Mexican fisherman fable

An American investment banker was at the pier of a small coastal Mexican village when a small boat with one fisherman docked.
Inside the boat were several yellowfin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.
“Only a little while.”
“Why didn’t you stay out longer and catch more fish?”
“This is enough to support my family’s needs.”
“But what do you do with the rest of your time?”
“I sleep late, play with my children, take siestas with my wife, and stroll to the village each evening where I sip wine and play guitar with my amigos. I have a full and busy life.”
“Well I have an MBA from Harvard and can help you.”
“Yeah?”
“You should spend more time fishing, and with the money buy a bigger boat. With a bigger boat you can make more money, and now you buy several boats, and eventually have a fleet. Instead of selling your fish to a middleman, you sell directly to the processor, and eventually open up your own cannery. You control the product, processing, and distribution. Of course, you leave this small village and move to Mexico City, then LA, and eventually New York City, where you run your company.”
“How long will all this take?”
“Oh, 20 years or so.”
“Then what?”
“That’s the best part. When the time is right, you take the company public and become very, very rich.”
“Then what?”
“Then you can retire. You move to a small coastal village where you sleep late, fish a little, play with your children, take siestas with your wife, and stroll to the village in the evenings where you sip wine and play guitar with your amigos.”

Don’t Sell Your Soul (Mercenary Trader)

Don’tSell Your Soul (to an Investment Bank or Anyone Else)

June 4, 2014

By Justice "Jack" Litle

http://www.mercenarytrader.com/2014/06/dont-sell-your-soul-to-an-investment-bank-or-anyone-else/

 “It’s definitely not worth the money. You’re working 90 hours a week on average. It can go up to 120 when it’s really bad. It is worth it? No.”

- Patrick Curtis, founder of WallStreetOasis.com

Why was the investment banking path, as brutal and dehumanizing as it is, so popular for so long among Ivy League high achievers?

My theory: It was more about self-esteem than money, and more about fear than greed. The new generation “best and brightest” often have something to prove — to their parents, their friends, and themselves. The very fact of being seen as “best and brightest” creates a palpable sense of having something to lose.

This group thus faces pressure not to be seen as failures, which manifests itself in two ways: The need for a high status career path, and the need to avoid risk of falling short. Put the two together and investment banking — a “safe” path to prestige and money, with general acceptance as high status — looked very good for a very long time, though the hours are brutal and the work is often shit.

But now the kids are waking up, especially with the help of eye-openers like this:

[Alexandra] Michel, who has a Ph.D. in management from the Wharton School, has spent the past 13 years studying the working conditions of investment bankers. She has found that the long hours and stress begin taking their toll after four years.

‘Chronic Pain’

“On year four, physical breakdowns occur, initially minor,” she says. “Chronic pain, insomnia, endocrine disorders set in. Pain is really common.” Weight gain, hair loss, anxiety, depression and generalized low energy are also common complaints, Michel says.

When severe stress kicks in, the young bankers are often able to perform at a high level only with the help of high-caffeine drinks, prescription stimulants and sleeping pills, she says.

“It’s whatever it takes to keep functioning,” Michel says. “So if you have to work around the clock, you take the chemicals you need to still be sharp and awake, and if you can’t sleep because you’re so depressed and stressed, you take a different set of pills.”

Are you frickin’ kidding me?

On top of that, you’re screamed at and treated like a subhuman piece of dirt your first few years… at which point you graduate to treating others like subhuman pieces of dirt.

Oh and by the way, your mid six figures won’t go all that far in New York City — especially once the obligatory “lifestyle costs” are added in. For a life you never get to enjoy because, whenever you get a few days off to hit Mexico or wherever, you’re so exhausted you basically fall into a multi-day coma.

Wow, what a deal. I’d rather work the line in a poultry factory, using a big pair of scissors to cut the assholes out of chickens. Seriously, that’s a real job — and I would seriously take it over a typical Wall Street gig. (One of my little brothers was a junior i-banker for two years. He said it was like being in prison.)

My two cents: Forget image and expectations and “something to prove.” Put ego aside in favor of building the best life. Work is incredibly important — it takes up the lion’s share of hours for the lion’s share of your time on earth. So work hard to get to a place where you can do what you love. And take risks to do what you love — screw ego. If it pans out, the risks will be more than worth it. If it doesn’t, you’ll pick up valuable lessons for future pursuits.

And if you can’t do what you love — because let’s be honest, not everyone gets that privilege — for cripe’s sake, at least avoid doing what stomps your soul flat and slowly kills you.

JS

Are there stars in banking? (CBS)

Click here to view article: Are there stars in banking... or anywhere else?

Life of an investment banker - where are the pitchbooks? (Rob Parsons)

Typical story about late night pitchbook delivery to an MD (Managing Director), attributed to Rob Parsons.

