Spitzer’s effect on Wall Street will not last
Percy Shelley’s poem Ozymandias recounts the story of a Pharaoh whose ruined tomb bears the inscription: “Look upon my works, ye mighty, and despair!” But time has erased them. Around the wreck, the lone and level sands stretch far away.
So much for Ozymandias. What about Eliot Spitzer, the crusading New York district attorney who has become the scourge of Wall Street and the financial industry? Mr Spitzer has declared that he will stand for election as governor of New York State in 2006, and his website recounts his triumphs in a similar tone to the pedestal of Ozymandias. If Mr Spitzer moves on, will his legacy endure?
Well, no. Wall Street has always gone through cycles of perfidy and punishment. Chuck Prince, Citigroup’s chief executive, who is touring the world to lecture his staff about ethical behaviour (and bow to Japanese regulators over his bank’s latest offences), occupies the job once held by Charles Mitchell, who sold worthless Peruvian bonds to National City Bank depositors in the 1920s.
Conflicts of interest are inherent to investment banks. The basic one is that they advise both companies trying to raise capital, and investors in those companies. One customer wants to sell its shares for a high price, and the other wants to buy them at a low price. The banks erect Chinese walls to contain such tensions, but there is always an incentive to bend the rules a little to make more money.
The opportunity cost of eliminating temptation entirely is high. To see that, look at insurance broking, the target of Mr Spitzer’s latest crusade. Marsh was caught fixing bids to benefit underwriters who paid “contingent commissions” to gain business. Now Michael Cherkasky, Marsh McLennan’s new chief executive, has ended the commissions and says Marsh needs a new business model.
That is laudable, but not tenable. What new model will compare with being paid twice (once by a corporate client and once by an underwriter) to place deals? On some estimates, the $845m of annual revenues Marsh forgoes by sacrificing contingent commissions, rather than reinforcing its Chinese walls and grovelling, will knock a third off its earnings.
After all, the reason insurance brokers started to charge insurers in the late 1990s was that corporate clients were steadily lowering fees. Over-capacity and an excess of capital have inexorably eroded margins across financial services. The average commission for each trade executed on the New York Stock Exchange has fallen from nearly 40 cents a share in 1980 to less than 5 cents today.
The biggest financial firms have proved exceptionally inventive in getting around this over the past two decades. As Peter Fisher, the former US Treasury under-secretary for domestic finance, wrote in the Wall Street Journal this week, the financial industry’s pre-tax profits almost doubled as a share of total corporate profits between 1975 and 2003 from 15 per cent to 29 per cent.
Their first tactic has been to risk more capital on proprietary trading and investment. The latest manifestation is the Wall Street rush into in-house private equity and hedge funds. The plans unveiled by Credit Suisse this week to boost the profits of its investment bank include raising the level of proprietary trading and investing in hedge funds.
Combining proprietary and customer businesses is a fine way to make money. Even if insider trading rules are scrupulously obeyed, banks have an advantage in spotting potential deals and trades. But there is huge potential for conflicts of interest, from trading ahead of customers in securities markets to bidding against them on corporate deals. Indeed, Credit Suisse is spinning off its private equity arm to avoid the latter.
The second tactic has been to focus on serving financial high-rollers: hedge funds that trade heavily and private equity funds that often buy and sell companies and raise debt. According to Smith Barney, 38 per cent of Goldman Sachs’ institutional equities revenues last year came from prime brokerage the business of serving hedge funds and proprietary trading.
That also makes financial sense: Smith Barney estimates that the average investment bank does between 75 and 90 per cent of its equities business with only 100 large customers. But it puts those investment funds and companies in a very strong position to ask a few favours in return for providing most of the banks’ revenues and bankers’ bonuses.
Helped by Mr Spitzer, we have seen where that can lead. Research analysts can dishonestly recommend the stocks of companies that provide a lot of business to corporate financiers; hedge funds can be allowed to arbitrage the shares of mutual funds; shares in eagerly sought-after initial public offerings can be placed in the accounts of rich private clients.
None of this should happen, of course, and when it periodically comes to light, heads roll and everyone declares themselves shocked (shocked!) at the abuses. New rules are put in place and loopholes closed. But investment banks have shareholders, and shareholders demand profit growth, and other ways are found to evade the remorseless margin squeeze caused by competition.
Privately, one Wall Street chief executive says he gets calls all the time from staff complaining that other firms are starting to bend the terms of the 2003 settlement with Mr Spitzer. Couldn’t it just do the same? The heads of insurance brokers will receive the same requests in a year or two. Spitzers come and Spitzers go, but Wall Street is always with us.
