The business of investment banking
Not impressed. This book feels like it didn’t have a very good editor. Some parts are completely pointless (e.g. closing share prices for a few investment banks on one day in 2005) and others assume knowledge of certain events and concepts that it renders this a difficult text for a beginner. I can’t recommend it. Disappointed for such an expensive book.
It is also clear that principal transactions and trading are the biggest revenue item for most houses. It represents about half of the total net revenues for Goldman Sachs, Lehman Brothers, and Bear Stearns.
The most valuable intangible assets are people. People are the greatest barrier to entry for competitors. The ability to compete on the power of innovative ideas is central to differentiating the firm. As such, the biggest item of expenses is compensation and benefits.
At the close of May 20, 2005, Goldman Sachs traded at $101.08 per share, Morgan Stanley at $50.00, Merrill Lynch $55.13, Lehman Brother's $92.55, and Bear Stearns $98.80.
Andrew Doran
I have no idea why you would include this information in a book. Without at least knowing how many shares were outstanding for each firm or what the share prices were on other days it tells you pretty much nothing. Plus, it contains a typo in the name of one of the investment banks. It's as if the whole paragraph was delegated to somebody to pull together. This is not going well for such an expensive book.
Glamorous news headlines of banker's making mega deals and earning millions of dollars in annual bonuses are all true.
Andrew Doran
Another typo. Poor.
Fifth, integrity is the foundation of all business, especially in investment banking. Trust, both personal and professional, is at the heart of the business.
And at the interview, just be yourself. If you're not going to get a job on the basis of who you really are, then why would you want it?
If you want to be that person in the corner office, dress like the person in the corner office, and that would probably require business attire.
It is common to view the private equity market as a broad umbrella consisting of seed, startup, growth, mezzanine, buyout, turn-around, and industry consolidation investing.
Andrew Doran
This book has a habit of explaining a concept by referring to other concepts that are probably also unknown to the reader. I think complete beginners would find this hard-going.
An A Team with a B Product is more likely to get VC financing than a B Team with an A Product.
A mezzanine financing is debt capital granting the lender the right to convert it to equity interest.
In reality, LBOs are merely the tools of economic organization. Most U.S. corporations fared poorly in the 1970s; many lost market share and profits to Japanese, German and other overseas rivals. Management's mind-set at the time was simply to hang on and not to take risks. But risk taking is as important to economic growth as technology, globalization, and productivity. Without risk-taking, even the most promising technology would gather dust in the university laboratory. Michael Milken's junk bond finance and KKR's LBOs gave ambitious risk-takers the opportunity to establish a new entrepreneurial economy. In addition, with every LBO, more corporate senior managers got the message: Take actions to improve performance or lose your job. Thus, the LBOs and hostile takeovers of the 1980s contributed to today's economy.
Andrew Doran
This paragraph is brazen in its portrayal of LBOs. No evidence is presented to support the claims made here, even if they are intuitively correct. On top of that, Milken was convicted of securities fraud! See http://en.m.wikipedia.org/wiki/Michael_Milken
Wall Street is obsessed with M&As, because win, lose, or draw, they produce fees
A poison pill is a right distributed to shareholders that allows them to buy additional shares triggered by certain events.
The most extreme of this type of defense is the pac-man strategy, the counterattack by the target to tender the acquirer’s shares.
It is also fundamental that a company’s board of directors owes a fiduciary duty to all shareholders, not just some subgroup even if that group has a controlling position.
Once the company becomes publicly owned, the management is under constant pressure to enhance short-term performance.
This is the main document the underwriting syndicate uses to sell the stock. However, as required by the SEC, the cover page must bear the caption “Preliminary Prospectus” in red ink (hence the nickname red herring)
Andrew Doran
Is it just me or does having this nickname for an official equity underwriting document make a mockery of the process? Doesn't it almost say ‘don’t trust this’?
The outstanding government securities have steadily increased over the years. The total amount of Treasuries outstanding reached over $1 trillion in 1983, over $2 trillion in 1990, and $3 trillion by the end of 1994. Ten years later, the outstanding level of Treasury securities was $3.9 trillion.
