Category: International Finance

Banking

“OK. If I am being honest with you then, yes, let’s whisper it, but the truth of the matter is that all of us are overpaid. There is nothing magical about what we do. Anybody can do it.”

– Allen Wheat, CEO of Credit Suisse First Boston

Liar's Poker

“I have this theory,” said Andy Stone, seated in his office at Prudential-Bache Securities.

“Wall Street makes its best producers into managers. The reward for being a good producer is to be made a manager. The best producers are cutthroat, competitive, and often neurotic and paranoid. You turn these people into managers, and they go after each other. They no longer have the outlet for their instincts that producing gave them. They usually aren’t well suited to be managers. Half of them get thrown out because they are bad. Another quarter get muscled out because of politics. The guys left behind are just the most ruthless of the bunch. That’s why there are cycles on Wall Street – why Salomon Brothers is getting crunched now – because the ruthless people are bad for the business but can only be washed out by proven failure.”

Michael Lewis, Liar’s Poker

George Soros

On Terror: “How can we escape from the trap that the terrorists have set us?” he asked. “Only by recognizing that the war on terrorism cannot be won by waging war. We must, of course, protect our security; but we must also correct the grievances on which terrorism feeds…. Crime requires police work, not military action.”

On the Bush Administration: “An open society is a society which allows its members the greatest possible degree of freedom in pursuing their interests compatible with the interests of others,” Soros said. “The Bush administration merely has a narrower definition of self-interest. It does not include the interests of others.”

On the Bush Administration: “The supremacist ideology of the Bush Administration stands in opposition to the principles of an open society, which recognize that people have different views and that nobody is in possession of the ultimate truth. The supremacist ideology postulates that just because we are stronger than others, we know better and have right on our side. The very first sentence of the September 2002 National Security Strategy (the President’s annual laying out to Congress of the country’s security objectives) reads, ‘The great struggles of the twentieth century between liberty and totalitarianism ended with a decisive victory for the forces of freedom and a single sustainable model for national success: freedom, democracy, and free enterprise.'”

On Philanthropy: “I’m not doing my philanthropic work, out of any kind of guilt, or any need to create good public relations. I’m doing it because I can afford to do it, and I believe in it.”

On Stock Market Bubbles: “Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.”

Looking for a job

—–Original Message—–
From: Alan Lewis
Sent: Tuesday, March 22, 2005 11:34 AM
To: Daniel Loeb
Subject: CV

Daniel,

Thanks for calling earlier today. Enclosed is my cv for your review. I look forward to following up with you when you have more time.

Best regards,

Alan

Alan D. Lewis
Managing Director
Sthenos Capital Ltd.

—–Original Message—–
From: Daniel Loeb
Sent: 27 March 2005 23:08
To: Alan Lewis
Subject: RE: CV

what are your 3 best current european ideas?

Daniel Loeb
Managing Member
Third Point LLC

—–Original Message—–
From: Alan Lewis
Sent: Monday, March 28, 2005 1:03 AM
To: Daniel Loeb
Subject: RE: CV

Daniel,

I am sorry but it does not interest me to move forward in this way. If you wish to have a proper discussion about what you are looking to accomplish in Europe, and see how I might fit in, fine.

Lesson one of dealing in Europe, business is not conducted in the same informal manner as in the U.S.

Best regards,

Alan

—–Original Message—–
From: Daniel Loeb
Sent: 28 March 2005 09:50
To: Alan Lewis
Subject: RE: CV

One idea would suffice.

We are an aggressive performance oriented fund looking for blood thirsty competitive individuals who show initiative and drive to make outstanding investments. This is why I have built third point into a $3.0 billion fund with average net returns of 30% net over 10 years.

We find most brits are bit set in their ways and prefer to knock back a pint at the pub and go shooting on weekend rather than work hard. Lifestyle choices and important and knowing one’s limitations with respect to dealing in a competitive environment is too. That is Lesson 1 at my shop.

It is good that we learned about this incompatibility early in the process and I wish you all the best in your career in traditional fund management.

Daniel

—–Original Message—–
From: Alan Lewis
Sent: Monday, March 28, 2005 4:08 AM
To: Daniel Loeb
Subject: RE: CV

Daniel,

I guess your reputation is proven correct. I have not been in traditional fund management for more than eleven years. I did not achieve the success I have by knocking back a pint, as you say. I am aggressive, and I do love this business. I am Half American and half French, and having spent more than half my life on this side of the pond I think I know a little something about how one conducts business in the UK and Europe.

There are many opportunities in the UK and Europe, shareholder regard is only beginning to be accepted and understood. However, if you come here and handle it in the same brash way you have in the U.S. I guarantee you will fail. Things are done differently here, yes place in
society still matters, where one went to school etc. It will take tact, and patience (traits you obviously do not have) to succeed in this arena.

Good luck!

Alan

—–Original Message—–
From: Daniel Loeb
Sent: 28 March 2005 10:23
To: Alan Lewis
Subject: RE: CV

Well, you will have plenty of time to discuss your “place in society” with the other fellows at the club.

I love the idea of a French/english unemployed guy whose fund just blew up telling me that I am going to fail.

At Third Point, like the financial markets in general,”one’s place in society” does not matter at all. We are a bunch of scrappy guys from diverse backgrounds (Jewish Muslim, Hindu etc) who enjoy outwitting pompous asses like yourself in financial markets globally.

Your “inexplicable insouciance” and disrespect is fascinating; It must be a French/English aristocratic thing. I will be following your “career” with great interest.

I have copied Patrick so that he can introduce you to people who might be a better fit-there must be an insurance company or mutual fund out there for you.

