Saturday, December 27, 2014

Greatest Hits of 2014

I’m always happy to show you people a little leg
“I think it’s just elegant to have an imagination. I just have no imagination at all. I have lots of other things, but I have no imagination.”

— The Seven Year Itch

Yes, O Dearly Beloved, it’s that time of year again. Time to dust off the circuit boards of the dedicated Google Analytics server farm for this two bit opinion emporium and determine which of my 37 beautiful children attracted the most attention from you delightful readers, spambots, and web crawlers in the Year of Our Lord Two Thousand and Fourteen. As I have explained before, this may be the last year I bother to conduct such a shameless exercise of self-congratulatory back patting—and I have already graced these archives with an All Time Greats victory lap—but I am nothing if not attentive to the proclivities of the three obsessive compulsives among you who could not rest if I did not. (And of course that little jolt of ego gratification I receive from enticing a few hundred more of you to click on these links one more time.)

Anyway, the way these things work should not be a mystery to you by now, so I will stand discretely in the back while you explore TED’s very own People’s Choice awards. I hope you enjoy them, but if you do not, well, you’re probably not my demographic anyway.

THE CANON, 2014 Edition:

1) A Fine Disregard for the Rules (January) — A cabal of the largest investment banks on the planet joined together this year and last to institute policies designed to limit and control the near-legendary workloads imposed on their most junior professionals. In this post, your Guide to All Things Workaholic, Finance Edition explains just why it is these poor slobs work such long hours. I won’t give away the punchline here, but you may safely assume it has something to do with client service.

2) Where Did He Learn to Negotiate Like That? (August) — There are right ways and wrong ways to employ investment bankers when you want to sell your company. The idiot savants at online real estate company Trulia gave us a master class in the latter, while simultaneously demonstrating that it can be dangerous to negotiate with professional negotiators.

3) A Cure Worse Than the Disease (August) — A lawyer took to the pages of to explain, among other things, when and why to hire a mergers & acquisitions advisor to sell your private company. I took to my own to provide what I believe to be a more comprehensive, helpful, and only mildly self-promotional gloss.

4) Touring Test (June) — A tendentious screed prompted by more idiocy emanating from the incontinent bowels of Silicon Valley, some of whose boosters and visionaries continue to argue, against all evidence and two decades of wasted technology spending to the contrary, that in-person business meetings can and should be dispensed with in favor of remote, virtual, “telepresence” substitutes. I calmly remind my readers that meetings—and indeed business itself—still actually do involve those pesky entities known as people, most of whom continue to prefer to interact with their counterparts in person, rather than in the pixellated confines of World of Warcraft. For good reason.

5) This Situation Absolutely Requires a Really Futile and Stupid Gesture (March) — Gawker editor Hamilton Nolan Is Full of Shit, Part 572. I think it had something to do with hedge fund managers and their earnings this time. Moral: populist polemics based on a fundamental untruth may1 attract page views, but they only make you look stupid to the people who matter.

6) Even Cowgirls Get the Blues (February) — Two of the dead horses I most like to beat in these pages—junior banker working hours and women’s career challenges in my industry—come together in one convenient pile of moldering horseflesh for me to flail away at. You may watch the proceedings with amusement from the sanitary safety of your virtual armchair.

7) You Go First (July) — The private equity industry has always acted like a tick on the dog of investment banking when it comes to sourcing and hiring its junior professionals. Now that the tick is approaching the size of the dog, the old accommodation between the two symbionts is breaking down. I object.

8) All Hail and Farewell, the Trophy Kids (August) — Apparently the cream of America’s youth is spurning Wall Street for the glittering garages of Silicon Valley. I say good riddance, and helpfully explain why.

9) The School of Hard Knocks (April) — That’s the transcript I want to see from my job applicants, not a 4.0 GPA meal ticket from a degree mill on the Charles River. I fear I am fighting an inexorable tide, however.

10) Oop. Time, She’s Up (September) — That’s right: after almost eight years of an on-again, off-again tempestuous relationship with you Darling People, I am bored. As you might suspect, even my breakup texts are overlong. Time to stop phoning it in.


Previous entries in this series:2
TED’s All Time Greatest Hits
Greatest Hits of 2013
TED’s Greatest Hits of 2012
TED’s Greatest Hits of 2011
TED’s Greatest Hits of 2010
Greatest Hits of 2008
More Works to Look On and Despair (August 2007)
Look On My Works, Ye Mighty, and Despair! (May 2007)

1 Sigh, I know: they do. But let me entertain my cherished illusions, please. It’s my blog, after all.
2 Apparently I never did a greatest hits collection for 2009. Sorry.

© 2014 The Epicurean Dealmaker. All rights reserved.

Tuesday, December 2, 2014

Show Me the Money

I don’t like the way Ulysses S. Grant is looking at me
“Money changes everything.”

— Some guy, probably without any money

Andrew Ross Sorkin, access journalist extraordinaire and alleged shill for the Great and Good,1 put up a sensible op ed this morning to which I thought I would contribute a few brief supporting remarks. It seems Mr. Sorkin has taken somewhat of a shine to Antonio Weiss, a successful Lazard investment banker whom the current Administration has advanced as its candidate for under secretary of the Treasury for domestic finance, and he has been defending this paragon of sharp-dressed competence against detractors great and small.

Today’s fresh character assassination outrage comes from the capitalist shills [sic] at the AFL-CIO, who have apparently addressed a letter to the boards of several Wall Street banks which takes umbrage at the policy, to be enjoyed by Mr. Weiss among others, that employees leaving their firms for government service can take their unvested pay with them:
Why, the letter asked, do banks routinely pay out special compensation packages to executives who leave to take government jobs when those packages were intended to retain them?

“Unless the position of these companies is that this is just a backdoor way to pay off a newly minted government official to act in Wall Street’s private interests rather than the public interest, it is very difficult to see how these policies promote long-term shareholder value,” the letter declared.
Now Mr. Sorkin waxes poetic and high minded in response to this challenge, nattering on primarily about how we should encourage banks and other employers of bright, shiny, would-be technocrats to doff their gilded yokes of service to Mammon and don the austere chains of public service to the rest of us. He assures us that the interlocking web of influence, conventional group think, and apparent if not actual conflict of interest such revolving door practices engender are indeed problematic, but that the net gain of brilliant, accomplished, successful financiers to the government payroll is worth it, and the aforesaid conflicts can be managed with an unburdensome modicum of care and attention. This is all well and good, and even Your Altruistically Challenged Correspondent can recognize the merits of this argument in the chilly chambers of his frozen heart, but it does not go far enough. As a result, Mr. Sorkin has no compelling response to Big Labor’s additional complaint—bless their capitalist-friendly hearts—that such policies represent a squandering of shareholder value. The thrust of his reply seems to be, yes, these policies cost shareholders money, but they probably help attract some additional members of the Best and Brightest who might have a few public-service-inclined bones in their sleekly coiffured bodies, so that must be a non-numerically-quantifiable Good Thing.

This is unnecessarily weak sauce. Let me explain.

* * *

The principal issue seems to be that our intrepid financial journalist and the shrill harridan of special pleading for labor share a common confusion concerning the payments in question to Mr. Weiss and other would-be servants of the public good. For one thing, they are not special payments at all, as in, “Well done you. Here’s a couple of million or so leafy simoleons to stack alongside your Rembrandts and ill gotten bearer bonds in reward for your selflessness. Remember us kindly.” Rather, when Lazard hands Mr. Weiss a check for twenty million smackeroos give or take on his way out the door, it will be releasing into his sweaty hands money he has already earned.

The distinction which Ms Slavkin Corzo draws between this and what Mr. Weiss, e.g., would receive should he instead choose to decamp from the mahogany clad offices of Lazard for some other investment bank—bupkis, plus a swift kick to the seat of the pants—while correct, misses the point. As Your Tireless Explicateur of All Things Compensatory has often explained on this site, investment bankers are commonly paid substantial portions of the mouthwatering bonuses you read about in the form of what is affectionately known in my industry as “funny money” or “toilet paper”; i.e., deferred compensation. Such deferred compensation usually takes the form of restricted stock which vests over some period of time, phantom stock units, stock options, deferred cash payments, or some other such bullshit which replaces freely spendable legal tender with a conditional promise by one’s employer to pay one the money one has earned in the past sometime in the future, depending.

