The perceptions – and realities – of working in investment banking

Investment bankers take plenty of flak from the general public. In fact, over the last five years, it would be difficult to argue that any one occupation gets put under the microscope more often.

A common frustration amongst many investment bankers – at least those who care about their public perception – is that all industry participants tend to get painted with the same brush stroke, despite the fact that investment banking is as generalized a term as you’ll find on Wall Street.

David Mahmood, founder and chairman of Allegiance Capital Corp., a Dallas-based mid-market investment bank, shares this frustration. He penned a blog post last year in which he lamented the perception of investment bankers, noting that he “despises being lumped in this pot of people.” We asked him to explain further.

Where does all the public vitriol for investment banking come from?

We have a problem with the media lumping everyone into the same bucket. Investment banking covers a wide variety of disparate fields. A lot of firms are not involved in derivatives and trading, and can take a longer view.

When you look at the title of an investment banker, I think the media has created a perception that is somewhat unfair. Some of the vehicles that are used in the financial system have more risk than others, and when people read about the “London Whale” it casts a pall over everyone who is in investment banking. The reality is it is a small limited number of people in very specific area.

You have a circumstance like this past week with the September issue of Time Magazine, tiled “How Wall Street Won.” People end up with one perception of the business because it’s painted with one stark brush, even though it’s really just a few stark organizations.

What’s the common denominator with all these negative perceptions and controversies?

Public companies with heavy pressure to meet quarterly earnings. Investment banks for a long time were private, driven by a culture that was created by managing partners and owners. They could take the longer view. When you take a company public, analysts and shareholders are judging performance quarter-to-quarter. It forces bankers to take a shorter view.

Does that contribute to the perception that some investment bankers don’t always have their clients’ best interests in mind?

When companies become public, you end up with these large monolithic organizations that are indeed too big to fail. When you have a wide array of departments working on wide array of transactions, it’s easy to find contradictions and raises the question if the firm is operating in best interest of the client.

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Where does the responsibility lie?

Pressure comes from the top down, and that culture determines the way troops respond and act. Look at a broad field like the U.S. Army. People have different tasks and requirements, all in the business of keeping peace, yet some have probably never carried a gun. It’s like taking a private and general and saying they are all in the army and all equal culpability. In reality, it’s the general who is calling the shots, not grunts on the front lines.

As president and founder of my own firm, organizationally I will set the tone. I’m responsible for ethical and moral values – I set the expectation to how people should act and they operate by the way I manage and run the business. If the only a criteria is how much money you make, then you have problems. Good people do things under circumstances that they shouldn’t do. If there is a responsibility it has to be on top management – they need to set the tone.

Has the culture changed since the financial crisis?

We have Dodd Frank, colleges are teaching more classes in business ethics, so I think we are getting better. When we went through the financial crisis, companies were forced to radically change as they were subjected to new regulations and had to answer to the government and shareholders.

Where is the good in investment banking?

I personally have had the opportunity to take a client’s life work – them building a business – and help them monetize that investment and create wealth for themselves and their employees as well as new opportunities for next the generation. Investment banks wouldn’t stay in business if they didn’t work for best interest in clients.

Listen, investment banking is a very large multi-faceted business with a lot of good people and great career opportunities. Good organizations with a good culture reward bright people and generate great results. As a category of professionals, and I’ve worked with a variety of investment bankers, they are the best, smartest, most competent people with good values who work very hard.

What are the advantages of working at smaller investment banks?

I think that if you want to get broader experience, smaller firms give you more opportunity. Large firms tend to develop specialists. If you are somebody who is very bright in mathematics or someone who is brilliant at logarithms, you can use those skills and competencies to your advantage at a larger firm.

On the other hand, if you are looking more broadly into investment banking or deal making, you may be better off at a mid-market firms. There is nothing wrong with large firms – the world needs J.P Morgan and Goldman Sachs – but for a lot of people there is a great opportunity in the middle market.