Goldman Sachs is among Wall Street's elite investment banks. Should it be looking abroad for deals, or is the U.S. still the place to be?
Excellent cold-water-to-the-face post on Wednesday by Steven Davidoff, the New York Times' "Deal Professor." He questions whether the American investment banking model, stymied at home, can find Elysian fields of opportunity abroad. Then he offers this answer:
If you’ve been anywhere near a Wall Street conference in the last five years, you know the drill. Deal makers bemoan the United States as a mature and overregulated economy. They talk about heading abroad, as emerging market economies leave us far behind. To listen to them, one might think the rest of the world was a paradise out of “Atlas Shrugged,” where capital flows and where private equity, investment banks and other investors can freely seek opportunities.
So what country is No. 1 in initial public offerings so far this year? Yes, it is the United States, according to Renaissance Capital, with 75 I.P.O.’s raising $39 billion in total. Compare this activity with China, where 41 I.P.O.’s raised just $8.1 billion.
And in mergers and acquisitions? Again, it is the United States, with 53 percent of the worldwide deal volume, up from 51 percent from last year, according to Dealogic. For investment banks, this means that the United States has a 46 percent share of the $63 billion in worldwide investment banking revenue, up from 34.6 percent in 2009.
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A sign hangs above a Bank of America branch in the Financial District in Chicago. Should bank boards be more aggressive about questioning their best lines of business, before things go wrong?
Sallie Krawcheck, one of the most successful women to ever work on Wall Street, has a piece upcoming in Harvard Business Review about how institutional banking should be very concerned about returns that aren't sustainable. She points to JPMorgan's recent $2-billion disaster with a trader known as the "London Whale." And then she suggests how such disasters can be averted — by activating the bank's board of directors. Here's a sample, from Krawcheck's preview at HBR Blogs:
Because of the time constraints they face, boards can only focus on a limited number of issues. Corporate governance has to be one of them, and, in banking, regulation falls not far behind. After that, bank boards tend to spend their time on the problem children, the businesses that aren't doing well. These days there's an enormous amount of time being spent on the mortgage businesses, and now at JPMorgan likely countless hours to come to understand what went wrong at the chief investment office.
Yet this focus on problem children ignores that it's the good kids of today who in banking so often turn into the bad kids of tomorrow. The businesses that typically trip up are the ones that appeared to be great businesses, with much better than middle-of-the-road returns. While it's a fight against human nature, bank boards should allocate some of the time they spend on today's problem children to digging in to understand how the businesses with the highest returns on equity are sustaining them in businesses with low barriers to entry.
In these discussions, boards should ask things like, Why are the returns so good? What are we doing that's different? Why are the returns on this better than our competitors'? Why do we think this is sustainable? Spending that time may feel like a luxury given all the have-to-dos that bank boards have. But if you step back in history, it's clear that having done this could have averted any number of debacles.
Not what you want to see at a protest about banking and finance in Downtown LA.
At the outset, I think it's important to remember that the Occupy Movement, from Wall Street to Downtown LA and everywhere in between, has been rational and peaceful. But there will be some cranks who worm their way into any happening of this scale. I spotted the sign above as I was leaving Occupy LA a few days ago. I wasn't happy to see it. But I wasn't surprised, either.
It gets worse. ReasonTV found someone at the Downtown LA protest who was willing to actually talk out loud about the Zionist banking conspiracy. In front of a camera.
She got fired.
Ever since there have been banks and international finance, there have been crackpot conspiracy theories about the intermingling of money, Jewishness, Zionism, UFOs, secret underground labs, black helicopters, the world government, vampires...
AP Photo / J. Scott Applewhite
The Federal Reserve Building in Washington, DC.
The Federal Reserve publishes its so-called "Beige Book," a snapshot of the economy taken through the lens of the Fed's district banks, eight times per year. It is booor-ing. You may not even want to read the executive summary of the latest version. Luckily, you don't have to, because I've broken it down into bullet points. And I've assigned my own grades, on how the various parts of the struggling economy are doing. (The Fed, needless to say, doesn't hand out grades.)
•The Big Picture
"...overall economic activity continued to expand in September, although many Districts described the pace of growth as 'modest' or 'slight' and contacts generally noted weaker or less certain outlooks for business conditions."
Translation: Stuckflation, an economy going nowhere, for the rest of the year.