To illustrate a simple case, a modestly successful senior banker might get “paid” $2 million for her moneymaking efforts over the year, but receive only $250,000 of that in the form of biweekly salary, $500,000 in a cash lump sum payable shortly after the turn of the year, and the balance of $1,250,000 in the form of restricted shares of stock in her employer which vest in equal installments over the next three years.2 Now, should she be so rash as to decide to jump ship from her existing employer to a competitor before the stock she earned by making money for the firm and its shareholders vests, in almost every case she loses it entirely. Given that most bankers stay with their employers for several years and have this or similar pay regimes inflicted on them every year, you can understand that most senior bankers tend to have quite a substantial “nest egg” of deferred pay locked up in restricted shares that are subject to forfeit in such circumstances. This explains why, unless a banker is desperate to switch employers (or, like most Lehman bankers post crash, has unvested stock which is largely worthless anyway), she is likely to extract a large payment from her new employer which is designed to replace the deferred compensation she is giving up by jumping ship. Sadly for her, such replacement payments are almost always granted in the form of—you guessed it—restricted shares with deferred vesting. So, no matter whether she hops from bank to bank like a Mexican jumping bean or stays with one her entire career, a successful senior banker is likely to have accumulated several if not tens of millions of dollars of deferred pay for her pains. The only way off this treadmill is to die, retire completely from investment banking, or, yes, join the government or some other non-competitive corporate entity.

Seen in this light, the forfeiture of unvested pay which a banker suffers when she leaves for a competitor is not the avoidance of further payment but rather the recapture or clawback of previously earned and allocated compensation. Little Muffy got “paid” those two million clams because she made, let’s say, ten million clams for her firm and its shareholders. Those ten million clams were real, deposited and cleared cash money,3 which paid real creditors and light bills and lap dance club dues and which, after said normal course operating expenses and the government’s rake were creamed off the top, were distributed to shareholders in the form of dividends and/or retained capital. Little Muffy only got $750,000 of that munificence and was forced, mutatis mutandis, to extend the balance as a long term interest free loan to the company.4 Sure, the shareholders face eventual dilution when and if Muffy’s shares vest, but until this happens they haven’t really fully paid her for her services. Other things being equal, shareholders should be delighted when bankers resign to work for competitors, because all those unvested share awards are cancelled and they retroactively get all those bankers’ revenue production for below market rates.

Of course, other things often are not equal, and investment banks usually have to replace the departed bankers with new ones, sometimes from other firms for which they have to allocate a lump sum of restricted shares out of treasury that negates all the wonderful savings shareholders got from the resignations. In this respect, deferred banker compensation is sort of like a hot potato: you can pass it around, but somebody is going to have to hold it as long as the banker is working in the business.

* * *

Ergo, paying Mr. Weiss and any other loyal bankers who decamp from our industry’s fetid shores for the sweetness and light of public service (or some other employment which does not try to take money out of the mouths of investment bankers) harms shareholders virtually not at all. It does normally accelerate payment of any unvested shares or other deferred compensation, which eliminates the present value discount of deferral which shareholders otherwise enjoy, but in point of fact all such payments do is give their departing employees the pay the firm has promised them for work already done. It is a greedy and incontinent shareholder who cannot agree to that.

In fact, politically ambitious investment bankers who have a notion they might like to try public service eventually usually negotiate explicit conditions in their employment agreements up front to pay all unvested compensation in just such circumstances, and banks are happy to agree to them. It is no skin off their shareholders’ noses, it renders contractual the right thing to do, which is to pay your employees what you have agreed to pay them, and it may even generate some goodwill or at least friendly feeling in someone who might be leaning over the dais at a future Senate probe or showing up to your Executive Suite with a raft of burly auditors on Christmas Eve. It’s not bribery. It’s just good business. Plus, as Mr. Sorkin avers, it’s probably socially constructive as well.

Only an ungrateful son of a bitch of an investment bank shareholder cannot appreciate that. But I’m being redundant.

Related reading:
Andrew Ross Sorkin, Encouraging Public Service, Through the ‘Revolving Door’ (New York Times DealB%k, December 2, 2014)
Defending the Indefensible (September 22, 2012)
Five Pound Box of Money (February 9, 2009)

1 Hey, even the Great and Good need positive PR. Besides, notwithstanding populist firebrands’ complaints, it does add materially to the public weal to have someone reporting directly from inside the belly of the Beast, and the Beast needs to give someone access to his belly for that to happen. What, you think John Mack was going to recount his conversations with Tim Geithner during the financial crisis to Yves Smith?
2 Don’t get hung up on the bigness (or smallness, bless you Executive Committee members) of these numbers, children. Yes, even modestly successful investment bankers can make what in normal circumstances can rightly appear to be a metric shit-ton of money, but that is not the point of this illustration. Think about all that money tied up in restricted shares which little Muffy Megabucks thinks is rightfully hers for revenues and hopefully profits she already earned for her employer. Can’t do it? Never mind, then, you might as well switch over to BuzzFeed.
3 For clarity and simplicity I am assuming these revenues were really earned funds, like fees from closed M&A transactions or security underwriting. The same argument carries less force when the money a banker “earns” for the firm is, e.g., the calculated and booked net present value profit for a long-term trade which remains at risk for the entire term of the trade, as my colleagues on the sales and trading side of the industry are so fond of claiming.
4 The “principal” of which, by the way, is tied to the actual, fluctuating stock price of her employer’s shares, which can work either to her benefit or to her lasting despair (Lehman Brothers). Deferred stock is calculated as a number of shares at the time when compensation is set, not when the shares vest. The holder is exposed to changes in the firm’s stock price over the entire vesting period.

© 2014 The Epicurean Dealmaker. All rights reserved.

Thursday, November 27, 2014

His Dark Materials

Wondrous are the works of Man, but more wondrous still are those of Heaven.
Joseph Wright, Arkwright’s Cotton Mills by Night, c. 1782
The best one can hope for as a human is to have a relationship with that emptiness where God would be if God were available, but God isn’t. … He’s not available because he’s not a being of a kind that would fit into our availability. … If God were knowable, why would we believe in him?

Anne Carson

* * *

All religions [have] at least one common commandment: “Thou shalt not disfigure the soul.”

— Frank Herbert, Dune

* * *

Seems to me the place you fight cruelty is where you find it, and the place you give help is where you see it needed.

We have to build the Republic of Heaven where we are, because for us there is no elsewhere.

— Philip Pullman, His Dark Materials

Do not forget to build the Republic of Heaven where you are, my friends, starting with your family and friends this holiday season. Most of us have no more important work, and most of us will leave no more lasting legacy than this.

Happy Thanksgiving.

© 2014 The Epicurean Dealmaker. All rights reserved.

Sunday, November 23, 2014

Regrets, I’ve Had a Few

Don’t look back
Auguste Rodin, Orpheus and Eurydice, 1893
Martin Blank: “I’m sorry if I fucked up your life.”
Debi Newberry: “It’s not over yet.”

— Grosse Pointe Blank

Why do we regret life choices? In retrospect, some are decisions with serious and long lasting consequences we make carelessly, hastily, or without due consideration to relevant factors clearly available to our decision making process at the time. They are important choices poorly made. These are good candidates for regret, because we think to ourselves, “If only I had thought more clearly, or taken more time, or investigated my options more carefully, I could have accomplished something important I would have wanted at the time and perhaps still do.” These are the kind where our overwhelming impulse is to kick ourselves for being so stupid, blind, or rash. And we are right to do so. If you are like me, Dear Readers, these are the decisions I cringe to remember, and for which my ears burn with embarrassment.

Others are choices we make deliberately, carefully, with all due attention to the facts as we know them, but that turn out to be wrong, or have unanticipated negative consequences which would have made us choose differently had we foreseen them. These regrets take the form, “If only I had known…” But these are properly weaker regrets, because they hinge on counterfactuals which we instinctively if not explicitly realize were not in our control: information which would have made us change our minds was hidden or unavailable to us, or—a special case of the foregoing—future conditions which we relied upon in making our decision changed after we decided, thereby undermining our intent. Human beings operate with bounded rationality, and even the best and most conscientious decision maker can be foiled by unknown (and perhaps unknowable) data and the vicissitudes of an uncertain future. The consequences may be just as bad, in retrospect, as those arising from a bad decision poorly made—or even worse—but it is pointless to beat yourself up too much for choices you made without considering information completely unavailable to you. Someone who gives more than a passing shrug of regret for the abandoned winning lottery ticket they failed to pick up off the street has their priorities and sense of the possible all messed up.

Still others are good decisions, carefully made, incorporating a complete set of relevant data and good anticipation of future developments, that we later come to regret because we discover we no longer want what we thought we did at the time. Perhaps these are just another subset of the second kind, where the unknown facts we did not incorporate into our decision process are future changes to our values or priorities. But these regrets are often the most troubling, because we are stuck with bad consequences we did not anticipate for which we can blame no-one but ourselves. Nobody hid any data from us, we weighed the pros and cons carefully, and the future played out just as we expected, but now the successful results of our decisions prevent us from realizing other desires or values that are just as or more important to us. This kind of regret often is a natural consequence of the normal process of aging, as young people make important and often irreversible life decisions they later come to regret as older individuals.

