“Well, I like the sound of this story, but I wouldn’t write it if I were you. They’ll come after you, boy.” I had to smile at ‘boy’. By the time I came to write my first cover story on Goldman Sachs, I had been at Euromoney for seven years and, just turned 30, was now its US editor. I had learned many things from Padraic Fallon, the editor who had hired me as a graduate trainee. Two stood out.
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One he told me: “You can produce the most painstakingly researched, beautifully written and well-argued article. But if it contains a single inaccuracy, however inconsequential, it will be worthless.” The second I drew from watching him work: be polite, be respectful, but don’t ever be afraid of anyone.
I wasn’t going to take this investment banker to task for ‘boy’, though. First, I liked him; second, he meant it kindly; finally, he had quite a reputation both for fearless deal-making and, when pushed to extremes away from work, for physical violence.
There was also an irony here that made me smile. He had clearly forgotten that he was one of the many bankers who had first set me off on this story, which essentially held that Goldman was playing right on the edge, and occasionally over the edge, in the inner workings of capital markets deals: hogging the economics through so-called ‘jump ball’ in equity capital markets; taking fees for no work in DCM transactions when it was a junior syndicate manager and retaining allocations when it was a lead and saw the chance to position on its back book and ride up a capital gain.
Looking back at it, this was pretty standard stuff, I suppose. But now being based in New York, I had seen for the first time and up close just how cosy the cartel was at the top investment banks in their domestic market.
They talked of issuers paying for lead banks’ continuing sponsorship of deals and didn’t fight too hard against each other. And having exported techniques honed at home to the capital markets of Europe and Asia, where they found far more competitors jostling for position, the US banks ruthlessly exploited all the familiar wrinkles to profit and belittle other banks.
None was more ruthless than Goldman.
I should have known that none of the bankers who had encouraged me would go on the record with their complaints – and barely any issuers. And although I could identify and explain examples of what was going on, it was not quite the damning blockbuster I had envisaged.
Even more chastening, when the story came out, no one paid any attention to my words. It was the cover image that did the work and captured the essence of what I was trying to say. It showed the polished Goldman investment banker’s face – the reassuring image presented to its clients – being ripped away to reveal the slavering raptor beneath.
It was the vampire squid of the early 1990s.
The complaints did come in, filtering down to me from the suits above on the Euromoney board and in person. One Goldman partner complained how hard it was to recruit business school graduates after that story came out, because of the cover image.
“Better they know,” I told him.
But Goldman did not go to the lawyers. And I kept in touch with many of the Goldman partners of the day as they later went limited and were ushered out. They would fill me in on juicy gossip, usually long after the event. I remember a couple of them relating how, in the year after that story, the unbridled aggression of the firm’s traders, many seeking to copy the hugely profitable positions put on as rates fell after the savings and loan crisis and that paid big bonuses to an elite few in 1993, almost brought the firm down in 1994.
The financial markets and the industry evolve. Some things endure, including the mystique, brand power and capacity to enrage rivals of Goldman.
I stayed at Euromoney, enjoyed my own stint as editor and returned to writing with a new respect for deadline discipline. In August 2007, when BNP Paribas froze redemptions from three funds because it could not discern a functioning market in mortgage-backed securities, one of the company’s top executives wanted my opinion. “Is this one going to be serious, Pete?” I assured him it was going to be worse than anything we had seen before.
In December 2006 I had written a report on something I had not seen in 20 years at the magazine. It used to be that banks would make good loans to companies, some would later suffer in a downturn and a few loans would go bad. Now, in a banking world of synthetic products that banks were structuring and selling to virtual customers of their own creation, loans were tainted from the moment they were written. They had no chance of being repaid. They were only meant to be sold on to the greater fool.
The system had rotted from the inside. And, while the rest of the world looked on in horror and disgust as the mask was torn off to reveal the monster beneath, I knew that the people working inside the industry, with the best understanding of it, had lost faith first and lost it completely.
Peter Lee was editor of Euromoney from August 1999 to March 2005 and today is editorial director.