Andrew Doran
The financial crisis has made everything out-of-date. The number is now $16.4 trillion. http://www.treasurydirect.gov/govt/reports/pd/mspd/2012/opds112012.pdf
Bank of America issued the first MBS in 1977
Andrew Doran
Makes today's news quite ironic: http://online.wsj.com/article/SB10001424127887324391104578227292446942824.html
The first ADR was launched by JPMorgan in 1927 for a British retail company, Selfridges Provincial Stores, connecting U.S. investors and foreign firms.
Henrik Berggren
Insane book to read Andrew :)
Andrew Doran
It's not exactly fun. Slogging my way through one of those theoretically self-educational books for the industry I work in. Looking forward to finishing some of the books I'm reading so I can get on with something new.
Henrik Berggren
"not exactly fun" - haha
You cannot buy success. You have to make it yourself. It comes from within. You need to have the feel for it and have to work hard for it.
Andrew Doran
I feel as though the book is going to tell me that ‘greed is good’ next.
trading is a negative sum game. Brokers, exchanges, and advisory services constantly drain money away from the market. A trader has to be right more than half of the time just to break even.
The first step to successful trading is to ensure survival by making risk management a top priority.
The essential aspect is to understand that a 10 percent loss requires a gain of more than 11 percent just to get even, and that a 50 percent loss will require a gain of 100 percent to get back in the game.
A consortium of Wall Street firms agreed to pony up more than $3.5 billion to shore up LTCM.
Andrew Doran
'Pony up'? Must be a technical term.
Many academicians equate technical analysis with mystics.
The histogram is positive when the fast line is above the slow line. Conversely, the histogram is negative.
Andrew Doran
Does that even make sense? Am I missing something here (like, say, the second half of that second sentence)?
In practice, a repo is generally described from the dealer’s perspective. Thus, when a mutual fund lends money to a dealer by way of purchasing the collateral and agreeing to resell the same collateral back, the transaction is called a repo. Similarly, when the trading desk at the New York Fed temporarily supplies funds to the market by buying securities from dealers with a commitment to resell, the transaction is called a system repo. When an institution borrows funds from a dealer by selling the collateral and agreeing to repurchase the same, the transaction is called a reverse repo.
On the settlement date, if the security seller does not make timely delivery of the securities sold, the trade becomes a fail.
Andrew Doran
FAIL!
The notional principal of swaps and related derivatives grew from $3.45 trillion in 1990, to $25 trillion by 1996, and to more than $183 trillion in 2004
Investors also find inverse floaters useful for immunization purposes.
Andrew Doran
The mind boggles.
The notional principal of swaps and related derivatives grew from $866 billion in 1987 to more than $180 trillion by 2004.
Studies have shown that hedge funds usually provide excellent returns to investors. Sources of such information include Hennessee Hedge Fund Advisory Group, Van Hedge Fund Advisors, and the Hedge Fund Association.
Andrew Doran
With names like that, is it any wonder that their findings were so positive?
Daniel Schildt
Yeah, was just thinking the same. :D
The significance of back office operations is clearly illustrated by the snafu that occurred at Bank of New York (BONY) in November 1985.
Andrew Doran
Snafu?! Is that common business parlance that should be in a book like this?
This is often referred to as the Section 404 certification. The certification has imposed on public companies, especially small firms, to spend tremendous human and monetary resources without clear benefits.
Andrew Doran
Is this observation on Sarbanes-Oxley a commonly accepted fact, or is this book biased?
Eurobonds are bonds denominated in a currency different from the currency of the country in which they are issued.
Andrew Doran
Not necessarily in Euros and not necessarily in Europe, confusingly.
the huge spreads Italian and Spanish bonds offered over German bonds in the past are over.
traders made a bundle betting on the once-weak bonds of Italy and Spain.
Andrew Doran
More slang.
When Mexico’s currency collapsed in 1994 to 1995, the panic quickly spread to other Latin markets (the so-called tequila effect).
Andrew Doran
Who makes these names up?!
Henrik Berggren
Haha
Brady bonds were created under the 1990 Brady Plan. Each Brady restructuring resulted in the issuance of collateralized securities. By 1997, all major Brady restructurings had been announced or completed.
Andrew Doran
This book is *so* frustrating. There is no explanation of what the Brady Plan is/was or why there were ‘Brady restructurings’.
renmibi
Andrew Doran
This book is so badly edited.
Even though this book was published in 2006 it reads like a lifetime ago. How the world has changed since then.