* * *
And so we get examples like this, where a 46-year-old banker complains on Reddit that his choices as a young man—for security, wealth, and a successful career—have resulted in a broken marriage, estrangement from his son, and the abandonment of cherished dreams of writing, travel, and adventure he had when he was young. According to his story, he did not make choices rashly or irresponsibly; if anything, his complaint seems to be based in part on his opinion that he chose too cautiously. I will not judge this man’s life choices or his current situation, other than to observe that perhaps his real faults are blindness and inattention.

Why should anyone expect that decisions once made should never be revisited or reexamined in light of changing circumstances or changed desires? Even in our blessed state of deferred decision making in the developed world, many of us begin to pick mates, careers, and life paths while we are still in our twenties, when maturity-wise we are little more than children. Not only should we expect our values and priorities to change with age and circumstance, we should be alert to the fact that many of the decisions we make will be impossible or very difficult to undo. This is naturally hard for young people—I speak from experience, having been one—since the general existential assumption of youth is that time is unlimited and life is one endless series of sequential possibilities. The notion that, for example, having and raising children will impose dramatic limitations on one’s freedom and possibilities for personal fulfillment for decades in one’s young and middle adulthood doesn’t even occur to most twenty-somethings, except in some sort of intellectual sense, which is to say: not at all.

Of course this lesson—and many others which cranky oldsters like me try to impart on a regular basis to succeeding generations—is almost always only learned by personal experience. I remember having gauzy, exciting dreams of adventure and possibility as a twenty-something myself. Most of them, in retrospect, were pretty unrealistic, naive, or just silly. I don’t regret not trying to pursue them now because I realize they likely would have been a disappointing waste of time. In contrast, the adventure and excitement in my actual life have come from the commitments I have made, like marriage, children, and a career, because almost all of them required, in some form or another, a blind leap of faith into the unknown. Has it all been peaches and cream? Absolutely not, but it has been an adventure.

And, lest you sink into a youthful funk contemplating an endless vista of diaper changing, weekend soccer games, and college application trials as the entirety of your ineluctable fate, take heart. The good news about adulthood is that is doesn’t necessarily crush your dreams. It just gives you new ones. You just need to be alert to discovering them.

* * *

Of course, a looming sense of mortality can be salutary, too. There’s nothing like lagging energy, mysterious aches and pains, and strange growths discovered in the mirror to drum into your consciousness that your time here is limited and precious. Adventure and excitement can often be found right in your own backyard, if you know where to look:

Life is what happens to you while you’re busy making other plans.

— John Lennon

Hey, I warned you it all isn’t peaches and cream.

Related reading:
Turn the Page (December 31, 2011)
Walking Song (December 18, 2011)
Can’t Buy Me Love (April 29, 2012)

© 2014 The Epicurean Dealmaker. All rights reserved.

Tuesday, November 18, 2014

What Is It Like to Be a Banker?

Oh sure, blame the bat. What the heck, we’re easy targets.
Conscious experience is a widespread phenomenon.

— Thomas Nagel, inveterate optimist

Whilst conducting primary research into the ontological foundations of metaphysical epistemology recently, O Dearly Beloved, Your Dilatory and Shockingly Remiss Correspondent happened upon a previously unpublished draft of Thomas Nagel’s seminal paper, “What Is It Like to Be a Bat?” I found upon examination of the disintegrating foolscap moldering in dank archives that this eminent philosopher had initially attempted to frame his gedankenexperiment with an empathic exercise even more challenging than imagining himself to be a member of the genus Microchiroptera. Given its patent interest for the history of analytical philosophy and its relevance to issues of concern cognate to this blogsite, I thought I would share the pertinent excerpt with you:
I assume we all believe that bankers have experience. After all, they are human beings, and there is no more doubt that they have experience than that accountants or baristas or firemen have experience. I have chosen bankers instead of lawyers or politicians because if one travels too far down the phylogenetic tree, people gradually shed their faith that there is experience there at all. Bankers, although arguably more closely related to us than those other examples, nevertheless present a range of activity and a sensory apparatus so different from ours that the problem I want to pose is exceptionally vivid (though it certainly could be raised with other species). Even without the benefit of philosophical reflection, anyone who has spent some time in an enclosed space with an excited banker knows what it is to encounter a fundamentally alien form of life.

I have said that the essence of the belief that bankers have experience is that there is something that it is like to be a banker. Now we know that most bankers (investment bankers, to be precise) perceive the external world primarily by money sense, or moolah-location, detecting the reflections, from monetary instruments or securities within range, of their own rapid, subtly modulated, high-frequency shrieks. Their brains are designed to correlate the outgoing impulses with the subsequent jingling or rustling of exchangeable claims to value, and the information thus acquired enables bankers to make precise discriminations of denomination, fungibility, composition, and theft-prevention protections comparable to those we make by vision. But banker money sense, though clearly a form of perception, is not similar in its operation to any sense that we possess, and there is no reason to suppose that it is subjectively like anything we can experience or imagine. This appears to create difficulties for the notion of what it is like to be a banker. We must consider whether any method will permit us to extrapolate to the inner life of the banker from our own case, and if not, what alternative methods there may be for understanding the notion.

Fortunately for the history of analytic philosophy, Professor Nagel apparently abandoned this initial foray as unworkable and, frankly, too outrageous and incomprehensible for anyone but specialists in the study of Homo investmentbankerensis. His revised paper, reframed to less ambitious dimensions, seems to have gone on to some renown, notwithstanding his execrable timidity.

Fortunately for you and everyone like you, I am led to believe there is a minor blogsite located somewhere in cyberspace which tackles these recondite issues head on. Perhaps you can drop me a postcard if you find it.

By the way, is that a $20 bill in your pocket?

© 2014 The Epicurean Dealmaker. All rights reserved.

Sunday, November 2, 2014

Quis Custodiet Ipsos Custodes?

For a watchman, he has remarkably few clothes. Or weapons.
Auguste Rodin, The Age of Bronze, 1876
“If you meet a thief, you may suspect him, by virtue
of your office, to be no true man; and, for such
kind of men, the less you meddle or make with them,
why the more is for your honesty.”

— William Shakespeare, Much Ado About Nothing

Francine McKenna of re: The Auditors recently expressed her dismay that the Big Four accounting firms have continued to be noticeably remiss about engaging reputable accounting firms to audit their own in-house broker dealer arms. The litany Ms McKenna recites of well-known and less-than-well-known failures and deficiencies public accounting firms have been accused of by the PCAOB and the SEC concerning audits of third party broker dealer clients is certainly eye-opening, and it does not give the casual reader much confidence they are sufficiently capable and diligent in this area. However, Ms McKenna’s central concern is a different one: in order to provide legally mandated audits of their own broker dealer units, the Big Four must hire unrelated third party audit firms, and the firms they have hired are tiny, no-name, no-account nobodies.

This, on its face, appears to worry Ms McKenna, and it is reasonable to presume it should worry the rest of us who are less informed about the ins and outs of public accounting than she. However, while I profess absolutely no expertise or credentials in the area of public accounting, I do have an insight into the facts of the matter which may allay some of Ms McKenna’s and her audience’s concerns.

