Saturday, March 5, 2011

The Mailman Cometh

Hey, sailor, drop me a postcard sometime
Emperor Joseph II: "My dear young man, don't take it too hard. Your work is ingenious. It's quality work. And there are simply too many notes, that's all. Just cut a few and it will be perfect."
Mozart: "Which few did you have in mind, Majesty?"

Amadeus


We receive mail at the Volcano Lair:

TED,

First, I am a huge fan of your blog. While some may say it is needlessly verbose, I find lofty English to be tantalizing.

Second, I wanted to get your opinion on the Oscar winning documentary, "The Inside Job." It seems like you think of traders as weenies and I would be interested to hear whether you believe the film made an adequate distinction between the various parts of the investment banks (i.e. M&A vs. sales/trading).

Third, I'm assuming you work at an international bulge bracket bank and I was wondering what your thoughts are vis-a-vis mid-market investment banks. Do you tend to turn your nose up at them because the size of their deals are smaller in a monetary sense?

All the best,

[Sender Redacted]

* * *

Dear SR –

First, thank you for being a fan. I have few enough of those in the world not to appreciate the ones I do. However, I think you might need to hang out with a better class of friend and acquaintance. Any putz who thinks my stylings here are "needlessly verbose" clearly hasn't lifted his or her head from Time magazine or the latest John Grisham thriller since they first learned to read. Such ignorant, poorly-educated, tin-eared boobs should be beneath your contempt, as they are mine.

Second, no, I have not yet seen Inside Job. Nor has that film's anointing as the best documentary of the year by the Great and Good of that most rigorous, nonpartisan, and perceptive academy of sociological criticism—known as the American Academy of Motion Picture Arts and Sciences—encouraged me to correct my ignorance. I tend to find exercises led by the Smug and Self-righteous in persuading the Already Convinced and Credulous of something they already believe to be tiresome, tendentious, and not worth my time. Perhaps I will get to it sometime down the road, but I wouldn't hold your breath. Even if said film were known to be the most evenhanded analysis available, I suspect I would learn little new or truly interesting about the sources of the financial crisis from it. I hold the apparently unfashionable view that the sources of same were so multifarious, interconnected, and obscure as to defy well-balanced characterization in a mini-series documentary of 20 hours duration, much less one of only two.

But, yes, you are correct: I do think traders are weenies.

Third, I never turn up my nose at any piece of profitable business. It is true that the smaller deals and smaller companies which mid-market and regional investment banks service usually yield fees which are simply too small to offset the opportunity cost of doing them at larger banks. Most bulge bracket Managing Directors—to paraphrase my first girlfriend of the 1980s, supermodel Linda Evangelista (the saucepot pictured above, for you benighted 20-somethings)—won't get out of bed in the morning for less than a $3 million fee. Most mid-market M&A deals or capital raisings simply cannot support such fees, but big banks need such or larger in order to pay for their enormous fixed and variable cost infrastructure. (Weenie traders and their fancy trading turrets cost a lot of money, especially when you have them scattered across high-priced financial centers all over the world.)

But smaller and medium-sized deals can have all the interest, complexity, and drama of bigger ones, and sometimes more. They certainly do not require any less effort to complete. In fact, given the relative dealmaking inexperience and unsophistication of small to mid-sized clients, they often require more, and more focus on the psychology of the deal, rather than the technical and mechanical aspects of it. Smaller deals can be a lot of fun. You just have to do them at an investment bank where the cost structure can support it. As a junior banker, moreover, you have a much greater chance of playing a meaningful role on smaller deals, with more hands-on experience and client exposure, than you do as Sub-Sub-Analyst #3 on a $20 billion mega-deal staffed with six bulge bracket banks. In those cases, you'll be lucky to be tasked with getting the coffee for the 2nd-year Analyst running the copying machine on the lobster shift.

Anyway, I hope this was of some help to you. Thanks for writing, and for giving me an excuse, however flimsy, to post a picture of Linda.

Cheerio,

TED


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