The Deutsche Bank case, in which three whistleblowers have accused the bank of hiding up to $12bn in derivatives losses during the financial crisis, is complex, confusing and opaque. But the underlying principle is simple and important.
Banks used to have a lot of leeway in how to treat bad loans at the bottom of the cycle. That allowed groups to avoid taking losses immediately, and instead to wait for the assets to rise in value again.
But the rules for recognising bad loans have tightened over the past three decades, while a lot of credit instruments are now carried on a mark-to-market basis instead of on the loan book. Their old freedom of manoeuvre has largely gone. Read more
Jeff Bezos is famously smart but I wonder whether he has thought through all the political implications of Amazon’s strategy of becoming back-office ecommerce infrastructure provider to the world.
The first part of FT colleague Barney Jopson’s series on the etailer was full of insight, but it was the comparison between Amazon and investment banks that struck me most forcefully. As Barney writes:
One investment banker says Amazon’s position is reminiscent of Goldman Sachs’ dual role as a broker and trader at the centre of capital markets. “People complain about conflicts of interest. But you still have to do business with them.”
Like Goldman and others, Amazon has set out to simplify the life of its clients, so they can concentrate on what they do best. One business identified by the FT investigation – RJF Books and More – has delegated the “selling, shipping, customer service, payments and complaints” functions to Amazon, which left me wondering what else was left for RJF to do. Simplification was a strong theme of my recent trip to Silicon Valley, where countless start-ups, and a few larger businesses like NetSuite and Salesforce.com, are offering businesses the opportunity to “plug in” their operations to outsourced back-office services and payment systems. Read more
The conviction of Rajat Gupta, the former managing director of McKinsey & Co, the management consultancy, on insider trading charges is an extraordinary event – not just because it was a hard case to prove but because of his status at the apex of the business establishment.
The man who ran McKinsey and went on to become a board member of Goldman Sachs and Procter & Gamble, is very likely to receive a jail sentence in October. That makes him the most senior establishment figure to be convicted by a jury since the 2008 crisis.
He had already lost his reputation – silently disowned by McKinsey and discarded by Goldman. Lloyd Blankfein, Goldman’s chairman and chief executive, testified at his trial that leaking information from Goldman’s board – as Gupta was caught on tape doing to Raj Rajaratnam, was wrong. Read more
Monday was only the opening day of the trial of Rajat Gupta, the former head of McKinsey and board member of Goldman Sachs, on charges of conspiracy and insider trading. But one thing is already clear: he is not a crowd-pleaser.
Compared with some other recent trials of Wall Street figures, such as Bernie Madoff and Raj Rajaratnam, the turnout was modest. The man that Reed Brodsky, the prosecutor, described as “the ultimate corporate insider” was mainly surrounded by friends and family.
Judge Jed Rakoff’s courtroom on the 14th floor of the court building filled up sufficiently to require some of the press and lawyers to decamp to an 11th floor overflow room (in which the sound quality was abysmal).
In general, however, it felt like a private affair in relation to other landmark Wall Street cases. Given the status of Mr Gupta – the most senior figure from the US corporate establishment to face charges since the 2008 crisis – that is odd. Read more
Occupy Wall Street protestors rally in front of the New York Stock Exchange on March 30, 2012. Image by Getty
Perception tends to lag events, a phenomenon from which a lot of Wall Street bankers are suffering at the moment. While the general public believes they are still living it up on borrowed money, the reality – for many of them at least – is different.
The squeeze on investment banks, which took some time to occur following the 2008 financial crisis, is now kicking in. As Tony Jackson writes in his FT column, the glory days of easy money for bankers are over (for the time being, at least):
Across the western world, the public rhetoric about bankers is proving oddly durable. They caused our troubles, but are not sharing them. We suffer privations, they get bonuses.
That is somewhat behind events. Investment banking, at least, is in a slow-motion train wreck. The fact that some bankers are still in the buffet car squabbling over the last bottles of champagne is a distraction.
It is hard to believe now but there was a time before the credit crisis that the culture of investment banks had not always been linked to reckless greed and buccaneering.
Yes their darker dealings, regulatory failings and rising conflicts of interest were apparent to anyone with a passing familiarity with Wall Street or even the film of the same name. But there was also a positive side. Read more
To misquote from the work of Hanns Johst, the Nazi playwright: “When I hear the words corporate culture, I reach for my pistol.”
Few other management themes encourage as much cant and hypocrisy from companies, and as much waffle from those who study them. Yet a healthy corporate culture is vital to the well-being of most organisations. I’d go further and say that given the complexity of the largest multinationals – and the impossibility that their chief executives know what is happening in every corner of the companies they purport to run – the right culture is indispensable.
This is why Wednesday’s New York Times op-ed, in which Goldman Sachs’ Greg Smith resigns in spectacular fashion as executive director and head of the firm’s US equity derivatives business in Europe, the Middle East and Africa, is so interesting and – for Goldman – so potentially damaging. Read more
The idea that Lloyd Blankfein could be convicted of a criminal offence over Goldman Sachs’ activities leading up to the 2008 financial crisis still seems far-fetched to me, although it clearly worries Goldman’s investors.
The fact that Goldman’s chairman and chief executive has hired a prominent defence lawyer to deal with a US Justice Department investigation into the bank led to its shares falling nearly 5 per cent on Monday.
The most plausible charge – although none has been brought – would be perjury over Mr Blankfein’s evidence to a Senate committee. Senator Carl Levin has accused Goldman executives of being misleading by denying they had “a big short” on mortgage-backed securities. Read more