<p>
[quote]
Quote:
It's wrong. They do compete on price (and everything else). If this wasn't so, then why wouldn't EVERYBODY just hire Goldman? After all, if price is the same everywhere, then there is no reason not to get the best (or at least, the perceived best). </p>
<p>Honestly. I'm not sure I believe you. Non-competition in price is the only reason our current banking structure exists and the reason that salaries are so high. Investment banks practice cartel like behavior, or else low priced competition would crush them - as has happened in virtually every industry that has ever existed. The fees are simply too huge for lower priced competitors not to come in. The size of the banks and ability to handle all the needs of their clients is a significant competitive advantage over smaller lower priced firms.
[/quote]
</p>
<p>Consider this. The way that Citibank successfully got into investment banking, and BoA is trying to do it now is basically by leveraging their 'total relationship' with a company, and what that often translates to is a better overall financial deal. For example, what Citigroup used to do (and still does) is basically offer a company a better credit line/lower interest in return for investment banking business. That is basically competing for price right there, because obtaining a loan for a lower interest rate than you would get otherwise is obviously worth something. Hence, Citigroup's value proposition is that if you, as a company, conduct all of your financial services business through them, then you would get preferential treatment in all of those services. BoA is now doing the same. </p>
<p>In fact, that is the value proposition for why commercial banks have entered investment banking. After all, ask yourself, why exactly would any client want to sign up with a commercial bank who just recently got into investment banking, and has no track record of success? Why not just stay with an established bulge-bracket Ibank? The reason is simple - because that commercial bank will probably offer you a better overall financial deal for all of your financial services.</p>
<p>Or consider this. Just a few years ago, what Ibanks would do is essentially promise that their research/analysis division would give positive stock ratings to clients who they had an investment banking relationship with. Again, that's obviously extremely valuable, because the more analysts out there that are touting your stock, the better your company is. So basically, that's another way to 'compete on price'. This turned out to be scandalous, as analysts like Henry Blodgett were found to be lying about their analysis, but the point is, these Ibanks were clearly competing on price, when you consider that the 'price' included good analyst ratings (which have value). </p>
<p>
[quote]
I've wondered the same things. I don't know, but ignorance has never proven anyone wrong before. I'd speculate that BoA wants to maintain the current fee structure and any undercutting would extinguish the entire benefit of wanting to enter into IB to begin with
[/quote]
</p>
<p>Even a lowered fee structure is better than BoA not getting in at all, because even a lower IB fee structure is still higher than the very thin margins of commercial banking.</p>
<p>But again, it raises the question of why a client would want to use BoA. BoA has no track record in IB. So why would any client trust them. The reason is almost always because BoA will be able to offer you a desirable package deal. </p>
<p>
[quote]
That is what I implied. I don't believe strategic consulting (especially from ultra high priced firms) is ever really worth it. That's a discussion for another time though.
[/quote]
</p>
<p>Sure, and I am also rather suspicious of the value. But nevertheless, the point is, for whatever reason, management seems to think it has value. </p>
<p>
[quote]
You said they didn't care. I disagreed. A company can care very much about hiring a high priced consultancy and then still hire them. </p>
<p>The entire argument of spending more money to build a better engineering base in order to stave off problems down the line is far fetched. I think you overestimate the amount of skill required to do most engineering jobs and overpaying could very easily put a company at an intrinsic cost disadvantage. In fact, that's one of the reasons companies are globalizing - high priced labor within the US.
[/quote]
</p>
<p>Yet the same argument could be applied to high-priced strategic consulting services. After all, wouldn't paying too much for them * also * put companies at a cost disadvantage?</p>
<p>The point is this. If a company is looking to cut costs in order to remain competitive, shouldn't they be looking to cut ALL costs? Why cut only your direct labor costs, but not look to cut the costs of your services, and particularly, your consulting and banking fees? After all, costs are costs. </p>
<p>Again, take Kodak as an example. Kodak hasn't made a profit in years now, and they've been laying off workers left and right. Yet Kodak doesn't seem to have a problem in engaging Goldman Sachs to sell its health-care division. What's up with that? If Kodak really cares about cutting costs, then Kodak probably should have gone with BoA or Citigroup or some other commercial bank that is just entering IB from which they could get a good overall package deal, including low-interest loans (and Kodak has plenty of debt that could be serviced with low-interest loans). </p>
<p>Heck, I hear that Kodak has now chosen to bring in a high-priced strategy consulting firm that shall remain nameless. What's up with that? This firm is probably going to charge an 8 figure fee. How does that square with the notion that Kodak is trying to remain cost-competitive? How do you think that looks to all of the workers that Kodak has laid off because of 'cost-competition' reasons when Kodak is bringing in all these high-priced consultants? </p>
<p>
[quote]
I think you must have made a typo in this sentence, it doesn't make much sense.
[/quote]
</p>
<p>Uh, yes it does. Read it again. You asserted that these top engineers (or English majors or whatever) are not the key to success to these regular companies, which is why they don't compete to hire them. Yet evidently the banks and consulting firms have no problem in competing for them. So clearly these banks and consulting firms view these people as the secret to * their * success. </p>
<p>After all, I am quite certain that no investment bank REALLY wants to pay their new analysts 120k (salary +bonus) in their first year. Heck, I am quite sure that they would like to pay them as little as possible. But they have to pay that kind of money because they know that if they didn't, they wouldn't be able to hire them. So those people are apparently important enough to these banks that they are willing to pay well to get them.</p>