For one thing, as a lawyer who read her post inquired, the curious among you Delightful People might wonder why public accounting firms have broker dealer subsidiaries in the first place. Well, the answer to that—notwithstanding the corporate doublespeak Ms McKenna cites from the firms in question—is quite simple: they like to do investment banking. They like the fees, they like the prestige, and they are often thrown into situations where clients do hire them to provide capital raising or M&A advice. In particular, the Big Four accounting firms have over the years developed a huge and thriving business providing financial due diligence, accounting, and audit services to private equity firms in connection with the latter’s frenetic buying, managing, and selling of companies. Private equity firms, the cognoscenti among you may recall, are paragons of corporate outsourcing, and because they normally consist of three ex-investment bankers, a part-time bookkeeper, and the bookkeeper’s dog, they must employ an army of outside lawyers, consultants, and advisors every time they want to do a deal. Chief among these, of course—save the ineluctable lawyers—are accountants, since virtually none of the private equity professionals are qualified accountants, either (nor can they be bothered to take time from dealmaking to tot up balance sheets, income statements, or other such trivia).1

Private equity firms are occasionally willing to hire accounting firms as deal advisors in addition to their accounting duties because 1) what the hell, they’re already neck deep in the numbers anyway, 2) they may owe the accounting firms some love for the last ten deals which blew up and for which the PE firm accordingly stiffed them on their accounting fees (“We’ll make it up to you next time”), and 3) they’re normally much cheaper than real investment bankers. So Big Four accounting firm partners are always wheedling and cajoling their financial sponsor clients to let their pet investment bankers “do something,” and sometimes the PE guys let them. By the same token, relationship managers at public accounting firms are always looking to soak their corporate audit clients for additional fees, and the occasional corporate client decides to use his audit firm’s in-house bankers to raise some financing or do some small acquisition or divestiture, often for similar reasons to the PE guys.2

* * *

Now the trick is, of course, that if you decide to offer M&A advice or capital raising services to anyone, including PE firms and corporate clients, the redoubtable SEC requires you by law to register as a broker dealer. This is based on the notion, as I have explained elsewhere, that such services normally entail recommendations concerning the purchase and sale of securities, which is the third rail of financial market regulation in this country. Unfortunately, the law currently makes no distinction between a small band of semi-retired corporate development guys who advise on one or two deals per year and a globe-straddling colossus like Goldman Sachs. The former can just as well operate out of a suitcase. The latter not only advises on billions of dollars of M&A and raises billions of dollars of capital for its institutional clients, but also maintains client accounts, handles funds, and does all sorts of other security-related things for a much broader range of retail and institutional clients. Both are, de jure, “broker dealers,” and both require annual audits.

But if all you do is agency business like advising institutional clients on M&A and raising private debt or equity funds from institutional clients, the types of things which the SEC wants to check you are doing or not doing are relatively few and uncomplicated. For example, they want to know whether you are taking custody of or handling client funds at any point (normally no) or, if you are raising funds from institutional investors, you have controls in place to make sure they are indeed qualified for the deals you offer. They want to make sure you have written policies and procedures and adequate capital to support the business you conduct. But the financial complexity of a pure agency advisory business is very low. You have fee revenue, compensation expense, unreimbursed marketing and T&E expense, and other general and administrative expenses. The balance sheet and retained capital you require to run such a business is minimal. From an auditor’s perspective, it is a pretty darn simple business to audit.

And this, as I understand it, is what the broker dealer units of the Big Four accounting firms do. They are not taking custody of client funds, investing money on behalf of customers, or maintaining large sales and trading platforms which operate across multiple geographies and markets. Notwithstanding the size and complexity of the Big Four, their broker dealer platforms have got to be pretty trivial. Accordingly, it makes sense that they have chosen to hire pissant little audit firms to satisfy their SEC-mandated requirements because 1) their businesses are simple enough to be adequately audited by a couple CPAs operating out of a strip mall and 2) the strip mall CPAs are going to be a hell of a lot cheaper than a larger firm. This latter point is important since it is likely—and Ms McKenna confirms it in the case of PwC—that most of these broker dealer arms are either losing money or making a pittance.

Now if this is not true, and Ernst & Young is running a hedge fund like MF Global inside its broker dealer or selling restricted biotech warrants to unqualified widows and orphans, then obviously none of the above is true or adequate. But if that is the case, I think E&Y and the SEC have a much bigger problem than Ms McKenna has tentatively identified.

Related reading:
Francine McKenna, When Big Four Audit Firms Need an Audit They Choose Cheap (Medium, October 14, 2014)
Francine McKenna, Update: The Shoemaker’s Children… The Big Four And Their Own Broker-Dealers (re: The Auditors, October 27, 2014)
In Loco Parentis (April 13, 2014)

1 This is in sad contrast, regular readers of these scribblings will recall, to private equity firms’ endemic reluctance to hire M&A advisors like Yours Truly for the combined reasons that 1) PE professionals believe they can do deals themselves and 2) doing deals, unlike accounting, is fun.
2 In the UK and Europe, where I understand public accounting firms have a closer historical and statutory advisory relationship to their clients, they actually maintain a relatively robust position in the advisory league tables for mid-sized and smaller deals, unlike their poorer American cousins. When it comes to big public deals, however, investment banks dominate there as they do here.

© 2014 The Epicurean Dealmaker. All rights reserved.

Monday, October 27, 2014

Courtly Love

Nobody likes lawyers
Contrary to the cynicism that can pervade discussions of [mergers and acquisitions], many top level M & A advisors have a genuine concern about the integrity of large scale transactions and a desire for the fiduciaries involved to serve the interests they represent in a good faith and effective way. This is not to say that they do not seek to advance the interests of their clients in obtaining legitimate economic advantage, but they do want the game to be a fair one.

— Leo E. Strine, Jr., Chief Justice, Delaware Supreme Court 1,2,3

1 While I appreciate Chief Justice Strine’s sentiment and respect for the basic integrity and desire for fair play which does indeed hold sway among the large majority of professional advisor participants in M&A processes, I find his proposal that we make our lives—and those of our clients—before his and other benches easier by documenting in much greater detail the twists and turns of our recommendations and analyses in medias res of transactions to be both impractical and naive. Surely Chief Justice Strine, among all jurists, must appreciate the role accident, error, and chance play in almost every complex process such as a merger or acquisition and how, even when said twists and turns are faithfully and comprehensively memorialized the twin imps of imperfect memory and hostile interpretation can confuse and bedevil the faithful interpretation of the facts of the matter. I suspect Mr. Strine, being both professionally empowered and constitutionally predilected for the role of fact finder and detective, simply prefers a clearer trail of evidence to allow him to judge the facts of the case properly and render more equitable judgments. However, I also suspect virtually no internal or external investment bank counsel or deal lawyer of any kind will be remotely interested in providing more potential fuel for the fires of devious and aggressive plaintiffs’ counsel for the sole purpose of making Justice Strine’s and his colleagues on the bench’s jobs easier. After all, that is why they pay him the big bucks and solicit him to speak at ABA conferences: because his job is difficult. Plus, we never know when some bozo will relocate litigation jurisdiction away from the Halls of Justice and Light in Delaware to some one-horse hick town in Texas where the judges don’t even know how to read PowerPoint. I’ll go out on a limb and reckon his suggestion is not gonna happen anytime soon. It was a nice try, though.
2 This quote also reminds me of an excellent article by philosopher David Papineau, who wrote about the distinction which can be drawn between the rules of the game and the notion of fair play in both sport and politics. I think a similar analysis could be performed for the highly ritualized, rule bound competition which is mergers and acquisitions. Maybe if you’re nice to me and send me a fruit basket I’ll undertake such an explanation one day.
3 Does it count as a blog post if the chief substance of your remarks lies sequestered in footnotes? Does it count as a speech? Did Chief Justice Strine read each and every footnote as well when he delivered his speech? These are some of the mysteries which consume my restless nights.

© 2014 The Epicurean Dealmaker. All rights reserved.

Sunday, October 19, 2014

Sunday Reading from the Archives

Mmm… coffee
Edward Hopper, Early Sunday Morning, 1930
“Then I need say no more,” said Celeborn. “But do not despise the lore that has come down from distant years; for oft it may chance that old wives keep in memory word of things that once were needful for the wise to know.”

— J.R.R. Tolkein, The Fellowship of the Ring

Periodically, O Dearly Beloved, I take a leisurely stroll through the carefully stacked and organized pixels of my back catalogue, clicking from link to link in a solipsistic journey of rediscovery. Occasionally such wanderings illuminate a consistent intellectual preoccupation of mine, which the bored and underemployed among you might find provocative or merely amusing to waste your time with on a leisurely Fall Sunday morning.

Today’s theme, I suppose, could be described as the necessity for us, as both individuals and as members of society, to accept our fate, to acknowledge the limits of our agency and the extent of our ignorance, and to accept our mutual entanglement with the fortunes of our fellow human beings. In other words, perhaps: Humility.

I like these pieces of mine, even though (or perhaps perversely because) they have not been among my most popular. I hope you find something to enjoy or even make you think. Cheers.

All Together Now – Steve Randy Waldman has said opacity is integral to modern finance. I argue that opacity—and the information asymmetry which it reveals and which creates it—is an emergent feature of all sorts of social functions in complex societies, including finance. Information asymmetry and its associated rents are a convenience tax which members of a society implicitly accept when they agree to the division of labor necessary in complex social communities. Accordingly, I do not believe they can be made to disappear anytime soon.

Punished by Fate – C.J.F. Dillow despairs of the common man’s understanding of chance, declaring it irrational. In contrast, I believe folk notions of justice and fairness incorporate a very sophisticated understanding of our exposure to fate—good, bad, and indifferent luck—and rest upon a communitarian ethics of sharing such undeserved gifts and punishments. Rather than being evidence of ignorance, irrationality, or undeserved entitlement, the average person’s sense of fairness is a very sensible collectivist approach to the problem of just deserts in an uncaring universe.

