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Hey Fidelity, what's it cost to invest with the Fidelity app? Start with as little as $1 with no account fees or trade commissions on US stocks and ETFs. That's music to my ears. I can only talk
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Investing involves risk, including risk of loss. Zero Account fees apply to retail brokerage accounts only. Sell order assessment fee not included. A limited number of ETFs are subject to a transaction based service fee of $100. See full list of Fidelity.com commissions Fidelity Brokerage Services LLC Member NYSE, SIPC.
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Bloomberg audio studios podcasts radio news.
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C
Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wiesenthal.
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A
And I'm Tracy Alloway.
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C
Tracy, how good at Excel are you?
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A
Not good compared to a lot of people who listen to this podcast, I would imagine. I mean, I can do some basic stuff like autosum and you know, so at some point. No, it's not. That's like literally clicking a button. I can write like a couple formulas in the little command prompt, but I think everyone can do that.
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C
I can write some really rudimentary formats, but I never really like got good at it to the degree that some people are. But the good news is I saw
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A
that we don't have to learn it.
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C
We don't have to learn. I saw that Claude code they have, or Claude they have some extension where you just talk to Excel in English and you say like, you know, build this kind of formula and make these changes and import this. I haven't played around with it, so I'm not 100% sure it would work. And to be honest, because of my limited Excel skills, I wouldn't even be able to verify if it worked in the first place. But my sense is, you know, that maybe that seems like maybe that's changing.
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A
I would guess that it works pretty well. And imagine if you're someone who's been working probably in finance for like 20 years and you became known as not an, I don't want to say Excel spreadsheet monkey, Excel spreadsheet gorilla. Like, you know, someone really admired for their Excel skills and suddenly you've been disrupted totally.
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C
Well, you sometimes you see these things online or like they show this stuff like, oh, the investment bank, investment analysts or junior analysts just got put out of a job and like there's. I'm pretty sure there's more to the job. So I do know that like building models and so forth is an important thing in finance and Wall street in various capacities. I'm pretty sure that's not the entire job. I'm pretty sure automating Excel is only part of it. But nonetheless, technical skills are technical skills and if that changes, who knows, maybe the job could change.
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A
Well, the question I've always had about Wall street is how much of it is driven by your own personality and sort of client facing skills versus I am a brilliant analysis who is not only able to come up with amazing ideas for mergers and acquisitions, sort of you working girls style where like Melik, Melanie Griffith is in a elevator and is like I know what your company needs.
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C
That's right.
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A
With whatever versus like I'm just really good at hobnobbing with executives.
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C
It's probably a mix, right? That would be my guess that there's someone is really good at, oh, this company that owns parking lots of this the city could buy another parking lot company and so forth and then another person who's really good at staying out and taking the clients to a nice dinner. I don't think you can really or I don't really want to have a conversation about the degree to which AI is going to disrupt all of these white collar jobs. Until I have a better handle of what the white collar jobs are in the first place. I feel like we should start how
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A
important are excel skills actually in this business?
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C
What is the sort of distribution of skills that it takes to thrive in some of these capacities? Anyway, very excited to say we really do have the perfect guest to talk about some of this, someone we talked to last year and that was about sort of the history of investment banking over the last several decades and the sort of connection between global capitalism and investment banking. We wanted to have him back on the show because as an investment banking veteran, someone who could maybe talk about the inside and how people work and how the culture change and how technology changes. So we're going to be speaking with return guest Scott Bach. He is the former longtime CEO of the investment bank Greenhill, the author of the recent book Surviving Wall street and it comes back on Odd Lot. So Scott, thank you so much for coming back with us.
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D
It's great to be back. Thank you.
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C
Why don't you for listeners who in case they didn't listen to the previous one, which they should, what did your career span on Wall Street? When did you first get into it and give us the sort of the 32nd Scott Buck career bio?
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D
Well, I feel like I started at the very beginning of really the explosion of the investment banking business. As I said in my book, when I graduated from Wharton, I did not know what an investment banker was. I knew exactly one person from our entire class who got a job on Wall Street. So it was a very small place back then. M and A was very rare.
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C
What year are we talking about?
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D
1981, the year interest rates peaked. The stock market had been flat for more than a decade. Private equity is a phrase. Didn't even exist. Hedge fund didn't exist. I mean, it was a very, very different world. By the way, it wasn't even legal to buy back your own stock back then. That happened a year later. It was viewed as market manipulation to do that. So the whole thing of playing with balance sheets, putting companies together and so on, there had been a bit of that in the 1960s, mostly around building conglomerates, which I think in part was because they couldn't buy back stock. Because if you're generating cash, what are you going to do with it? You could be itt, a big industrial company and say, well, I think I'll buy the Hartford, a big insurance company today. People would think that's a crazy idea. But that was kind of the predecessor to what became the MA and transaction business around maximizing shareholder value. That really began, I would say, right at the beginning of my career.
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C
Perfect.
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A
This is already a fascinating conversation, I have to say.
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Questions.
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So I imagine this dynamic would have changed throughout your career, but how much of the investment banking business is the bankers approaching clients and saying, we have an idea for you versus the clients coming to the bankers and saying, we have a problem, such as we have all this cash and we can't, you know, buy back our shares or we want to do something with it to reduce our cost of capital or whatever.
