Morning Coffee: When you work in finance and your children are less clever than yourself. And some good(ish) news from Citi
It might be considered a moral dilemma, but most people would think it a pretty easy one. Who really needs to be be told that it’s not OK to cheat on their children’s college applications? Of course, every parent wants to do their best for their kids, but the line between paying for a bit of extra coaching or a good private school, versus paying for someone to Photoshop junior’s head onto a successful athlete so they can get a sports scholarship ... It just seems like, if life is a compulsory online compliance training course, this isn’t one of the difficult multiple choice questions.
Given the stereotypes about bankers relating to their level of ethics and their obsession with top universities, it’s actually quite interesting that most of the list of arrestees in the FBI’s “Operation Varsity Blues” are showbusiness figures, senior doctors and generic rich people rather than financial professionals. Strictly defined, looking through the list of defendants, we can’t find any investment bankers currently working in the industry; possibly this is because the scam mainly operated in California rather than New York, but even so. There is, however, a former CEO of Pimco (Doug Hodges), the current CEO of Hercules Technology Growth Capital (Manuel Henriquez) and a current managing partner at private equity giants TPG (Bill McGlashan). This last name is particularly surprising, as Mr McGlashan is the head of their socially responsible investing businesses, a “strong voice for social responsibility in the Valley”. He has even launched an “impact investment” fund with Bono, to tell the rest of us in finance where our moral compass should be.
The actual mechanics of the cheating scam were astonishingly blatant. As well as the Photoshop athletic scholarship trick (Really? Surely a finance professional would have realised early on that pretending to be a champion water polo player is a scam with a limited shelf life if you aren’t.), the “consultant” at the heart of the operation, Rick Singer, would arrange for the less-gifted kids of successful parents to take their admissions tests at a “special” test centre, where the proctor would then change some of their answers to the correct ones. It puts the CFA cheating stories to shame.
What really stands out, though, is how relatively cheap this method was; the total amount of money Rick Singer is accused of making is only about $25,000,000 and plenty of the defendants were spending no more than five figure sums on his services. Not only that, they were able to deduct the cost of doing so from their taxes, as the bribes were concealed as “donations” to Mr Singer’s charity. Perhaps this is why there aren’t any actual investment bankers on the list; they would have known that the true cost of getting your kid into Harvard is more like a couple of million if you want to do it the straight forward way, by making a donation.
Elsewhere, the end of March is two weeks away, and some people have begun to get nervous. The first quarter typically sets the tone for the year and after a poor January (particularly in capital markets business lines), the outlook for investment banking was being revised downward. Mark Mason, the Citi CFO, however, has been calming things down with a conference presentation talking about markets revenues being down “in the high single digits” and IBD revenues having a “strong pipeline”.
That’s obviously not as good as them being up or flat, but it’s the sort of first quarter that can be recovered from. It’s also worth remembering that January in particular was affected by uncertainty related to the US government shutdown, while there is at least some hope that geopolitical uncertainty will be reduced in the second half. Set against that, though, is the fact that Citi had a strong end to 2018 and seemed to be gaining market share. They might be seeing the market somewhat better than competitors with less momentum, particularly the European banks which have been steadily losing ground. Before declaring panic over, it might be nice to see the guidance confirmed by some other banks as they give similar presentations. Still, it’s good to know that things aren’t – yet – as bad as feared.
A look inside the “financial war room” that the FCA plans to operate over the Brexit period in the event of the UK leaving with no deal on the 29th of March, staying in contact with top banks to be aware of market disruption. (BBC)
Goldman Sachs is reviewing its collection of principal investing pots, and considering opening up one of them (the Special Situations Group) to outside money. Cynics might suggest that it’s a sign of management ambivalence about these sorts of businesses if Goldman no longer wants to keep the profits all to itself? (WSJ)
Rich people have feelings too! That’s the title of a forthcoming book from a former PR director at Carlyle Group. From the previews, it seems like the super rich mainly feel “I wish everyone cared more about my philanthropy”, but they might also feel things like “I hope I don’t get caught faking my son’s university admissions essay”. (Financial News)
Tim Leissner and Robert Ng, two of the bankers at the centre of the 1MDB scandal, have been banned from the industry for life by the Fed. (New York Times)
Man Group has published its diversity report, launching a target of having 25% of its senior roles and a third of its board seats occupied by women by 2020. (Financial News)
Advice to people who think that they’re being approached by headhunters just to tick boxes for the diversity quota of the interview process (FT)
If you were wondering why the guy who forwards you news about Bitcoin and the next financial crisis has gone silent, it appears that Zerohedge are having problems with Facebook (Bloomberg)
And the GS careers blog have published a “Pi Day” riddle, a day early (Goldman Sachs)
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