Dan Loeb

————————————————

From: Alan Lewis
To: Daniel Loeb
March 28 2005

Hubris.

————————————————

From: Daniel Loeb
To: Alan Lewis
March 28 2005

Laziness.

—————————–

New Yorker article: http://www.newyorker.com/archive/2005/04/18/050418ta_talk_mcgrath

Efficiency

The most important thing is to look at how things are done and ask why, and whether they can be done more efficiently.

– Brian Urkowitz, Merrill Lynch managing director and head of Global Transactional Client Services

Money Laundering

 

Washing dirty money involves three basic steps: placement, layering, and integration.

In the first stage, the dirty money’s illicit origin is attempted to be hidden by changing its form by having this money invested in cash-intensive businesses. Next, a number of shell companies are set up in countries known for strong bank secrecy laws or for lax enforcement of money laundering statutes. Then the dirty money is circulated within these shell companies until they appear clean.

For circulating this money, two age-old methods are used. The first is the loan-back system and the other the double invoicing system. With a loan-back, the criminal puts the funds in an offshore entity that he owns and then ‘loans’ them back to himself. According to researchers, this technique works because it is hard to determine who actually controls offshore accounts in some countries.

In double invoicing – a method for moving funds into or out of a country-an offshore entity keeps the proverbial two sets of books. To move ‘clean’ funds into say, Singapore, a Singaporean exporter overcharges for goods or service. To move funds out of Singapore, a Singaporean importer is overcharged.

Other ‘layering’ techniques involve buying big items like stocks, luxury cars, travel tickets. The integration stage is the final point when the money is moved into mainstream economic activities – typically business investments, real estate, or luxury goods purchase.

Money laundering is said to have potentially devastating economic, security, and social consequences. It provides the funds needed to finance drug dealers, terrorists, illegal arms deals, corrupt public officials, and others to operate and expand their criminal enterprise.

Because money laundering relies to some extent on existing financial systems and operations, the criminal’s choice of money laundering vehicles is limited only by his or her creativity. Money is laundered through currency exchange houses, stock brokerage houses, gold dealers, gambling houses, automobile dealerships, insurance companies, and trading companies. Private banking facilities, offshore banking, shell corporations, free trade zones, wire systems, and trade financing all can mask illegal activities.

Goldman Sachs Business Principles

 

The Goldman Sachs business principles reflect a set of ethics that has become ingrained in our firm’s character. They serve as the bedrock of our determination to provide clients with the industry’s best service. The business principles characterise not only the high standards and aspirations of the people who built this firm, but of our people today.

  1. Our clients’ interests always come first. Our experience shows that if we serve our clients well, our own success will follow.
  2. Our assets are our people, capital and reputation. If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard
  3. Our goal is to provide superior returns to our shareholders. Profitability is critical to achieving superior returns, building our capital, and attracting and keeping our best people. Significant employee stock ownership aligns the interests of our employees and our shareholders.
  4. We take great pride in the professional quality of our work. We have an uncompromising determination to achieve excellence in everything we undertake. Though we may be involved in a wide variety and heavy volume of activity, we would, if it came to a choice, rather be best than biggest.
  5. We stress creativity and imagination in everything we do. While recognising that the old way may still be the best way, we constantly strive to find a better solution to a client’s problems. We pride ourselves on having pioneered many of the practices and techniques that have become standard in the industry.
  6. We make an unusual effort to identify and recruit the very best person for every job. Although our activities are measured in billions of dollars, we select our people one by one. In a service business, we know that without the best people, we cannot be the best firm.
  7. We offer our people the opportunity to move ahead more rapidly than is possible at most other places. Advancement depends on merit, and we have yet to find the limits to the responsibility our best people are able to assume. For us to be successful, our men and women must reflect the diversity of the communities and cultures in which we operate. That means we must attract, retain and motivate people from many backgrounds and perspectives. Being diverse is not optional; it is what we must be.
  8. We stress teamwork in everything we do. While individual creativity is always encouraged, we have found that team effort often produces the best results. We have no room for those who put their personal interests ahead of the interests of the firm and its clients.
  9. The dedication of our people to the firm and the intense effort they give their jobs are greater than one finds in most other organisations. We think that this is an important part of our success.
  10. We consider our size an asset that we try hard to preserve. We want to be big enough to undertake the largest project that any of our clients could contemplate, yet small enough to maintain the loyalty, the intimacy and the esprit de corps that we all treasure and that contribute greatly to our success.
  11. We constantly strive to anticipate the rapidly changing needs of our clients and to develop new services to meet those needs. We know that the world of finance will not stand still and that complacency can lead to extinction.
  12. We regularly receive confidential information as part of our normal client relationships. To breach a confidence or to use confidential information improperly or carelessly would be unthinkable.
  13. Our business is highly competitive, and we aggressively seek to expand our client relationships. However, we must always be fair competitors, and must never denigrate other firms.
  14. Integrity and honesty are at the heart of our business. We expect our people to maintain high ethical standards in everything they do, both in their work for the firm and in their personal lives.

When should a company issue debt instead of issuing equity?

First, a company needs a steady cash flow before it can consider issuing debt (otherwise, it can quickly fall behind interest payments and eventually see its assets seized). Once a company can issue debt, it will do so for a couple of main reasons.

If the expected return on equity is higher than the expected return on debt, a company will issue debt. For example, say a company believes that projects completed with the $1 million raised through either an equity or debt offering will increase its market value from $4 million to $10 million. It also knows that the same amount could be raised by issuing a $1 million bond that requires $300,000 in interest payments over its life. Continue reading “When should a company issue debt instead of issuing equity?” →