Occupy Galt’s Gulch – Continuing with the theme of communitarian ethics, Jim Manzi points out that “winners [in society] require shared resources produced by the losers.” I explore some of the implications of this notion in the context of just deserts for self-styled übermenschen who rely on the resources of society, the labors of their fellow citizens, and the uncontrollable vicissitudes of chance to create the conditions for their success, as filtered through the particular lens of American culture and society.

To Whom It May Concern – Drilling deeper into the notion of individual success, I explain the exposure an aspirant in my industry has to luck, both good and bad, and some of the ways of coping with it. I suppose one could call this approach fatalism.

It’s All How You Look at It – Wisdom is good, but it is no comfort. And there is no shortcut to it; no box of Wisdom waiting for you at the local WalMart. You must earn it yourself, with no guarantees that it will make any difference. Sorry.

Prolegomena to Any Future Life – So what are you waiting for? Why are you reading this? You must change your life. Get to it.

Happy Sunday.

© 2014 The Epicurean Dealmaker. All rights reserved.

Saturday, October 11, 2014

The Privy Counselor

I would advise against it, My Lord
Diego Velasquez, Portrait of Pedro de Barberana, 1631
No! I am not Prince Hamlet, nor was meant to be;
Am an attendant lord, one that will do
To swell a progress, start a scene or two,
Advise the prince; no doubt, an easy tool,
Deferential, glad to be of use,
Politic, cautious, and meticulous;
Full of high sentence, but a bit obtuse;
At times, indeed, almost ridiculous—
Almost, at times, the Fool.

— T.S. Eliot, “The Love Song of J. Alfred Prufrock”

So The Blackstone Group decided yesterday to spin off its advisory business and merge it with Paul Taubman’s advisory “kiosk.” This is just the sort of relatively trivial exercise—the advisory group in question accounted for only 6.4% of Blackstone’s revenue and 2.1% of its economic income—that sets financial journalists’ and Wall Street pundits’ heads to nodding and chins to wagging, based almost entirely on the undeniable fact that Blackstone is big and important in the financial ecosystem.1 But I must pop my head up from my hidey hole, if only briefly, to take issue with some of the hasty conclusions being drawn here. I promise to withdraw swiftly and silently at the conclusion.

First, I must disagree with William Alden that Blackstone’s actions somehow contradict prevailing wisdom on Wall Street:
For decades, it has been a deeply held belief among many of Wall Street’s giants that a multiplicity of business lines is superior to a more streamlined model.
No, the conventional wisdom on Wall Street is and always has been quite simple: do whatever makes the most money. This is actually quite a sensible, beautiful, adaptable, and flexible business strategy. Sometimes, in fact, it does encourage executives to add business lines to their firms when they believe those businesses will add revenue and profit synergies to their existing business while being profitable in their own right (i.e., earning a return on top of paying for the people, assets, and financing costs they require). But more often than not it entails creating new products or services within existing business lines (like derivatives within capital markets operations), or just hiring a bunch of clowns who can cover an industry or execute a kind of business you do not already perform. (A “business line” in my industry is frequently little more than a handful of guys with business cards and a budget.) Often, as in the current environment, it encourages senior executives to discard unprofitable business lines, assets, or personnel by shutting them down, selling them, or just firing the unprofitable clowns because they can’t make money anymore or regulators are forcing you to get rid of unapproved activities.

Certainly there is a sensitivity among senior executives in finance to the benefits of maintaining a portfolio of complementary business lines, wherein secular and cyclical variations in the fortunes of certain lines can offset the different variations of others, and often there is a corollary fondness for the diversification accomplished through sheer size alone (usually by executives of big firms, natch). But both these considerations take a back seat to the short-, intermediate-, and long-run profit contributions, both direct and indirect, by the business lines in question to the mother ship. You can suckle at the corporate teat for a little while in my business while you wait for conditions to turn, but patience in the Executive Suite runs out pretty quickly if you can’t pull your own weight over the intermediate and long term. And notice I wrote the business lines must be complementary: if they don’t have the ability to contribute revenue and profit synergies to other business lines or the firm overall, their chance of staying within the fold long term—whether at GigantoBank or Two Guys and a Phone, LLC—are pretty darn slim.2

Enforcing this strategy from the other direction, by the way, are the self-interested considerations of the personnel who run the business lines in question. If they calculate belonging to the mother ship does not enhance their own intermediate- and long-term earnings and personal wealth generation prospects (via subsidy in bad times and better pay in good times than they could achieve elsewhere), they have absolutely no hesitation to jump ship for sunnier shores. From the top of the firm to the bottom, very few successful people on Wall Street value their job title and business card more than the contents of their paycheck, and most of us act accordingly. Besides, managing a multiplicity of business lines is hard. Even Wall Streeters know we are crap at management.

* * *

So I think it’s fair to take Blackstone at their word when they say they are divesting their advisory business due to structural conflicts with their core asset management businesses. In other words, not only was the advisory business not contributing any meaningful profit or revenue to the main group (q.v. supra), but also belonging to Blackstone was throttling the advisory group’s growth and profit opportunities. One can see this clearly in their results, where the Restructuring group has advised on the lion’s share of the unit’s business this year, $32.4 billion worth of deals, versus the regular advisory group’s relatively paltry $4 billion. This makes sense, since restructuring advisory (think bankruptcy, turnarounds, and workouts) is its own special business, with a different set of clients (failing companies, creditor groups, distressed investors), revenue model (hefty monthly retainers versus deal success fees), advisors (lots of ex-lawyers with sharp elbows and fierce manners), and business cycles (naturally, they tend to do well when everyone else is flat on their backs). They should normally have few conflicts with Blackstone’s core asset management businesses, most of which tend to invest in healthy companies or assets. The major exception cited in the articles—their inability to advise Lehman on its bankruptcy because Blackstone’s real estate division wanted to bid on its assets—is the killer exception that proves both the rule and the magnitude of the potential conflict.

Given that conditions are booming in regular M&A markets, the lackluster performance of Blackstone’s corporate advisory business is telling. Because Blackstone is so big and so active in principal investing across private equity, real estate, securities, and other asset classes, they must constantly show up on one side or another of potential transactions which its advisory group would like to get hired for. Such direct conflicts will usually put the kibosh on Blackstone’s advisors getting hired, or at least severely limit their alternatives. And even if no direct conflicts obtain, many corporate clients and virtually all competing private equity firms and principal investors are no doubt reluctant to hire Steve Schwarzman’s trained killers to give them highly sensitive financial and strategic advice. I can’t help but think this goes double for the third leg of Blackstone’s advisory stool, which helps raise money for—wait for it—other asset managers.

The point, in other words, is that Blackstone divesting its advisory business has nothing to do with bucking a nonexistent trend on Wall Street to add business lines like barnacles on a freighter. Instead, it has everything to do with dumping business lines that add no value, subtract value, or fail to realize their own value due to inherent negative synergies resulting from persistent structural conflicts of interest with the parent company. In other words, it is business as usual.

* * *

However, and for the very same reasons, Schwarzman pulling the ripcord on his M&A bankers does not signal the start of an industry-wide trend of divesting advisory groups by integrated investment banks. For one thing, big integrated investment banks with sales and trading, securities underwriting, and corporate advisory practices like the C-suite access top M&A and industry coverage bankers give them. Because they talk to the CEO, the CFO, and occasionally the Board of Directors, they have access to a level of decision making at corporate clients that the debt capital markets bankers and derivatives structurers do not. (They tend to talk to Treasurers or their finance staff.) This means they can get access to bigger, more profitable debt and derivatives deals and valuable, profitable product to pump into the insatiable maw of their huge trading machines. Profitable equity underwritings are also CEO- and Board-level prizes to give, and M&A deals are just icing on a cake that does not require meaningful capital to be put at risk.

M&A and corporate finance bankers like belonging to big integrated investment banks, too, when things work as they should. For one thing, it gives them more deals and ideas to talk about with their clients than just the usual who-should-buy-whom rigmarole. For another, it allows them to deepen and institutionalize their firm’s relationship with important clients by establishing multiple touch points and ongoing dialogues between subject matter experts within the bank and counterparts at the client. For a third, having equity research analysts who cover their clients and target industries gives them an entrée and a credibility with clients they do not know, and a capability to underwrite profitable equity business for those they do.