Where the hell are the damn pitchbooks

By Rob Parsons, Investment Banker

Seth, take me off the damn speakerphone. That's better. Now where the hell are the f@#king pitch books?! My flight leaves in am hour and I got nothing. Nothing! No models, no boilerplate, no spiral-bound books with a clear cover and black back. $20 million in fees are gonna vanish into thin air because you can't get off your ass to finish the books. The biggest deal of my life and you're gonna screw me on it.

Seriously, I could care less if I made a bunch of changes to the models at the last minute. And, I really don't give a damn that you pulled back-to-back all-nighters. When I was an analyst, I would work on, like, nine live deals and I'd never, ever miss a freakin' deadline.

When I was analyst, I could pull all-nighters in my sleep. I'd pull 'em left and right. Just knock 'em out. Hell, one time I wasn't staffed on anything but I still pulled an all-nighter. Out of principle.

But that's just me. That's who I am. Maybe that's why I got a maid, a cook and a doorman. Hell, I got two Swedish nannies and I don't even have children. I'm a hitter. I've got a seat at the Met and a VIP card at Scores. I'm a success. Or at least I was a success until you got staffed on this deal.

Are you trying to sabotage my career? Is that what you're trying to do? Screw Rob Parsons? Ruin my life?

Well let me tell you something, Seth. I'm on a plane in less than an hour. If I don't have a model in my hand by liftoff, your freakin' career is over. When I get angry, I get pissed off. And when I get angry and pissed off, I become a hurricane. And you become a small Caribbean island.

I become a tornado, and you become a Midwestern trailer park. I become an earthquake, and you become tenement housing in third world countries.

And don't think you can get back at me in my 360 degree review. That stuff is all b-s. Like anyone actually cares what an analyst thinks. But then again, go ahead and trash me in my review. I get to read exactly what everyone wrote. And then I'll have even more of a reason to kick your ass.

Wait a sec, my doorman just dropped something off at my door. Oh, the books. Here they are. I guessed you already dropped them off. Well, Seth, I got one thing to say to you.

I've got a lot ridin' on this meeting. You better not have f&%ked anything up.

What were you expecting? A thank you? An apology?

Geez, you've got a lot to learn about this business.

 

Working round the clock is a poor use of time (FT)

Lucy Kellaway has written an interesting article about long working hours, its efficiency... and investment banking.

How to be an investment banker (Gutmann)

The banker behind IBankingFAQ, Andrew Gutmann, is also the author of the well praised book "How to be an investment banker".
The link above is to the first 2013 edition (originally found on the internet here) but to be fair to the author and the editor, I would encourage readers to buy a hard copy.

A stockpicker's confessions (FT)

This article is a little gem and consists of very genuine confessions - it is more about capital markets and investments, but these are also needed to finance M&A transactions.

Introduction to Investment Banking (Lehman Brothers)

Lehman Brothers has presented an "introduction to investment banking" to various universities.  It is fairly "bank-neutral" and covers what is investment banking, the role of the junior bankers, a basic valuation workshop and some aspects of recruiting.

Block trade - a realistic look (Financial News)

Block trade

Financial News (c) charts the anatomy of a block trade as a guide to the process...

Prepare

Knowing when a window will come in the market for a block trade and being prepared for it in advance can be a key to the success of a deal.

ECM bankers often plot windows for potential accelerated selldowns over the course of a year, whether on behalf of existing clients or in a bid to win new business.

Some institutions, including Bank of America Merrill Lynch, Goldman Sachs and UBS, employ a dedicated blocks banker to prepare for and lead this type of transaction.

Bankers look for a variety of measures to align when plotting potential windows. 

A lock-up agreement preventing the sale of shares in a company might be in place by its management and selling shareholders if there has been a recent share sale.

Banks can waive these agreements, as was the case with a £450 million sale of shares in wealth manager St James’s Place by Bank of America Merrill Lynch last May. This tactic can, however, rile some investors.

Knowing the trigger price for the sale of a position by a shareholder is also important. Private equity firms will often watch for the shares of their listed portfolio company to rise above a particular price before they exit a position.

Monitoring the average daily volume of shares in a company traded on a stock exchange is also important. Thinly traded companies are harder to sell to investors in large portions.

This measure in particular can help to determine the price agreed with a selling shareholder. In a heavily traded stock, a bank can offer to run a deal closer to a company’s closing share price in order to win the mandate because of the wide appetite among investors.

Checking conflicts is also important for a bank to monitor. If a bank is working in another capacity for an issuer or selling shareholder, or a rival eyeing the issuer as a potential acquisition, it could be conflicted out of handling the deal.

Next step, consider what you might do to win the deal...

Winning the deal

There are two ways to win a mandate. A client either selects a banking institution in advance of the trade to place the deal, or it arranges an auction to find the bank willing to run its deal at the highest price.

