‘Accidental’ banker reveals unvarnished views

LONDON – A year after lifting the lid on the insular world of investment banking in a book that threatened to make him a pariah in his own industry, Jonathan Knee remains uninhibited about saying out loud what his peers only think or whisper privately.

Knee, a senior managing director at banking boutique Evercore Partners, expects markets to stabilise, if only because of bankers’ self-interests, and a radical rethink of what might otherwise have been whopping bonuses this year. He also is unconvinced London is becoming the new epicentre of global finance despite an increasing number of senior bankers relocating to the British capital, Knee said in an interview with Reuters on the occasion of the launch here of his book ‘The Accidental Investment Banker’ this week.The book is a history of Goldman Sachs and Morgan Stanley – Knee worked at both – through the eyes of a self-described outsider distressed about the freewheeling practices increasingly in use and the demise of a more thoughtful banking culture.It is an unusually candid view from someone still working in the business.He names names, reveals outsized salary figures and unscrupulous practices from the Internet bubble, while still maintaining a romantic ideal about a banker’s role in society.Knee’s disheartened notion of what banks have become is playing out yet again in the current crisis.”During the boom these institutions face a stark choice: lower standards or lower market share.And no one votes for lower market share,” Knee said.”If you talked to people on commitments committees at Goldman Sachs or Morgan Stanley four months ago when deals that are 10 times leverage are coming through, the criteria at some point stops being ‘Should we?’ and becomes ‘Can we?’” “If you don’t do it, somebody else will do it.If you get the M&A assignment and you don’t want to put a staple on it at 10 times, JP Morgan will, and you might lose the M&A assignment.”He nevertheless expects inherent selfishness to help remedy the crisis that has created a backlog of more than US$300 billion of buyout debt that banks have been unable to sell.It will likely mean discounted prices to recalibrate the market.”Whatever it is, people want to be able to put the money to work for a whole bunch of reasons,” he said.”If you’re an investment banker and it’s three months till the end of the year, and there’s no activity in the last three months of the year and you think you had nine great months you want to get paid for, you want to make it look like something is moving.”Bonuses are still likely to take a serious hit, however, Knee said, as banks try to reconcile a record first half of deal making with the losses now tied to the debt.”There are a bunch of people who think of themselves (as top bankers) who are going to have negative numbers next to their names at the end of the year.The question is: how do you manage that?” Widespread job cuts are also on the horizon, Knee predicted, as part of he contagion from the US subprime mortgage market crisis.”One of the typical signs of the top of the market is when the largest class in history is starting at Morgan Stanley,” Knee said.”They’re all walking in and at the same time last year’s class is rotating, the music stops and they’re looking for seats and there are less seats than there are people,” he added.”There’s no question this is going to come out of the hide of the junior people and bonuses.”Knee said he suffered little in the way of negative feedback from the book despite his candour, even winning some new friends along the way by providing what he calls a “philosophical justification” to bankers by concluding that the world is a worse place because their role in it has been diminished.Nampa-ReutersHe also is unconvinced London is becoming the new epicentre of global finance despite an increasing number of senior bankers relocating to the British capital, Knee said in an interview with Reuters on the occasion of the launch here of his book ‘The Accidental Investment Banker’ this week.The book is a history of Goldman Sachs and Morgan Stanley – Knee worked at both – through the eyes of a self-described outsider distressed about the freewheeling practices increasingly in use and the demise of a more thoughtful banking culture.It is an unusually candid view from someone still working in the business.He names names, reveals outsized salary figures and unscrupulous practices from the Internet bubble, while still maintaining a romantic ideal about a banker’s role in society.Knee’s disheartened notion of what banks have become is playing out yet again in the current crisis.”During the boom these institutions face a stark choice: lower standards or lower market share.And no one votes for lower market share,” Knee said.”If you talked to people on commitments committees at Goldman Sachs or Morgan Stanley four months ago when deals that are 10 times leverage are coming through, the criteria at some point stops being ‘Should we?’ and becomes ‘Can we?’” “If you don’t do it, somebody else will do it.If you get the M&A assignment and you don’t want to put a staple on it at 10 times, JP Morgan will, and you might lose the M&A assignment.”He nevertheless expects inherent selfishness to help remedy the crisis that has created a backlog of more than US$300 billion of buyout debt that banks have been unable to sell.It will likely mean discounted prices to recalibrate the market.”Whatever it is, people want to be able to put the money to work for a whole bunch of reasons,” he said.”If you’re an investment banker and it’s three months till the end of the year, and there’s no activity in the last three months of the year and you think you had nine great months you want to get paid for, you want to make it look like something is moving.”Bonuses are still likely to take a serious hit, however, Knee said, as banks try to reconcile a record first half of deal making with the losses now tied to the debt.”There are a bunch of people who think of themselves (as top bankers) who are going to have negative numbers next to their names at the end of the year.The question is: how do you manage that?” Widespread job cuts are also on the horizon, Knee predicted, as part of he contagion from the US subprime mortgage market crisis.”One of the typical signs of the top of the market is when the largest class in history is starting at Morgan Stanley,” Knee said.”They’re all walking in and at the same time last year’s class is rotating, the music stops and they’re looking for seats and there are less seats than there are people,” he added.”There’s no question this is going to come out of the hide of the junior people and bonuses.”Knee said he suffered little in the way of negative feedback from the book despite his candour, even winning some new friends along the way by providing what he calls a “philosophical justification” to bankers by concluding that the world is a worse place because their role in it has been diminished.Nampa-Reuters