But most importantly, having M&A and industry bankers gives integrated investment banks an excuse to deliver ideas, industry and client insight, and all-important deal flow to the biggest-paying class of clients on Wall Street: private equity firms. While it is well known that private equity firms do not like paying M&A advisors for advice—usually because, rightly or wrongly, they think they know at least as much or more as bankers do about companies, deal-doing, and opportunities—they absolutely love paying investment banks to supply and arrange leveraged loans and high yield debt to finance buyouts of target companies. And banks love this too, because it is both huge and hugely profitable business. PE firms are usually happy to hire investment banks to sell their portfolio companies or take them public upon exit, too, although they tend to favor the banks which brought them the investment in the first place, financed it, and or smothered them with loving attention and juicy new buyout opportunities in the meantime.

So no wonder Blackstone ejected their M&A advisors. Not only can’t they offer the biggest and best paying clients on Wall Street (or anyone else) access to highly profitable leveraged lending, IPOs and equity underwriting, or sales and trading for securities and derivatives (because Blackstone Mère does not offer them), but also the biggest and best paying clients on Wall Street have no interest in hiring them because 1) they don’t value the advice they do have to offer and 2), duh, they work for one of their biggest competitors. I mean, if you could somehow engineer a similar set of constraints for Goldman Sachs’ M&A department, you can bet dollars to donuts the entire group would be camped out on West Street selling pencils before lunchtime.

* * *

Lastly, I have to I disagree with Jeffrey Goldfarb, too. I don’t think this action will start any powerful trends toward consolidating independent M&A advisors like the new PJT-Blackstone Advisory spinoff or even any significant acquisitions of same by larger financial institutions. For one thing, there are only so many synergies and complementarities one can generate in a homogeneous business line like M&A advisory or restructuring before negative returns to scale begin to kick in. At the end of the day, firms like PJT-BA, Moelis, Greenhill, and Evercore are really just a loose collection of fiercely independent, egotistical rainmakers who focus almost entirely on mergers & acquisitions for corporate clients. There isn’t a lot of infrastructure or shared assets to leverage, and there are no complementary business lines like securities underwriting, derivatives structuring, or sales and trading to juice the vig. Managing an advisory boutique is almost exactly like herding a passel of recalcitrant cats, and in my experience, the more the cats, the harder the shepherd’s job becomes.

Similarly, the likelihood a large commercial or foreign bank would snatch up any of these independent advisory shops should be limited by sheer common sense. For one thing, if the acquirer does not already have most of the key complementary underwriting and securities businesses listed above, adding a costly team of pinstriped M&A advisors is going to be an expensive exercise in cultural frustration and no synergy. Adding such capabilities after the fact would be even more expensive and less reversible, since those businesses require real assets, infrastructure, and permanent fixed costs that dwarf those required by the usual M&A department. For another, the history of such acquisitions argues more eloquently than I can against it.

* * *

For Steve Schwarzman, who has not paid noticeable attention to his old advisory business for years and who probably needed to be reminded by Tony James that Blackstone stilled owned it, the motivation for getting rid of the division is clear. He no longer wants or needs to be privy counselor to captains of industry or titans of finance.

It is many years since Steve Schwarzman has considered himself to be—and rightly so—a king in his own right.

Related reading:
Kiel Porter, David Carey, and Devin Banerjee, Blackstone to Spin Off Its Advisory Business With Taubman (Bloomberg, October 10, 2014)
William Alden, Shunning Wall Street Norms, Blackstone to Spin Off Its Advisory Group (DealBook, October 10, 2014)
Jeffrey Goldfarb, Blackstone’s Move Could Set Off a Trend (DealBook, October 10, 2014)
L’État, c’est moi (February 12, 2007) — Steve Schwarzman, Rex
Go West, Young Sheik (September 12, 2007) — Foreign bank acquisitions
Oxymoron (October 13, 2007) – Investment banking “management”
It’s Not the Meat, It’s the Motion (July 15, 2009) — Advisory boutiques

1 There is perhaps an ancillary motivation derived from investment bankers’ unwarranted glamour and notoriety due to their current popular role as B movie villains in our global financial crisis soap opera. But you already knew that.
2 This is not to deny that there are easy returns to scale (to a point) within business lines. Two Guys and a Phone, LLC would likely become much more profitable if it were One Hundred Guys and Several Phones, Inc., if only because they could share resources, support personnel, purchasing synergies, and enhanced marketing and sales generation prospects by looking bigger and hence more reputable to their potential clients, who are often big and diversified themselves. But these cost and revenue synergies often do not obtain between business lines that each have their own separate and different operating structures, client bases, and external market reputations. And past a certain point, scale and diversification can hurt you. The only thing belonging to GigantoBank ever did for me was open the door to an occasional new client who took a meeting because they were afraid GigantoBank would squash them (or more likely revoke their credit line) if they didn’t. A few others refused to meet with me because that is exactly what GigantoBank had already done.

© 2014 The Epicurean Dealmaker. All rights reserved.

Friday, October 3, 2014

Farewell, Ghafla Distraction

What is the airspeed velocity of an unladen swallow?
“Aha! Now we see the violence inherent in the system!”

— Monty Python and the Holy Grail

Yes, it’s true: I’ve left Twitter.

No special reason. All of a part with my reasons for terminating this blog,1 which boil down to being tired of it. I no longer get enough out of the service to merit the near constant immersion and distraction which it seems to elicit from me. I have better uses for my time. And the more substantive readings and links of interest which used to attract me I have sourced otherwise through RSS feeds, so I no longer need to wade through reams of banal tweets on unemployment data, fluctuating bond yields, and the latest outrage du jour of anarcho-social-media-ites to find them.

Of course I am sorry to leave those few friends I have made on Twitter behind. But let’s be frank: there aren’t that many of you, and all of you will get along just fine without me. Besides, if you’re a true friend who’s not a complete mental incompetent, you already know or can find my email address, which remains the same. Those of you who can’t, well, there’s always Kim Kardashian and Justin Bieber. Like your parents, they will always love you and never leave you.

No, really.

1 And no, this does not count as a blog post, except in those pathetic excuses for autofellation some of you frequent elsewhere. My posts have substance. This is a notice, for pete’s sake.

© 2014 The Epicurean Dealmaker. All rights reserved.

Monday, September 29, 2014

TED’s All Time Greatest Hits

They’re all money, honey
The person who experiences greatness must have a feeling for the myth he is in. He must reflect what is projected upon him. And he must have a strong sense of the sardonic. This is what uncouples him from belief in his own pretensions. The sardonic is all that permits him to move within himself. Without this quality, even occasional greatness will destroy a man.

— Frank Herbert, Dune

I have used the preceding epigraph before, as some of you Delightful Readers may recall. It is a versatile and thought-provoking sentiment. Like many quotes and excerpts from Dune, which I contend is one of the greatest science fiction novels ever written, it pleases and intrigues me. It also reminds me—when I am smitten with the unwarranted attention the criminally indiscriminate among you have bestowed upon the thin leavings I whimsically scatter here at unreliable intervals like some verbose will-o-the-wisp—that I am anything but great, or even worthy of attention. I use it sardonically, you see.

I am not without self awareness.

But now I have decided, for the nonce, to abandon you, as I have made clear before. Bummer that, but it cannot be helped. “To everything there is a season,” or some such bullshit. So it strikes me as only fair to post a list of the ten most popular posts I have ever released upon an unsuspecting and undeserving world,1 if only so some people can focus their anger at global injustice and bank overdraft fees on a similarly appalling yet perhaps more accessible target. It is better than reading Slate or Gawker or Jezebel or Guardian pieces, anyway. And they don’t need the page views, I do. I still owe a helluva lot of money for excess pixel consumption, you see.

So enjoy, and please remember to deposit your candy wrappers, empty soda bottles, and previously unexamined prejudices in the handy trash receptacles at the end of the show.

THE CANONICAL CANON, All-Time Canonical Edition:

1) Curriculum Vitae (March 2013) — The canonical career path for young tadpoles to hoary old bullfrogs in my business, corporate finance and M&A. This is what your life will look like if you choose to follow me, children. Warts and all.

2) The Mouth of Sauron (February 2010) — A hit piece, richly deserved, on the fabled former mouthpiece of Goldman Sachs, Lucas van Praag, who is no doubt happily torturing small animals with forks on a leafy Victorian estate in his dotage.

3) The Rules (November 2012) — Read them. Live by them. Pay particular attention to Rule #5.

4) Jane, You Ignorant Slut (May 2011) — The opening salvo in a series of posts about rampant ignorance in the financial press and blogosphere about the nature and mechanics of initial public offerings. This rabbit hole is deep, Alice. Beware.

5) The Invention of Leisure (November 2013) — Junior investment bankers work hard. No matter what people may say or think or do about it, this will not change, and there are very good reasons for that. Not bad reasons, good reasons. See Rule #5.