Selling shareholders will often ask banks to run the trade at their risk, meaning an investment bank will agree to underwrite the shares of a company it is selling on behalf of the backer. This can be done in a number of ways.

Commonly a bank will agree a “backstop” price, usually referenced as a percentage discount to a company’s closing share price on the day the block trade is launched. For example, an investment bank may agree to underwrite a company’s shares on behalf of a seller at 3% below its closing price.

The bank would then sell those shares anywhere above that 3% discount, often arranging a profit-sharing agreement with the seller if it is able to find buyers at a tighter discount.

While banks are paid fees for block trades, bankers say the biggest gains can be made in selling stock above the price at which they have agreed to backstop the trade.

If you have been mandated on the deal, follow steps below. Otherwise, skip to an auction...

Mandated trades

Selling shareholders occasionally opt to mandate a particular bank with which they have an existing relationship to carry out an accelerated bookbuild.

With a mandated trade, banks have more time to prepare for a particular auction. Top investors in the company are sometimes “wall-crossed”, whereby bankers bring them inside a Chinese wall to gauge their interest ahead of the deal. They are barred from trading the stock ahead of the deal and sign non-disclosure agreements.

A team of bankers from across a bank’s equity capital markets, equities trading and investment banking, often arranged into various committees, agree on the best price to run the deal.

Auctions

Often arranged by lawyers or independent equity advisers such as Rothschild, Lazard or STJ Advisors, auctioned block trades can be tense, rapid-fire events with little room for error.

These situations involve pitting a handful of investment banks against one another to generate the highest price for a selling shareholder.

One ECM banker described the process as “getting a bunch of people together and letting them cut their throats”.

Bankers will often be called on the afternoon before the launch of an overnight deal to be asked to sign a nondisclosure agreement. They will then be told the name of the selling shareholder and the position they wish to exit, before being asked to name the price at which they would be willing to run the trade.

The timing of this call can be key. Often it will come as early as 2:30pm, while other auctions can come later in the day.

One particular trade last year was marred by a late auction, at 7:30pm London time. This left the investment bank that won the deal little time to sell to European investors, causing the block to turn sour.

Two bankers said independent advisers had asked them to meet a rival’s bid for an auctioned block trade which they later felt to be a ruse to artificially inflate the price of a deal.

As part of the bidding process, one bank may emerge as the only institution prepared to do the deal. In others, a small syndicate of two or three institutions may be arranged to split the workload.

Arranging internal committees of senior bankers to decide on a price for the trade can be a frantic affair, often with less than an hour open to banks to submit a bid. Decisions can go as high as a global investment bank’s group executive board level, particularly on $1 billion-plus deals.

Now that you have gone through the stress of winning the deal, it's time to get the transaction done...

Execution

Once a bank or syndicate of institutions has been selected to handle a block trade, the deal shifts from the equity capital markets desk to the trading floor.

Banks’ sales teams will look to sell the trade overnight to investors, at first targeting European accounts in the first hours after the London market close, before looking to US buyers.

There are a number of ways this deal will get done. Read on below...

Books covered

If there is sufficient demand for the deal, the bank or syndicate will send out a coverage message to the market.

Stock will then be allocated to investors who placed orders for shares on the following morning before the market opens.

If you are unable to find enough buyers for the shares on offer, consider one of the following three options...

Handling a residual stake

If the bank or syndicate fails to secure sufficient orders for the deal, there are a number of options available when it comes to handling the position.

Cutting your losses

Banks cut their losses on occasion when they have failed to fully distribute a block trade, rather than running the risk of holding on to the stake for a longer period.

In one example last May, Morgan Stanley was unable to distribute fully a €612.5 million sale of stock in fashion brand Hugo Boss on behalf of buyout firm Permira, according to two people familiar with the matter. The bank had agreed to backstop the trade but sold shares in the company below that level to avoid being left with a residual position for a prolonged period, the people said.

Warehousing

Although bankers say there is no uniform way to handle a residual stake, holding on to a position in a tactic known as “warehousing” is perhaps most common.

The position would be held on the bank’s equities trading book, with buyers for the shares found in dribs and drabs over several weeks.

In one example last July, Deutsche Bank and Goldman Sachs were left with about $120 million worth of shares each in German residential property company Gagfah. The investment banks were forced to publicly disclose these positions on the Frankfurt Stock Exchange after the trade. However, they have since exited these positions, according to one person familiar with the matter.

Finding a strategic buyer

A less common resolution to a soured block trade could come in the shape of a strategic buyer, stepping in to purchase the shares from the bank that was unable to fully distribute the trade.

In one high-profile example of a soured block trade, Barclays was left with a €697 million position in Dutch cable company Ziggo last March. US media company Liberty Global then bought the stake in a €632.5 million deal a week later.