Nearly everyone who’s worked in equity research for long enough has this kind of war story – the time that a chief executive tried to get you fired. Daud Khan, a semiconductors analyst at JP Morgan Cazenove, has a pretty specific and hair-raising story though – according to his testimony in the lawsuit between Hewlett-Packard and Mike Lynch of Autonomy, his investment bankers were offered a specific quid pro quo in terms of an advisory role if they got rid of him.
Dr Lynch, it’s only fair to say, remembers the conversation differently and doesn’t accept the allegation. But it’s a settled fact that the relationship between the CEO and the analyst changed markedly when Khan downgraded the stock in 2007. He was disinvited from management presentations and accused of having “inappropriate” conversations with fund managers.
In the end, nothing happened – JP Morgan, presumably aware of how absurdly illegal it would be to change an analyst’s coverage or reduce his bonus over a conflict of interest with the investment banking division, didn’t respond to Lynch’s offer. And in the end, JP Morgan did get the advisory role they wanted, advising Autonomy on its $5bn takeover by HP.
Of course, that takeover was somewhat cursed. Pretty soon after the deal was finalised, Hewlett-Packard found itself having to take a big goodwill writedown and started lawyering up and accusing Autonomy (and Lynch personally) of inflating its revenues. It’s not at all impossible that JPM’s lawyer fees alone have eaten up most of the fees on the deal. That is, in many ways, a lesson for the investment banking industry, albeit one that’s difficult to keep in mind when the prospect of winning a mandate is right in front of you.
One of the jobs of an analyst is to keep the bank out of bad deals; Daud Khan said at the time that “the rhetoric coming from Autonomy management didn’t match up to the financial statements”. If the bankers had listened to this a bit more closely, they could have saved themselves a lot of inconvenience. Indeed, if they had just stopped to think, they might have realised that trying to shoot the messenger and harass an analyst for doing their job isn’t a good sign of a management team who you want to be working with.
But this rarely happens. The relative status of research analysts and investment bankers is still set in stone at most investment banking firms, and very few bankers are interested in not winning deals. That’s why, in a lot of cases, trouble-making analysts are indeed pushed sideways (in subtle ways, without any obvious signs of quid pro quo), or moved onto different coverage, or leaned on in “offline” conversations. It’s hard to win a vendetta against the CEO of a corporate client and Khan can consider himself pretty lucky to have done so.
Separately, another kind of battle that is hard to win is a high-stakes divorce. In recent years, London has been the scene of a number of such cases, often involving extremely high net worth individuals from the financial services industry. The local divorce laws have historically been spouse-friendly compared to other jurisdictions, so one of the top priorities of the non-earning partner’s lawyers has been to get the case heard in London where the starting point is an equal division of assets and where pre-nuptial agreements aren’t always enforced.
According to the high-rolling divorce lawyers who contest these kind of cases, though, that might be about to change. The UK is reforming its divorce law, bringing in “no fault” divorces (previously, the divorcing parties either had to present evidence of infidelity or unreasonable behaviour, or wait a long time to establish irretrievable breakdown of the marriage).
The principle of equal division isn’t going anywhere – so spouses of rich bankers are still going to want their cases heard in London – but there will no longer be any need to spend time and lawyers’ fees on acrimonious battles over fault, or anything else that isn’t directly relevant to the financial settlement. Lawyers for multimillionaires suggest that they hope that the conversations between divorcing parties will be taking place at a lower emotional temperature and on a more rational basis. And, of course, the quicker the process, the fewer big bonuses get counted as part of the marital estate.
The Goldman Sachs “dress as the clients expect” code hasn’t quite taken yet; the COO John Waldron wore a suit and tie to the Brooklyn Museum Artists’ Ball, affectionally known as the “Hipsters’ Ball”. Some other GS bankers present managed to fly the flag and pour themselves into a pair of jeans though. (Bloomberg)
The German securities regulator BaFin is still going into bat for WIrecard. Despite considerable revelations of unusual practices, the regulator has instead decided to bring criminal charges for market manipulation against two reporters who have been covering the story. (FT)
Amazon’s machine learning cloud doesn’t currently have many banks as clients, but their head of financial services business development thinks he’ll be able to change that as they launch a new “data lake” product later this year.(Financial News)
Brazil is hot – Bank of America is aiming to start underwriting local bonds there (albeit with no new net hiring) while HSBC and Deutsche are rebuilding investment banking franchises. (Bloomberg)
Japan, meanwhile, doesn’t seem so hot – Credit Suisse are closing down some bond operations there as they aren’t making money. (Bloomberg)
A sign of the times that worried regulators won’t necessarily be happy about – UBS is merging its regular Debt Capital Markets business into its more profitable Leveraged Capital Markets division. The FIG DCM team will be moved somewhere else, but this looks like a takeover of DCM by the leveraged division. (Reuters)
A tragic end to Irwin “Irv the Liquidator” Jacobs, the 1980s corporate raider – an apparent murder-suicide leaving him and his wife both dead with a note expressing dismay over their declining health. (Financial News)
If you’ve got the ready cash, the 2018 vintage of Bordeaux is apparently sensational. (Bloomberg)
Image credit: leonardo monteverde, Getty