<p>I have had direct dealings with IB's on public security offerings related to real estate. In both cases I found the product to be grossly overvalued with little regard to reality but more to making the numbers work. Along with most of the insider books on the industry I believe this is more often the fact than the fiction. I have heard similar opinions from many former workers in the industry. Maybe it has changed post Dotcom bust and Enron but I have my doubts. I also enjoy how the firms throw their former stars to the wolves and make believe it was the actions of some bad apple. Hah.</p>
<p>I probably blurred the picture a little bit. I have a bro in the field of "banking/investing." I am sure that nearly everyone and everything is above board and ethical. Its the the slip ups that cause everyone headaches, a Spitzer moment.</p>
<p>IB'er wannabe's should be careful. Bro's division went from 40 to 3 people in one of the down periods.</p>
<p>"I looked at the recruitment site of Morgan Stanley. The only on-site interviews at college campuses, listed on that site, were for Williams College."</p>
<p>They haven't updated their calendar for the next year.</p>
<p>I have had direct dealings with IB's on public security offerings related to multiple types of industries. In most cases I found the product to be valued by the market, consisting of potential purchasers of the investments and not the investment bankers. Any more than Ebay sets the price of the items auctioned on its site. To the extent that projections were involved,these were prepared by independent consultants, hired by the issuer,and not the investment bankers. If the buying public, consisting primarliy of sophisiticated institutional investors. did not believe that the numbers worked they would not purchase.</p>
<p>I don't know precisely how many books have been written pertaining to the industry, so I, for one, cannot claim to represent what "most" of them say. The ones I have read have said various things. Some flattering, some not, some accurate, some not. In any event, these books are not MY primary information source, since I have actually worked in this business in the past (though not now).</p>
<p>It is easy to blame every bad outcome that's ever happened in the financial markets on investment bankers, but more often than not, in my opinion, the fault lies with the companies themselves.</p>
<p>Not everyone involved with a company, or working for a company, or working in finance, is an investment banker. Enron was not an investment banking firm. </p>
<p>In the movie Wall Street, the big bad guy was not an investment banker either.</p>
<p>On the other hand, the comments about downsizing during bear markets is very much on-point. You can make the big bucks, but only if you're good at it. And if/when the market for your product(s) turns South, nobody is safe.</p>
<p>Wow. I didn't expect such varied responses to my original post. Thank you all who supplied practical information on how we could learn more about the field of investment banking. I took notes and am going to pass the information to my son. I don't even know what an investment banker is, and I suspect that my son doesn't know either. Soon he will be getting his school's course list, so I want him to know more about the field before he starts taking finance courses, etc. </p>
<p>I certainly can't comment on the other responses concerning the ethics of investment bankers. It seems that perhaps it is the type of field were there might be the opportunity to be less than ethical, but that doesn't mean everyone takes that opportunity. Still, it is something to keep in mind. </p>
<p>Thank you all. I don't know if my son will pursue it once he realizes what is involved (more math!!!)</p>
<p>Worldcom was certainly a product of investment bankers pushing bad deals. Overexpansion, buying out smaller companies and then slashing employees to try to meet WS expectations and pay the crushing debt. Selling the deal to less numbers savvy CEO's based on wildly optimistic pro formas, etc. Those deals are all based on IB numbers. I work as an independent consultant and the terms are often mutually exclusive when the fee is high enough.
I am sure there is room for ethical people but they better be doing enough deals to earn their keep.
