Monkey Business (11 page)

“Shit. That wouldn’t be so good. He did look pretty tired, not to mention angry and about forty years old, didn’t he?”

“He sure did, Troobie. He sure did. Man, that’s fucked up. Do you think that’ll happen to us?”

It was like we were finally sober for the first time since we’d set foot inside DLJ as summer associates over a year before.
The alcohol had sent a bolt of lightning through the gray matter, and we were realizing that we weren’t
going to be treated like gold, and that we were going to have to pay some mighty painful dues. Dues that most of the senior
guys had paid but that nonetheless were agonizing. If they had to do it, then so would we. Those were the rules. Maybe it
was due to our drunken stupor, but it sure felt like we had been sold a bill of goods. We began to realize that we were in
for a long, painful experience.

Then one of our favorite dancers, Angel, finished up on the main stage and headed our way to resume table dancing for us.

“What? I can’t hear you, man. The music’s too loud. I’ve got the next round. You want another scotch and water?”

“Yeah, make it a double.”

The night went black. The next day Rolfe and I conveniently forgot the revelations we had come to the previous night. We were
back in training class going for the gusto, and taking our place at the back of the queue.

W
ithin an investment bank there is a strict hierarchy. It’s a pyramid, with each level of the pyramid resting on the shoulders
of the level below. The further down you travel into the pyramid, the more primitive the species of banker becomes. Remember
who built the great pyramids of Egypt? That’s right, it was a bunch of sunburned slaves in loincloths.

The senior managing directors are at the pinnacle of the investment banking pyramid. They’re the guys on the front line. They
source business. They scour the world looking for ways to make fees for the investment bank. They approach companies in order
to sell them on doing an IPO or raising money through a bond underwriting. They ask companies to buy other companies or to
sell themselves. Every managing director’s prime concern is to attract clients and bring fees into the bank. That’s why they’re
paid the big bucks. Imagine a handsome
gentleman in a twenty-five-hundred-dollar suit. He’s neatly shaven, nicely manicured, and his shoes cost more than most people’s
living room furniture. That’s the managing director.

The senior vice presidents are the next level down in the pyramid. At some banks they’re called junior managing directors,
but their role is the same. They attempt to bring in some business in order to justify their high-paid existence, but much
of the time they simply process the deals. They inherit the business from the managing directors and with their team they
process the hell out of it. They make sure that whatever deal was promised to the company is done quickly. Sometimes they
even make sure it’s done correctly. All the t’s are crossed and all the i’s are dotted. They are so close to the brass ring
that they can taste it. Imagine a used-car salesman wearing a polyester leisure suit. Maybe he hasn’t shaved for a couple
of days and he’s starting to smell a little gamey. That’s the senior vice president.

Next come the vice presidents. The vice presidents are a crew of processing robots, few with any life outside the office.
The vice presidents are making roughly half a million bucks a year, but they don’t have any time to spend it. When and if
they do get out of the office, they sleep. This turns them into a hapless bunch of angry young men and women who can’t understand
why they’re so frustrated. They want to have relationships and become functioning members of the human race, like their friends
outside of the investment banking realm, but they don’t have the time. Usually, the only dates they can get are with the gold
diggers who want to get their claws into a piece of that healthy paycheck. The nice boys and
girls in the city, the ones that the vice presidents wish they were dating, are busy screwing the unemployed artists and musicians
who have no money but plenty of time.

The vice presidents are making too much money to change careers because no other organization, with the exception of another
investment bank, will hire a vice president and pay him half a million dollars a year to process deals. The vice presidents
don’t really take any financial risks. If they’re willing to shamelessly kiss every upper-level ass they see and run around
all night churning documents, they know that they’ll continue to get a fat paycheck. The problem is that the vice presidents
are making all this money, but they’re not content. They’re a miserable crew because they’re trapped. Like caged animals.
Imagine a prisoner of war kept shackled in a moldy basement for five years with no light, nothing but shoe leather to eat,
absolutely no bathing privileges, and occasional doses of electroshock therapy. That’s the vice president.

At the next level in the pyramid are the associates. Lots of them. The associates’ lives suck. The vice presidents take out
their aggressions on the associates all day and all night. It doesn’t end until the associate either becomes a vice president,
leaves, or commits suicide. The associate kisses the vice president’s ass because the vice president helps determine the associate’s
bonus. Here’s how it works: the managing director says “Jump” and the senior vice president says “How high?” The senior vice
president then perpetuates the panic attack by sending a voice mail that conveys a false sense of urgency to the vice president.
He basically kicks the dog. The vice president
looks at the associate, takes a hot poker, and shoves it up the dog’s ass. The associates are barely human but at times are
brought to client meetings and are expected to act human. The associates are the Cro-Magnon men. They live in caves, have
trouble walking upright, and have a lot of hair on their backs. Usually, they communicate by grunting. Those are the associates.

Finally, there are the analysts. Monkeys. Tons and tons of little monkeys. Not humans, just monkeys crawling all over each
other and pulling lice out of each other’s fur. Those are the analysts.

With all these different kinds of investment bankers, the investment banking department appears to be a huge place. It is.
Goldman Sachs, Morgan Stanley, and Merrill Lynch each have their own investment banking army with thousands of soldiers. Then
there’s Lehman Brothers; Bear, Stearns; and First Boston. The list goes on and on. In reality, though, the investment bankers
are just one small part of the broader investment house. They’re just one little cog in a much grander machine.

