GUEST COMMENT: A middle office perspective on front office arrogance

As someone with long experience of working in the finance function of investment banks, I can safely say that front office bankers are not always very nice. I have been threatened with violence, humiliated, and shouted at on many occasions.

It's easy to say that front office bankers' are self important because they're revenue generators and everyone else is a cost. This is undoubtedly a big factor, but the reality is more complex. In my opinion, front office bankers are also arrogant for the reasons that follow:

1) Hubris born of youth and inexperience

The first time I spoke to Emmanuel, a young french derivatives trader schooled at one of the Grand Ecoles, it was to remind him that he had to book trades into the settlements system. I only did this because he was responsible for a worryingly large number of front to back reconciliation breaks. It may well have been 100% of his first day's trades. His response was to square up to me and threaten to hit me if I dared ever again be so rude as to suggest he had made a mistake. Emmanuel's hubris was short lived. It wasn't long - hours rather than days - before he erred again. I did my job and told him. In the end he became one of the best, in skill and attitude, exotic derivatives traders in the business.

2) Hubris born of experience, achievement, and grand designs

I made the mistake of sending a memo to the newly appointed head of convertibles and warrants at one of the world's largest banks. He had been appointed on a large package reflecting his (self) importance.

I made the mistake of suggesting in the memo that his traders were 'naively' (my choice of word and my mistake in choosing it) assuming FX risk was being properly hedged by finance. It wasn't, and this was a source of substantial unexplained P&L.

He agreed to meet me to discuss the memo. It turned out he just wanted a humiliating (for me) apology for my choice of words. He got the apology he wanted. His traders continued to run substantial unrecognised FX risks contrary to his business mandate and outside his authorised risk limits.

I don't know what happened to him, but I do know his grand designs were unrealised as he had chosen the investment bank least inclined to indulge his appetite for risky behaviour.

3) Hubris as a disguise

It must be something about convertibles and warrants traders. This happened at a different bank, in a smaller team with just the head and his sidekick.

Even before the dotcom boom and dress-down Fridays, this European bank had always allowed a relaxed dress code - smart, casual. The untucked scruffy T-shirts seemed more than a little risqué and insolent, particularly after the head of HR distributed a memo clarifying, and codifying, the dress code.

The T-shirts persisted in C&W, however, until a few months later, when they were banned after compliance unearthed trading 'irregularities' after reviewing all recorded telephone calls on the T-shirt wearing C&W desk.

5. Hubris born of fear

This is the most common manifestation, and is most prevalent when markets are volatile. No one likes to look stupid, so front office bankers hate having their mistakes pointed out by accountants and other representatives of the back office.

Volatile markets make the nagging voice of self-doubt and insecurity that much louder. They also make the consequences, both the potential losses and the impact of those losses on prestige, bonuses, and career progression, more serious.

I only understand a little of what it must be like. I hold a few shares, privatisations, demutualisations and a few others. On bad days for the stockmarket late last year and early this year I couldn't face reading the business pages of my newspaper, or watching the TV news. I felt bad enough without having someone ask me why I had bought HBOS at 6.50, or sitting with me as I analysed the poor judgements that led to losses.

In the front office you are defined by the quality of those judgements. It requires real toughness to endure the pain of acknowledging your mistakes, to accept the losses and to continue trusting that judgement. It is all too easy to see how aggression, a natural response to pain, can tinge that toughness, turning it to arrogance.

I won't pretend this is an exhaustive list. I do think it helps to understand how pomposity, hubris and arrogance arise. I would also add a word of caution - don't expect the general public, or more importantly MPs, to understand and tolerate, let alone overlook or forgive, that arrogance, particularly if you are making more money than even the best of them.