Wall Street Winterim: January 2012

MARKETS-STOCKS/By: Shamus Ankrom

Similar to the masses of other Thunderbird students this January, Global Finance majors took a Winterim to the Street unlike any other in the world. Dissimilar to the many other Winterim programs, the Wall Street Winterim take place on a small island measuring no more than 15 miles in length.  New York City is regarded as the international financial institution the world over and within the United States.  The island of Manhattan constitutes the melting pot of the world, not solely the United States. One would be hard stretched to cross a street, enter a Starbucks, a local pub, a law office, or financial institution and not be witness to several different languages, dialects, much less professions. While Wall Street may be regarded as the financial epicenter, it is far more than that, and now, 25 aspiring souls can attest to this fact and its innate cut throat nature.

Over the course of two weeks, Thunderbird’s brethren were able to penetrate the walls of U.S. institutions such as the Federal Reserve Bank of New York and the New York Stock Exchange, while the diversity of institutions was borne through visits to the nascent, yet growing Chinese Construction Bank, in addition to financial stalwarts regarded for their financial prowess such as Barclays – at the forefront of electronic trading, Deutsche Bank – the leading FX concern, and last but not least Citigroup, the bank of the world seeking to rectify the missteps spawned by the financial crisis. Among the participants, students had the opportunity to meet with financial regulators, clearing houses (DTCC), investment banks, private equity groups, fixed income traders, risk managers, CFOs, CEOs, wealth managers, and investment houses to name just a few. In all, the participating students were able to learn from 73 finance executives.

We would be remiss to say the journey was one of levity and sound advice. Not to say that the accomplished professionals and seasoned alumni have not done well, quite the contrary. Yet the financial system in the United States, Europe, and other emerging stalwarts such as China, India, Brazil, Russia were united in one message, the opportunities once sought as near as a decade ago within the United States are no more. Opportunities are abroad, however infinitesimal they may be; however, much to the surprise or chagrin of many participants, if one is seeking to enter financial services albeit corporate finance, wealth management, risk management, capital markets, PE, what have you, you are best served seeking to join such firms in your own country. Growth is abroad. As disheartening as it may have been, regardless of background, diversity, or accomplishment, the financial services sector has become the most competitive market to penetrate and it continues to shrink. Any dreams or aspirations to one day become an investment banker were quickly dismissed, time and time again by our alums. Without a significant amount of experience and a “papered” resume, buttressed by sound institutional names, skill sets, and references, the odds of a Thunderbird making it nowadays are slim to none. Not to say it is impossible, but in these markets, it is no longer just about what you know, it’s about who you know.

Granted, this piece appears founded in pessimism and futile ambition. Yet, from a Street veteran, I can honestly say that Wall Street is no longer the place it was before. Regulation, nationalism, currency manipulation, reorganization, and unseen cutbacks and “rationalization” in an attempt to compete on the global scale have altered a US-centric model that finds itself in a state of flux, but this will not remain in perpetuity. Systemic risk will be mitigated, sooner or later. Frustration and rationalization continue, for the longest time since the Great Depression. Dodd-Frank, Basel II, Basel 2.5, Basel 3, the Volcker Rule, Occupy participants, and irrational market participants have changed the rules of the game. In short, banks will be forced to abandon certain practices in their entirety while holding substantial reserves to stave off another financial collapse. Based on the Winterim, while in theory this sounds like legitimate reasoning, one constant emerged from our alums: when politicians attempt to be bankers, bad things happen. When bankers attempt to profit from a system conceived by politicians, bad things happen. Sooner or later, free markets balanced with sound regulation will emerge, otherwise, Firms will fail not because of toxic assets or poor investment decisions, but simply because they are constrained from acting in the best interests of stakeholders. ny

Yet, in difficulty, adversarial dealings, and down markets, there is opportunity. The landscape is constantly evolving and adjusting to the mechanisms put in place to constrain poor decision-making is a good thing. Certainly, it has and will continue to cause pain, yet just as the Glass-Steagall Act and other legislation has changed the rules of the game, new leaders, thinkers and market makers will emerge to take their place atop their helm.

Sooner or later, the big wigs of Wall Street will move on, retire, or be forced out simply because they lack the foresight and openness to embrace change for the better or they run their firms into the ground. The economy has gone global. MNCs no longer call sub-10 countries their growth markets. China, once envisioned to be the growth engine of the world has begun to falter and with sub-10% GDP growth, compounded by lackluster growth in the developed markets it must sell its products into and decreasing FDI for the first time in years, the developed nations will soon reemerge and reinvest as they have time and time again. Protectionism remains the barrier to circumvent. Private equity will continue to suffer several more years as legacy portfolio companies are sold and new capital is deployed in an efficient and lucrative manner but opportunities are presenting themselves.