6) Overheard at 85 Broad Street (June 2008) — An old post in which I eviscerate those gutless weasels at Goldman Sachs who fucked over junior bankers during the Financial Crisis in a particularly cowardly and reprehensible way. I can neither confirm nor deny rumors that Goldman moved its global headquarters to 200 West Street solely to escape the historical opprobrium of this post.

7) Go Ask Alice (September 2013) — The bookend to the series on IPOs, begun with 4) above. Read these two, and the intervening posts, and you will know more about IPOs than most investment bankers and all financial pundits.

8) A Fine Disregard for the Rules (January 2014) — More reasons why junior investment bankers work like dogs and always will, no matter how many foosball tables and papaya soy lattes Google and Facebook try to tempt them with.

9) To Catch a Thief (February 2009) — Do investment bank executives strike you as, well, a little odd? I suspect you are right.

10) Where Did He Learn to Negotiate Like That? (August 2014) — Investment bankers, by training and inclination, tend to be much better negotiators than many of their clients. Occasionally this works to the client’s disadvantage.

* * *

Since these posts are ranked here, as is my custom, simply by aggregate historical page views as collected by Google Analytics, some of you may notice a recency bias, as the number of readers coming to these pages has accreted over time like barnacles on the hull of a poorly maintained ocean freighter. You will also notice a narrower range of topics and treatments than your local bartender may have informed you I offer, which is related to said recency. Those masochists among you who would like to explore both deeper in time and more broadly across my variegated oeuvre I would encourage to start in the archives and use my idiosyncratic keywords and Blogger’s search function liberally. There is nothing for it but to dive in, headfirst, and try to stay afloat on my sea of words, just as a tyro investment banker plunges into her apprenticeship of fire.

The metaphors are deep, O Dearly Beloved, and mixed. Welcome to my world.

Related reading:
Table of Contents — the archives
Topics Addressed in These Pages — idiosyncratic keywords

1 I exclude, as is my custom, generic results like this blog’s home page, recommended reading, outdated personal information, introductory blather, and my curated archives. I suspect you can have no objection.

© 2014 The Epicurean Dealmaker. All rights reserved.

Saturday, September 20, 2014

Oop. Time, She’s Up

Just an old fossil
“I am old, Gandalf. I don’t look it, but I am beginning to feel it in my heart of hearts. Well-preserved indeed! Why, I feel all thin, sort of stretched, if you know what I mean: like butter that has been scraped over too much bread. That can’t be right. I need a change, or something.”

― J.R.R. Tolkien, The Lord of the Rings

When I launched this blog seven and three-quarters years ago, O Dearly Beloved, my first post incorporated the following mission statement:
I have started this blog to comment on what I consider to be a fascinating part of the global economy: the global market for M&A and its various inhabitants, participants, and miscreants. Hopefully I will be able to relate some interesting anecdotes, a few enlightening opinions, and a couple of amusing stories that will shed a little more light (or a little more laughter) on what remains for many a murky area best left to investment bankers, corporate lawyers, and other such terrifying bogeymen.
Five hundred and sixty-six published posts later, more or less, plus a lumber room of unpublished fragments, ruminations, and provocations, I think I am ready to declare victory and move on. This is not necessarily because even I believe that I have achieved victory, mind you. That is for you Lovely People and the sub-sub-librarians of internet history to judge. But one of the advantages of running a blogsite of which you are the sole, unimpeachable authority, author, and editor rolled into one is the ability to make such unilateral declarations without fear of pesky contradiction from the peanut gallery. (I have not made it a policy here to prevent comments for nothing, children. If you object I can direct you to a convenient pile of nearby sand which needs pounding.)

Of course those of you who have made an intermittent study, intentional or not, of my ramblings on this site will be aware that my output has both exceeded and failed to satisfy my stated mission of explaining the market for corporate mergers & acquisitions. The lion’s share of this mission creep (or evasion, if you will), I must put down to my lack of discipline: I have used this platform to hold forth on all sorts of topics and sundry, many of which fall far afield from the cloistered halls of buying, selling, and financing companies, which is my primary trade. I have addressed mildly cognate fields like private equity, Corporate America, and the history, structure, and pay of the investment banking industry; more tenuously related areas including hedge funds, capital markets, and financial regulation; and wildly off-topic digressions such as higher education, philosophy, and identity in the age of Facebook and the NSA. I have indulged my fancy for humor without regard for its funniness to anyone else, and I have waded into culture and art criticism without shame or regard for my lack of training or expertise therein. I have posted pictures and poems that appealed to me, for no other reason than I could.

In other words, I have written about what interests me, in addition to that much narrower and shallower range of topics to which I legitimately claim any expertise. The curated list of my more prominent posts runs to many pixels and reveals the breadth of my work. I remain unapologetic about this. This site is a personal blog, not a public service. Those of you who disagree with my choices are welcome to join the protestors from the first paragraph at the nearby mound of silica, etc., etc.

* * *

I was lucky to start blogging when I did. Financial markets had reached a peak of silliness which offered rich fodder to a financially literate cynic such as myself. Soon, the global financial crisis elbowed aside these more pedestrian concerns to offer a rich and exciting topic for me to both demonstrate my naturally firmer grasp on markets and the financial industry than the legions of panicky and underinformed journalists and pundits who were scrambling to understand and report it and also learn more about the crisis’s players, issues, and concerns than I had theretofore known myself. While I claim no particular merit for having done so, I take pride in contributing some measure of rational, grounded knowledge and facts to a society-wide conversation about the Panic which was badly in need of them. I even tried to contribute more serious thinking to the reform of financial regulation in this context, but sadly that seed fell on stony ground.

Subsequently, I think I have contributed some things of use to the broader understanding of investment banking and financial markets, including reality-based commentary on initial public offerings, illumination of the ways and byways of careers in my industry, and a little insight into the plight and prospect of women in high powered careers like mine. Hopefully these small contributions have added something of value to the public understanding and hence social weal. If so, I am glad. If not, well, you all got what you paid for.

But now I have reached a pass where I find it increasingly difficult to maintain any sort of regular posting on these pages. Most of what I have to say about things I know I have already said, often more than once. I have come to realize I will never convince those who believe in their bones that investment banking and financial markets are useless, evil, or a social liability rather than a boon. People who use the word “bankster” unreflectively and unironically are not now and never will be interested in what I have to say. People who have a more nuanced understanding, or who continue to form their opinions on the matter, have many more sources today than they used to to call upon, and a much broader and deeper understanding of these issues in the press. I hope I have contributed in some small way to this education. Unless sinks beneath the waves, people should always be able to find my blatherings on these topics gathering dust at this location for handy reference anyway.

I expect I will continue to maintain this site in some small way, perhaps adding a post here and there to the topic listing at the Table of Contents and maybe even doing a final and/or comprehensive post of Greatest Hits. But I do not anticipate blogging here regularly any more. I have reached the end of the interests and expanded mission which drove me to launch myself into cyberspace in the first place. Now I am most interested in topics where I am a student and a learner, not a master, and I want to spend the not inconsiderable time I have devoted in the past to explaining financial arcana and beating back the ignorance of the unfair and unjust here to reading and thinking about others’ expertise and ideas instead.

* * *

If I find I have something interesting to say, never fear, O Faithful and Long-Disappointed Readers, I will probably say it here. Those of you who know me via this opinion emporium probably have little doubt of that. I am the sort of person in fact whom it is almost impossible to shut up. It just is unlikely to be a regular affair, and this site is likely to sink into desuetude and decay as the years lengthen. Whether I decide to pop up in some other form, at some other place, I have yet to decide.

If I do, I’ll be sure to drop you a postcard. Cheerio.

Related reading:
Fragments (February 26, 2010)
Table of Contents (February 16, 2013 and passim)

© 2014 The Epicurean Dealmaker. All rights reserved.

Sunday, September 14, 2014

Some Work of Noble Note May Yet Be Done

What is the price and cost of duty? What is its pleasure?
We are not now that strength which in old days
Moved earth and heaven, that which we are, we are,
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.

— Alfred Lord Tennyson, “Ulysses

Ever since the release of Dr. No in 1962, the James Bond 007 films have acted as a touchstone and running commentary on popular culture and society. For over half a century, a parade of different Bonds, Bond Girls, and increasingly over the top villains have offered escapist fantasies of varying implausibility and ridiculousness which have served, inter alia, as travel brochures, fashion statements, and advertisements for the benefits, drawbacks, and terrors of technological progress. They have done this, for the most part, not because it was their makers’ purpose (or even within their power) to critique society, but rather because they were intended to be hip, with it, and relevant, even at the inevitable expense of any seriousness or credibility. (Roger Moore, anyone?) With various degrees of success, these pop confections have held a mirror up to society. It is no wonder not everybody likes what they see.

