M&A – Myths and attributions
In theory, trading performance should be easy to measure: buy at 50, sell at 60 and make a profit.
Of course it’s not that simple; other variables and costs have to be included. Sales credits, the measurement of which still remains more of an art than a science, is one; brokerage, IT and post-trade costs are others. There is little consensus from institution to institution on how these are measured; it often takes a merger to realise the system is antiquated or, more worryingly, completely deceptive.
When I was young, I had the privilege of working as an inter-bank spot trader for Midland Bank. Midi was quite a large player in the market, even though it saw little customer flow. Once in a blue moon, the Kuwait Investment Office used to give us some genuine business, but the bulk of what we saw came from the likes of Salomon, Goldman Sachs and various bandits who used to be trading away at the same time. Older hands will know exactly which ‘bandits’ I’m referring to.
However, although the bank saw little meaningful genuine corporate business, it made an absolute fortune out of its commercial books. This sounds contradictory, but the small business, deemed to be anything less than £5 million or $5 million, added up to a tidy sum each year.