
“This is a bank, Ninja, not a holiday camp. I should have hauled you have the coals for that wordsearch you did yesterday, dammit man.”
“Sorry boss.”
“We’re all sorry, Ninja, but it don’t get the puzzles done.”

What I’m really trying to say is that I’m not greedy, that there’s reasons other than the money. Greed may be good, but it is a surprisingly shy character trait.