I also think the fees charged are wildly inflated and due mostly to a closed system. I loved it when Google went around WS and sold straight to the public.</p>
<p>I opin that a lapse of thinking of a nonfinancial person could result is a small amount of loss. However that same lapse in a financial person could result in a large loss-or gain, for perhaps many.</p>
<p>Make sure he reads Monkey Business by John Rolfe and Peter Troob. It will probably cause a change of mind. (great book, by the way)</p>
<p>Stanford MBA here. Altho nothing to do with Investment Banking personally, I watched as many of my classmates headed in that direction. It is one of the two most popular career choices for those at top b-schools because it is wildly remunerative straight out of the box both as to salary and wowie-zowie signing bonuses. (Of course, both of these things are subject to the state of the economy and the industry at the particular time your S leaves b-school - see below).</p>
<p>Blossom outlined the typical path to an IB career, in my observation. IE, hired as an Analyst after undergrad, usually stay 2 years, then get the MBA and be hired back as an Associate. Much number crunching and very high pay.</p>
<p>There are alternate paths, however. In my MBA class, even "poets" (the nickname for students who came to the Business school with little or no quantitative background) could and did get hired for IB jobs after business school. Rarer, but possible. </p>
<p>I would take all of the ethics-bashing, preppy-stereotyping, gotta be born with a silver spoon stuff you are hearing on this thread with a huge grain of salt. Sure, that stuff exists as it does in many fields. If IB is the right career for your son, and he is an ethical person without the preppy silver-spoon connections, he can find his way into it and remain true to himself once there.</p>
<p>I would venture to say that, for the long haul, an MBA will be necessary to a career in IB other than for a few maverick types. </p>
<p>He does not need to major in business or even something quantitative as an undergrad (necessarily) to end up in IB. But it would be a little odd to have a distaste for #s and want to go in that direction.</p>
<p>If it is the $$ signs which move him, consulting is another field with a similar career track and the big bucks. Being a numbers person still works for that field, but "strategic thinkers" are another type.</p>
<p>Both jobs are of the type where you "have no life" in the early years, akin to law, medicine and other fields where you work humongous hours, are at the beck and call of more senior personnel, etc. Still, many 20-somethings and 30-somethings are happy to be career-driven in the early years. And they find ways to bond and have fun with each other.</p>
<p>
[quote]
Enron was not an investment banking firm.
[/quote]
</p>
<p>No, but Enron was a great IB client. Where do you think those "creative" off balance sheet deals came from? Off balance sheet transactions have been an IB specialty for years, with a little help from accounting firms. (Arthur Anderson, where are you?)</p>
<p>One could argue that the creative deal making is not the dishonest part of this. One would then say it is the company's use of the creative deals that leads to the dishonesty. If you say that, OK you got me. I wasn't allowed to listen in on the relevant discussions. :-)</p>
<p>But Enron tried to be an IB'er- they traded, optioned and hedged. And S & L didn't know, believe, or understood the risks of uncontrolled and unsecured options.</p>
<p>Enron traded, optioned and hedged- oil, gas and electric power, mostly.
Oil, gas and electric power are not securities. Enron was not in the securities business. They were in a different business. </p>
<p>That different companies across different business may use some similar trading techniques could not be more irrelevant, in my opinion. </p>
<p>Moreover there is absoutely nothing wrong with trading, "optioning" and hedging. In fact trading without hedging is suicidal. Options and hedging are critical tools of risk management. Trading using options can be less speculative than trading commodities without employing options.</p>
<p>Although some companies that have investment banks also have commodities trading branches, this is not a traditional investment banking activity. Enron, so far as I know, did not help companies access the securities markets. Which is mostly what investment banks do.</p>
<p>IMO the path that these particular firms chose, that's on them. Investment banks assist every public firm, and the vast preponderance of them have no such issues, for the most part. The big corporations have sophisticated finance staffs themselves, and many engage in a tremendous amount of finance-related activity without involvement of any investment bank whatsoever . They certainly absolutely do not listen to every idea that crosses their paths. They carefully select what they do, and who they do it with. They are not dupes, or innocent victims.</p>
<p>
[quote]
Although some companies that have investment banks also have commodities trading branches, this is not a traditional investment banking activity. Enron, so far as I know, did not help companies access the securities markets. Which is mostly what investment banks do.