Students on this trip had their eyes opened. As disheartening as it is to hear the constant negativity and dismissive answers with regard to job opportunities and career advice, it is better to go into the forest armed with the foresight to see through the trees rather than the armament of solely misguided and myopic delusions. The most prevalent topics of discussion brought forth by our alumni included the financial crisis, the current state of the EU, the collapse of MF Global, new regulations, and what the future holds; while there were similarities in a lot of the dialogues, what the future holds had all of our alumni perplexed as they reached to find some solace that the U.S. economy will turn around.

In conclusion, two final points; as referenced earlier, regulations have significantly altered the landscape and the rules by which to compete, but sooner or later, a dollar will be lent to be earned, evidenced in the most recent earnings releases by the likes of Citi, JP Morgan, and Wells Fargo. Main Street is waking up. Europe remains in the doldrums and one would be considered dense to think they know how it will ultimately fall out. As hard it is to admit, while the opportunities we as Finance students held so dear while we embarked upon our MBA at Thunderbird have disappeared if not fallen out of favor entirely, the room for opportunity will ultimately rear its welcome face again. We do not know what the future holds; but in the long run, a reality check and a healthy pessimistic knowledge-base that things will pan out in the long run is the correct, and frankly, the only option we have to aspire for. Hard work and sacrifice will pay dividends, and that is what this Winterim let be known.

Finally, the Wall Street Winterim would not have been done justice if the final theme regarding the media was not also referenced. The media machine that now consumes the United States and for that matter, the financial markets have run its course both in terms of legitimacy and the patience of the market participants. DMMs, or Dedicated Market Makers, the individuals one can see standing on the floor of the NYSE, acknowledged their lack of appreciation for the media. Not only are these professionals, who have to be there to ensure markets are made for their respective stock portfolios prevented from speaking to the media, they have ruined the landscape of financial history much less whatever efficiency exists in the markets today. The Wall Street Journal, CNBC, MSNBC, what have you are considered to blame for over-hyping news and poisoning the fundamentals business. Bankers, traders, capital markets professionals, and even Corporate Bankers shared the same sentiment – whatever you hear or read take it with a big grain of salt. And for that resounding piece of advice, it was certainly worth the trip.

1 Comment

  1. This seems much less like a story that answers the question “What was your greatest Winterim moment?”, but rather like a pseudo-political narrative; and a bad one at that.

    “Firms will fail not because of toxic assets or poor investment decisions, but simply because they are constrained from acting in the best interests of stakeholder”

    How exactly are firms constrained from acting in the best interests of stakeholders? And was the collapse of MF Global not down to poor investment decisions (or rather a series of gambles on the Euro Debt crisis)? What about Lehman? Bear Sterns? Merrill Lynch? Was their collapse purely down to regulation? Or was it bad investment decisions coupled with poor (or in many cases, non existent) risk management that caused their demise?
    Is the current impending Greek default not being further complicated by conflicting interests created by banks such as ING, BNP Paribas and Deutsche Bank? These big European banks own tons of Greek debt and then amplified their exposure by selling CDS’s to other Banks and Hedge Funds (presumably some smart MBA made this suggestion), essentially doubling down.

    “The media machine that now consumes the United States and for that matter, the financial markets have run its course both in terms of legitimacy and the patience of the market participants”

    Isn’t this the same media machine that cozied up to The C.E.O’s of Main Street and sold us on this concept that the smartest people in business work on Wall Street? Isn’t this the same media machine that employs the hack Jim Cramer? Why is it that whenever people want someone to blame, or to obscure an issue, they turn towards the media? The right with it’s perennial chant of the media’s left-wing bias, and bank executives with their whiny cries of “the media is unfair to us!”. The fact of the matter is that most financial news anchors (from Neil Cavuto to Larry Kudlow) have had a decade’s long love fest with the movers and shakers at Wall Street.

    The only lesson that can be garnered from this story is that another group of MBA’s has been brainwashed to tote the official line from those at the street. Incompetence, a systemic lack of real intelligence and an inability to look beyond one’s own pomp and arrogance are still the hallmarks of finance MBA’s then.

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