These thoughts were inspired by film critic A.O. Scott’s interesting essay on the death of adulthood in American culture, which seems to be making the rounds of the culturesphere. He says many things, but his major point seems to be that popular culture, moviemaking preeminent within it, has elevated a strain of anti-adulthood and fixation on youth long dominant in American culture to the forefront of everything we see. I am not qualified to judge the correctness of his claim, but it certainly does seem to me the flight from responsibility and adulthood and the joys and tribulations of perpetual adolescence have become a leading subtext or topic for a very large number of popular entertainments nowadays. In particular, this cultural conversation seems to be focused on men and boys and their refusal to grow up.

Interestingly, upon reading Scott’s essay, my thoughts turned immediately to the most recent film in the Bond series, Skyfall. It occurred to me this movie can be read as providing a very interesting commentary on the issues of growing up, responsibility, and adulthood for a man nowadays, even if—or perhaps because—it is wrapped up in a popular escapist spy thriller. I claim no special cultural profundity for the film, nor no searing insight for the filmmakers or screenwriters, but I think the mirror which this particular thriller holds up to our current zeitgeist is pretty revealing. Even if the cultural critique I read within it was unconscious, or only semi-intentional, that does not vitiate its insight or force. Perhaps it enhances it. You Delightful Readers can judge for yourselves. If Stanley Cavell can find deep commentary on Hamlet embedded in Alfred Hitchcock’s North by Northwest, I can certainly tease a bildungsroman out of a Bond film. It’s my blog, anyway.

* * *

I will not tax your patience by relating the plot or other details of the film which you can discover yourself if you like. Nor will I spare you any spoilers. If you have not seen it already, there is no plot element I can reveal that will diminish your appreciation of the movie as cultural critique. In my experience, anyway, it is a measure of the quality of a story that you are willing to reread or rewatch it even when you know how it turns out. Skyfall is that good a movie.

The key plot points I would draw your attention to are as follows:

  • At the beginning of the film, Bond is accidentally shot by his competent, no-nonsense assistant while attempting to recover a stolen data file from the top of a train barreling toward a tunnel of no return (cue Alfred Hitchcock and Sigmund Freud). Bond’s assistant, who happens to be black and female, shoots him on the explicit orders of their boss at British intelligence, “M,” who, while white and old, also happens to be female (Judi Dench). Bond, by the way, is an orphan who has a simultaneously fraught and close relationship with M which a casual observer could mistake for a mother–son dynamic.
  • After plunging to his apparent death in deep water (cue Carl Jung, opening credits, and Adele’s theme song), we later discover Bond is alive after all, although he appears to be hiding from M and MI-6 in an exotic backwater and spending his time in self-destructive drinking, meaningless sex, and taunting dangerous arachnids for thrills and money.
  • Bond comes back home to mother M when he hears she and MI-6 are under attack by a mysterious hacker who can penetrate British intelligence’s defenses at will. M displays no regret, casually informs Bond she has sold his home and all his belongings, and puts him into a crash course to get fit for active duty again, at which he struggles painfully. Nice homecoming.
  • Bond tracks the mysterious hacker through various exotic locales and the beds of one or two expendable women to an abandoned island off the China coast, where he discovers a platinum blond Javier Bardem who minces and lisps and puts the moves on our trussed up spy. Bardem, it seems, is Bond’s evil twin, who is pissed at M for betraying him to the Chinese. He has channeled his anger into a worldwide empire of computer intelligence and manipulation, which he sells to the highest bidder. Strangely, though, this evil computer genius uses data screens that look like video games.
  • After more plot machinations and an unsuccessful attempt on M’s life by Bardem (for an evil computer genius, he’s pretty lame with a gun), Bond flees with M to his ancient family home in Scotland, Skyfall, where he acquired what an MI-6 psychologist called his “pathological rejection of authority due to unresolved childhood trauma.” Bond himself tells M they’re going “into the past.” For transportation, they use Sean Connery–Bond’s Aston Martin DB5 from 1964’s Goldfinger. Into the past, indeed.
  • An epic battle ensues at Skyfall, in which Bond, M, and Bond’s old gamekeeper and surrogate father battle Bardem and his small army, resulting in the destruction of Skyfall (which Bond hates), the Aston Martin DB5 (which only seems to mildly irritate Bond), and Bardem’s army. Bardem tracks a wounded M to a chapel where, while trying to persuade her to shoot both herself and him in the head to end their misery, Bond literally stabs Bardem in the back with a large hunting knife. So much for homosexual tension with your evil twin.
  • Finally, after blessing Bond with her approval, M dies.
* * *

Now of course everyone who watches Skyfall knows all about James Bond. (All Bond movies assume it.) He is a charming, ruthless killer, a master manipulator with no empathy who treats friendly and hostile women alike like Kleenex and enemies like target practice. He is unmarried and childless, a man with no duties or responsibilities other than his job, which he often does grudgingly and against orders. Come what may, he always wins, usually punctuating his triumph with a cynical joke. As a cultural symbol of the last half century, James Bond is Peter Pan with a gun. For a British character he is as American as they come.

And yet in Skyfall he is betrayed and (symbolically) killed by women (including his mother), he falls into adolescent irresponsibility and self destruction, he is blocked and belittled by the genius avatars of today’s high technology (one of whom is gay or bisexual and the other is so young he still has spots), and he struggles not very successfully against physical and intellectual decrepitude. What more comprehensive list of challenges facing modern American man can one compile? What greater list of fears and blocks to maturity torture the brains of today’s man: emasculation, obsolescence, irrelevance, sexual confusion, self-indulgence, failure, age?

But Skyfall’s James Bond does not remain on the beach in India to sulk, boozing for breakfast and daring scorpions to sting him. He does not smoke pot and play Parcheesi with his stoner 30-something friends while the world burns or skip dates with beautiful women far out of his class to rearrange his vintage comic book collection. He is no Marvel superhero or genetically enhanced super soldier who can pretend to be invincible. This James Bond is the most vincible hero we have seen. And yet he picks himself up painfully, dusts himself off, and throws himself back into a game he is not sure—we are not sure—he can win, because it is his duty.1 This is the opposite of the flight from adulthood. This is its embrace: the embrace of duty and responsibility. If there is a bubblegum escapist fantasy thriller which offers a better critique of the flight from adulthood—yet does not shy away from depicting how difficult and costly adulthood is—than this, I do not know what it is.

* * *

At one point, as Bardem’s villain bears down on M’s public hearing to kill her and Bond sprints through the streets of Whitehall to stop him, Judi Dench–M recites the conclusion from Alfred Lord Tennyson’s poem “Ulysses” at the top of this post. The effect is inspirational, as we fully understand by now the effort and will it requires for Bond to push his aged, broken-down body through the streets to rescue both the head of his service and the only woman he has considered his mother for his entire adult life.

And yet Bond is not Tennyson’s Ulysses, a selfish, vain old man who wants to abandon his aged wife—who waited patiently for him for twenty years of wandering—his dutiful son, and his own people, to fling himself onto the wine dark sea once more in search of glory and adventure. No, Bond is a soldier, a dutiful son who dons his buckler and sword to wade again and again into the blood and mud of the battlefield, risking life and limb for the country which is his only family and his only allegiance. At the end of the movie, Mallory–M welcomes him into his new office—the original Bernard Lee–M’s office, down to the paneling, soundproofed door, and paintings on the wall; a fine, full circle the filmmakers have crafted for us2—and tells him as he tosses a new mission brief onto the desk, “So, 007, lots to be done. Are you ready to get back to work?”

Bond replies with a smile, “With pleasure, M. With pleasure.”

That is adulthood, children. That is what it means to be a man.

Related reading:
A.O. Scott, The Death of Adulthood in American Culture (The New York Times, September 11, 2014)

1 I am not overlooking the element of revenge in Bond’s motivation; it is undoubtedly there. But this is just to say that Bond’s character’s motivations are multifarious and complex, as they are in real life. This makes Skyfall a better film, if a more complicated and ambiguous one in many respects.
2 Note how, having reset the location of M’s office back to its setting from the very first film of the series, the filmmakers have also given enough backstory and proof of Mallory’s personal courage and toughness to justify his position in M’s chair. No longer just a fat, slightly ridiculous old man behind a desk, M’s role as leader and father to James Bond has been justified to us and to Bond. This little bit of the patriarchy, at least, makes sense again.

© 2014 The Epicurean Dealmaker. All rights reserved.