[/quote]
</p>
<p>Isn't this a bit of hair splitting? IBers get paid to be creative about everything financial. </p>
<p>Look, to be fair, we consumers have gained a great deal through IB activity. IBers revolutionized home financing, for instance, through efforts to pool mortgage loans, monetize the risk component etc. Ditto with credit card debt. IBers have been heavily involved in disintermediation of financial transactions of all kinds (that means they took out the middleman [middleperson?] and lowered costs, to our benefit.)</p>
<p>Within this creativity, however comes the risk of abuses. It is fair to argue that IBers do not engage in the abuses, it is their clients. OK. That's a rather morally agnostic position, but one the field often takes. To agree or disagree with that agnosticism is a personal value not worth debating, but worth recognizing, IMHO.</p>
<p>The problem with these matters is that, for every innovation, there will be winners and losers. And with money, the winners and losers can be easily identified. And with money, the temptations are great.</p>
<p>"Isn't this a bit of hair splitting? IBers get paid to be creative about everything financial. "</p>
<p>No, I do not believe it is splitting hairs.</p>
<p>People in the commodities business- which is a different business than helping corporations access the securities markets- are also paid by their employers to be creative about their business, believe it or not. And people in virtually every other business are also paid to be creative about their business. Some of these businesses have some relation to trading some product or other , that, as with Enron, is also not securities. Some companies trade grain. They probably do some stuff that they think is creative. Gonna blame investment banks for that too?</p>
<p>I think the people in some of these businesses think they are MORE creative about them than Wall Street is. I actually worked for a company that had this mindset. Also not an investment bank. We had our own sophisticated finance staff, trading floor, and most definitely did not look to Wall Street for ideas.</p>
<p>I would guess that the Enron folks thought that they were way ahead of Wall Street, in a good proportion of their business endeavors. After all, they were, for the most part, in different businesses.</p>
<p>Moreover, the "morally agnostic" comment about one's client engaging in abuses, implies some measure of unrecognized culpability . I don't know that this is typically the case. The securities affiliates of investment banks can themselves be victims of these abuses.</p>
<p>These firms do zillions of transactions of all types every year. And you don't hear about hardly any of them, and in fact there's nothing to hear about. They just help firms get needed funding.</p>
<p>monydad, why did you leave the IB sector? Better opportunities for you or something else?</p>
<p>I left for something that I thought might be a better opportunity. Though it didn't turn out that way.</p>
<p>By the way, the firm I went to engaged in some very innovative off-balance sheet transactions.</p>
<p>With no Wall Street involvement whatsoever.</p>
<p>It was all done in-house.</p>
<p>monydad, so the balance sheet didn't reflect the health of the company?</p>
<p>So you did really like working in the IB sector?</p>
<p>
[quote]
Moreover, the "morally agnostic" comment about one's client engaging in abuses, implies some measure of unrecognized culpability .
[/quote]
</p>
<p>I don't see why you jump to that conclusion. I don't know of a better way to put it, maybe you do? Or some guilt?</p>
<p>We have a lot of products and services the manufacturers/vendors/providors of which are "morally agnostic" to use my phrase. Take gun manufacturers. Or drug companies. Auto companies. Knife manufacturers. (heck, just about anything?) </p>
<p>So, you may have a more eloquent way of putting it, but hopefully you understand my point?</p>
<p>1) I can't speak to the health of the particular company. I was not intimately invloved in these transactions, I just saw them from afar.</p>
<p>2) Off-balance sheet transactions are not inherently evil. There are standards pertaining to when a transaction should or should not be on a company's balance sheet. Based on the degree of ownership, control, ongoing liability,etc. The transactions I have been involved in, it would have been misleading to have these posted as liabilities on the company's balance sheet because they were structured to be largely non-recourse to the company; ie its assets were not at risk to a significant extent. Oftentimes these transactions are footnoted on a company's balance sheet which may be the most appropriate treatment in my opinion. If you feel these standards should be changed, go lobby some accounting organization. If someone has violated these standards or contravened these rules, they should be taken to task for that.</p>
<p>The off-balance sheet transactions I've been personally involved in were not misleading to the structuring company's investors. They were structured to be non-recourse, and hence off-balance sheet, precisely to reduce the risk to the company, and hence its investors.</p>
<p>3) I did like working in the IB sector. I helped finance a lot of worthwhile projects that were of benefit to society and created jobs. A few of these projects would not have been financially feasible absent my contribution.</p>
<p>However, it is very demanding, all-encompassing work, as others have described. And internal politics are horrendous.</p>
<p>If your comment pertained to the off-balance sheet transactions I witnessed subsequently, there were no investment bankers at that firm. Nobody involved in structuring those transcations was an investment banker. And I was associated with the trading group at that time, in any event.</p>
<p>4) As to #39, I understand your point, I just don't agree with you. Most Wall Street innovations, such as mortgage securitization that someone mentioned previously, are intended to benefit issuers and/or purchasers of securities. Most of the time, transactions that benefit issuers or purchasers of securities also benefit investors of the issuer firms and/ or the purchaser firms. That is the main thrust of what's going on there. </p>
<p>Sometimes there is an abuse. Whether a particular product is itself abusive by its very nature (mergers/divestitures?) can on rare occasions be a matter of discussion. You and I may not agree. But the vast majority of what goes on is pretty tame and is intended to benefit the companies; nothing more sinister.</p>
<p>Your premise suggests that the whole foundation and focus of their enterprise is to encourage abuse by their clients, and this is simply not the case. Optimization of results, yes. Abuse, sorry I can't agree.</p>
<p>Of course bad things sometimes happen, in every enterprise. And there are bad apples, in every endeavor.</p>
<p>There are bad clients. That would be my main view. From where I sat.</p>