斯皮策对华尔街的影响长不了
珀西?雪莱(Percy Shelley)的诗《奥西曼迪亚斯》(Ozymandias)讲述了一个法老的故事，法老被毁坏的坟墓上有段铭文：“看我盖世功业，敢叫天公折服！”但时间把这些功业抹去了。废墟的四周是孤零零的、一望无际的沙漠。
奥西曼迪亚斯就说到这里。艾略特?斯皮策(Eliot Spitzer)又怎样呢？这位四处讨伐的纽约总检察官已成为华尔街乃至金融界的杀手。斯皮策先生已宣布，他将在2006年参加纽约州州长竞选，而他的网站描述他成就的语气，类同于奥西曼迪亚斯坟墓基座上的铭文。如果斯皮策先生离开了，他的功德是否会保存下去呢？
哎，不会。华尔街一直经历着背信和惩罚的循环。花旗集团(Citigroup)首席执行官查克?普林斯(Chuck Prince)正在周游世界，对他的手下作道德行为训诫（并就银行最近的冒犯之处向日本监管者鞠躬致歉）。他接管了一度由查尔斯?米切尔(Charles Mitchell)执掌的职位。米切尔先生在上世纪20年代把一文不值的秘鲁债券卖给了国民城市银行(花旗银行前身)的储户。
利益冲突是投资银行业务的固有元素。基本的利益冲突是：投行既要为试图筹资的公司提供咨询，也要为这些公司的投资者提供咨询。这个客户想要把它的股票卖个高价，那个客户却想低价买这些股票。投行设立一些职能分隔措施来控制这种压力，但是，为多赚点钱而稍许改变规定，这种动机总是存在。
完全拒绝诱惑的机会成本很高。为了说明这一点，请看斯皮策先生最新的讨伐目标保险经纪行业。Marsh被逮住了，因为它操纵竞标，让为了获得业务而承诺“成功即付佣金”的承销商得到好处。现在Marsh McLennan的新首席执行官迈克尔?奇卡斯基(Michael Cherkasky)已终止了这种佣金制度，并表示Marsh需要一个新的业务模式。
这种做法值得称道，但不会持久。有什么新模式比得上安排交易可以两次收钱的模式(一次由企业客户支付，一次由承销商支付)呢？据某些估计，假如Marsh不采用加强其职能分隔措施并委曲求全，而是取缔成功即付佣金，这样损失的8.45亿美元年收入将令其盈利降低三分之一。
毕竟，保险经纪商之所以从上世纪90年代末开始向保险商收费，是因为企业客户在不断降低费用。市场容量过剩以及资本过剩，已无情地侵蚀了整个金融服务业的利润率。纽约证交所执行每笔交易的平均佣金，已从1980年的每股近40美分降到今天的不足5美分。
在过去20年中，最大的一些金融公司在应付这种情况上已证明格外具有创造力。正如负责国内财政事务的前美国副财长彼得?费希尔(Peter Fisher)本周在《华尔街日报》上撰文所说，1975至2003年间，金融业的税前利润几乎翻了一倍，在企业总利润中的比例从15%升至29%。
它们的第一个策略是在自营交易和投资上投入更多资金进行冒险。最近的表现是，华尔街机构纷纷加入开设内部私人股本基金和对冲基金的行列。瑞士信贷(Credit Suisse)本周披露，计划提高其投资银行的利润，包括加大自营交易和对冲基金投资的力度。
将自营业务与客户业务相结合是赚钱的好办法。即使内幕交易规则得到小心翼翼的遵守，各银行在发现潜在生意和交易上仍占据优势。但这里很有可能出现利益冲突，包括先于客户在证券市场交易，以及在企业交易中与客户竞标。实际上，瑞士信贷正把它的私人股本部门分拆出去，以防后一种情况发生。
第二个策略是专心服务于资金上大进大出的机构：大量交易的对冲基金以及经常买卖公司和发行债券的私人股本基金。根据美邦(Smith Barney)的数据，去年高盛38%的机构证券收入来自一级经纪业务（prime brokerage），即为对冲基金和自有交易提供服务。
那也具有经济上的意义：据美邦估算，投行平均75%至90%的证券业务仅与100家大客户进行。但这让投资基金和企业处于一个非常强势的地位，由于它们提供的交易是大部分投行收入及投行人士奖金的来源，所以它们会要求得到些好处作为回报。
在斯皮策先生的帮助下，我们已经看到这可能导致什么后果。研究分析师可能不诚实地推荐一些公司的股票，因为这些公司为企业融资部门带来大量业务；对冲基金可能获准对共同基金持有的股票进行套利交易；受到热烈追捧的首发股票可能被划到富裕私人客户的账户中。
这一切当然都不该发生，当它们被陆续曝光后，大家纷纷摇头，每个人都称自己对这种违规行为感到震惊。于是新规则实施到位，堵上了漏洞。但投行有股东，股东要求利润增长，于是它们找到其它方法，以防竞争导致无情的利润率缩减。
华尔街投行的一位首席执行官私下表示，他总是接到员工的电话，抱怨说其它公司已开始偏离与斯皮策先生达成的2003年和解条款。他们难道不能这样做吗？一两年后，保险经纪商的负责人将收到同样的要求。斯皮策们来了，斯皮策们又走了，但华尔街却一直在我们身边。
