Thursday, August 31, 2006

The Accidentals

There's a big write-up in the business pages of today's Guardian for a new insider look at the investment banking game - The Accidental Investment Banker by Jonathan Knee, a former swinging dick at Goldman Sachs and Morgan Stanley, now with his own boutique -
Investment banks promote themselves as sources of wise, experienced and loyal counsel for longstanding clients. Disillusioned with the profession's culture, Knee argues that large banks have moved away from the tradition of building long-term relationships of trust. He says they have become "financial supermarkets", riddled with conflicts of interest.
Bankers, with an eye on bonuses, tout deals to every company prepared to listen. At the same time, he says, banks invest heavily on their own account - which can put them at cross purposes with their clients. "The line between how much relationship and how much transactional work you have has been crossed," Knee told the Guardian.
Explaining the top-of-the-head approach to deal-making that he ended up despising, Knee points to one of his earliest pitches to a food company from his days at Bankers Trust in London. He says he was given a few days to read up on the poultry industry and choose a chicken company suitable for acquisition. "I might not know anything about valuation or accounting or, if truth be told, chickens," he recalls, "but I had been a maths major." He constructed a line graph of the lowest-valued chicken processing firms and Bankers Trust presented it as "very innovative thinking".
Tricks of the trade within banks include league tables engineered to inflate their track record. Knee says 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."
Staff are rewarded with extraordinarily generous pay which, at Goldman Sachs, typically goes up by $100,000 a year, says Knee. "It is hard, with a straight face, to conclude, in the best of all possible worlds, that bankers should be making so much money."

Sounds like an entertaining companion to Philip Augar's The Greed Merchants (discusssed below).

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