Within each investment house there are capital markets desks, an institutional sales force, a trading operation, a research
department, and a retail brokerage arm. Each department has a function, and they all work together. First, the bankers go
out calling on companies, looking for the ones that need to raise some money. Once they find one, the bankers call up the
capital markets desks and tell them to get the wheels rolling. The bankers tell the capital markets guys, “Look, man, we gotta
raise some dough. What’s it gonna take?” The capital markets desk tells the bankers, “We can raise your money. Here’s the
terms our buyers are gonna want.”
After that, the capital markets desk calls the institutional sales force and tells them to round up some customers. The institutional
sales force then begins calling the mutual funds, the hedge funds, the pension funds, and the university endowments—any and
all institutions that control money that needs to be invested. These customers give the investment house some money to buy
the new securities, the investment bank keeps a piece as their cut, then they pass the rest on to the company. A few weeks
later the research department writes a report on the company that extols the virtues of the newly issued stocks or bonds.
Eventually, the retail brokerage arm gets into the picture, calling on the retail investors with their latest and greatest
investment idea—those same newly issued stocks and bonds. It’s a profitable operation.

There are many other types of financial institutions in the Wall Street universe as well: clearinghouses, hedge funds, mutual
funds, commercial lenders, and commodities trading operations. The investment houses are just a small part of the greater
Wall Street universe. The associate is smaller than a piece of dust on a wart on the ass of a large male African elephant.
The inside of the cheek of the ass, not the outside.

S
o, how does a banker justify his or her compensation? When it comes down to it, bankers really only provide two services for
companies: they provide advice on matters of corporate finance and they raise money. The banker stands at the vortex of the
capital flows, siphoning off a portion of the swirling funds. For providing these services, the average upper-level investment
banker can expect to earn about $750,000 in an average year. Is the average banker worth five times the average executive
in most other industries? Does the average banker add five times as much economic value to the greater good of the common
whole? Given that investment bankers carry a disproportionate share of civilization’s unjustified attitude and hubris, the
world would arguably be a better place with fewer bankers and more guys selling soft-serve twisty cones down on the corner.
Shit, take away some of
the investment bankers, the terrorists, and the tax authorities and you’re coming darn close to Shangri-la.

The investment bankers, of course, would disagree:

“We make the capital markets more efficient!”

“We bring together buyers and sellers!”

“We help maximize business value!”

Is it true? Do the bankers really do anything but suck the fat out of an overindulgent capitalist economic system? Yeah. The
capital markets aren’t perfect. Those who need money, and those who have the money, can’t always identify each other. The
buyers of businesses don’t always know the sellers. Independent third parties are sometimes needed to confirm business value.
What many of the bankers don’t grasp, though, is the tenuous nature of the value of the services they provide. As the number
of available information sources continues to proliferate, and access to that information becomes less proprietary, the bankers’
ability to extract excess fees from that information will inevitably dissipate. It may happen slowly, but the bankers’ value
will diminish and melt away as surely as the Wicked Witch of the West in a South Florida rain shower.

Historically, the investment banker’s job was to advise companies on their financial alternatives. The investment banker was
a confidant to the company’s highest executives, and the relationship between a CEO and his banker spanned an entire career.
The banker provided analysis and advice on possible merger and acquisition candidates,
guidance on capital structure issues, and even occasional counsel on matters of business strategy. The banker was also the
introduction person, the one with the relationships. If the CEO wanted to initiate merger talks with a competitor’s CEO, or
wanted to sell a division of his company, the banker was the go-to guy. The banker usually knew somebody at the other company,
or knew somebody who knew somebody, who could get the CEO through the door and into the other CEO’s office. The two CEOs would
initiate talks, they might get a framework for a deal hammered out, and then the banker would tell the client whether the
deal made sense from a financial perspective. All in all, it was exciting work. Bankers didn’t have to spend a whole lot of
time chasing new business and could go to sleep every night knowing that they’d added some value for their clients. Moreover,
the work was steady. In both good times and bad, there was corporate finance work to be done. If the economy was booming and
businesses were building up cash reserves, the mergers and acquisitions side of the business would likely be going gangbusters.
When things got tight, the restructuring and strategic advisory piece of the business would compensate.

Bankers still perform advisory work. They still make recommendations to companies on possible merger and acquisition candidates.
They still propose levered recapitalizations, stock buybacks, and other restructurings of a company’s capital structure. They
still write reports advising a company’s shareholders as to whether an offer that has been made to purchase the company should
be considered “fair” from a financial standpoint. There are still a few small, highly focused investment banks that continue
to provide good strategic business advice.

In general, though, the advisory side of the business has become much more commoditized. The banker no longer has the lock
on relationships. The banker’s information is no longer highly proprietary. Information on companies is now so widespread
that there’s very little company-specific knowledge that bankers can truly call their own. The banker no longer brings enough
unique added value to the table to necessarily merit a CEO’s granting him a lifelong mandate to provide paid advice on matters
of corporate finance.

This shift in the nature of the bankers’ advisory business is illustrated by what, today, is a much more typical advisory
assignment—an exclusive sale. In an exclusive sale a company that wants to sell its business calls up every investment banker
that it knows. Usually, all the big banks with the well-known names make the list. Sometimes a couple of smaller banks will
be on there as well. The company asks each of them to make a fee proposal. Some banks might offer to arrange the sale for
1.5 percent of total sale proceeds, others might offer to sell it for 1.25 percent of total sale proceeds. Some banks might
structure a more innovative fee structure that includes a sliding fee scale, incremental incentive payments, or any number
of other variations. Ultimately, though, since there’s no longer any meaningful information differential between the different
banks, the company will retain whichever bank agrees to make the sale for the lowest fee. It’s a Kmart blue-light special
in aisle five.