Showing posts with label lehman. Show all posts
Showing posts with label lehman. Show all posts

Wednesday, September 24, 2008

The Downfall of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Investment Banking Model

Niels Jensen and Jan Wilhelmsen, of Absolute Return Partners via Infectious Greed.

What is truly disgraceful is that investment banks could only manage returns on equity of 15-25% with a balance sheet that was often leveraged to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 sky.
Using Lehman as an example, below is a quick and dirty explanation as to why investment banks were "only" able to achieve 15-25% return on equity and why it wasn't necessarily "disgraceful" (on an individual bank by bank basis), but racá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r a function of how cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se banks functioned in a framework that should not have been allowed. In fact, I argue that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se aggressive return targets played an integral role in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 downfall of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 investment banking model.

Net Income:
While Lehman's net income did in fact rise dramatically from 2003-2007, it pales in comparison to what Lehman Brocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365rs (and ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365rs) paid cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir employees. In 2007, Lehman paid cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir employees well in excess of $300,000 per year ON AVERAGE. To see how large this was in comparison to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 net income of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 firm, if salaries in 2007 were at 2003 levels per employee (still $260,000+), return on equity would have been 30% instead of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 20% level reported.


Leverage:
To pay for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se increased salaries and still reach cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir 15-25% return on equity (from a growing equity base), Lehman increasingly turned to leverage (when a firm needs to return almost $4B racá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r than $2B to reach cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir target, strategies that previously would have been turned down, are now accepted. These lower returning strategies are cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365n amplified through leverage).

As can be seen below, this is exactly what happened. From 2003-2007 average salaries skyrocketed as banks outbid one anocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r for new talent (more projects requires more employees), leverage increased dramatically as Lehman's went from less than 24x to 31x (and remember this is more leverage off of a larger base number), all cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 while return on equity wasn't able to keep up with both cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 increase in salary or leverage.

So do I think 15-25% is "disgraceful"? On an individual bank by bank level, I don't think so. Lehman (and ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r banks) had to act in this manner to survive as ALL banks acted in this low-risk (for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 most part it's not cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir money) / high-reward environment.

The thing I find "disgraceful" is that this was was allowed to happen, as it was never really beneficial for anyone besides cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 bankers and was in fact detrimental to our people, economy, and country.

Friday, September 12, 2008

Fuld Will be Just Fine...

Dealbook:

Between 1993 and 2007, Mr. Fuld took home about $466 million in compensation, including base salary, bonuses, long-term incentive plan payouts and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 value of stock options he exercised. That’s according to calculations from Equilar, an executive compensation research firm.