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D
You know, that changed an awful lot over time because at the beginning there were lots of companies and very few investment bankers. And so they didn't get a visit all that often. And so when they did, the bank would try to bring ideas that maybe they hadn't heard before. Now there's thousands and thousands of investment bankers, many, many different firms of many different types, and they're all maintaining relationships. So it really turns into more of a dialogue where you don't just. You never met the client before. You show up, say, hey, I think you should buy this company down the street. And wow, that's a great idea. I hadn't heard that. And they do it. It's more like you have an ongoing dialogue with a client. You figure out what they want to do, what their, you know, kind of what their appetite of their board is, what their balance sheet's like. How their business is going, how they feel about their share price, you know, what. What they think is kind of the next big thing for them. And over time, you come to an idea almost mutually. I would say, what were you good
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C
at in the early 80s or the people that you went to work with very early on? What would you say you had in common? Why. Why did. Yeah, why was it a fit for you?
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D
For me, I was probably a little bit different since I came from a legal background than some. I mean, there were some people who were, you know, the xl. And by the way, XL wasn't even around then. It was Lotus 1, 2, 3. Who are the, you know, the XL jockeys who built these, you know, enormous models and so on. And I did a bit of that myself. I think my strength was more in sort of structuring, conceptualizing, negotiating, you know, marketing, talking to CEOs and boards. It was more of that kind of, in many ways, the qualitative skills, the math, you can pick up what you need fairly quickly. And, you know, as I sometimes tell, you know, people of like, my son's generation, he's 30 years old. I tell his people at his peer level, I say, you know, the great Rubicon to cross in the world of, you know, Wall street and related fields is when you get to the point where there's somebody smart working for you. Right. You're no longer. Yeah, you're no longer the one, you know, training some complete newbie. You're no longer the one doing it all yourself. You're the one who's doing a bit of conceptualizing and giving it to a very smart person who's going to stay late at night and build you a beautiful model.
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A
I want to ask you what it was actually like working as a sort of junior banker in the 80s. But before I do, what's with all the people with legal degrees going into banking in the 1980s? Because you weren't the only one. I think there were a few other famous compatriots at the time. Lloyd Blankvine, for instance, stands out. But what was it about having done a law degree that translated into banking back then?
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D
There were many who made the move. And as a matter of fact, while I was interviewing, the New York Times, Sunday magazine had a cover story called Lawyers Becoming Bankers. I mean, it really was a big phenomenon. And I think literally the reason was the business exploded. Suddenly there's just massive amounts of transaction activity. There aren't that many investment bankers. You're not just going to hire more people who are 22 years old and train them. You need someone who's 26 or 28 or 30 years old who actually has kind of been around the business. They may have some skills to learn, but they bring other skills to the table. And so they brought in the lawyers, including myself, as kind of a way of sort of ramping up the scale of the team rather than just saying we're going to just hire more 22 year olds and train them. But you didn't have the time for that. There was such a growth in transaction activity. That's why a lot of lawyers made that move.
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C
Well, you mentioned just now you're like, okay, it's nice to be in the position where you can conceptualize something. And then the really, you know, the smart whiz kid stays up all night building the model. Why are they staying up all night? Like, this is the, this is sort of one of the big questions that people have is like, what is it about the business that demands these sort of, in some cases, extreme hours late into the night? Why can't they just do it during the day and like out at 5?
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D
Very good question. I think 1. And this kind of relates to the future of AI and efficiency and investment banking and so on as well. I think maybe the dirty little secret of the industry in terms of how the sausage is actually made, is that the actual building of the model, the creation of the math that says why it makes sense or doesn't make sense to buy something at a certain share price that takes a limited amount of time. The fiddling with the PowerPoint pages that express that information so it makes just the right points in just the right way and just the right color theme and just the right things in italics and other things in bold and things like that. Bankers tend to be perfectionists and so they will fiddle with that for a very long time. And a lot of times, I mean, if you ask people who are in the early part of their careers, like, what are you really doing when you're there late at night? It's very often it's fine tuning math. That was done long ago.
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A
There's also a schedule misalignment, I guess because you get the feedback from your boss at like 5 or 6pm, right. And like at the end of their day and then you have to stay up really late to make all the changes and get them on their desk in the morning. But okay, perfectionism, long hours. Was that the case when you were initially entering the industry in the 80s?
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D
Very much so, but not with PowerPoint, with something else. Well, that's true. I mean it literally was, I don't know, I'm not sure it was called anything. I think it was like a type page of numbers. It was kind of the early version where there wasn't all the software that put it in pretty pictures. And so that came along with the pie charts and bar charts and things like that fairly early. But it wasn't nearly as kind of beautiful. Now it almost looks like what Vanity Fair magazine used to look like. You open it, it's got beautiful color and pictures and charts and all that sort of thing. But people always worked very long hours. That was always that sort of ethos of the industry that there's a lot of work to be done, we want it to be perfect. And hey, if you can make it a little bit better by staying another half hour, you stay another half hour.
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A
So how much of that do you think was driven by genuine client demand in the sense that, you know, a client presumably would be not very impressed if you saw that a bullet point was slightly misaligned in a PowerPoint presentation or something like that, versus driven by the institution itself and a sort, I don't want to say hazing culture, but there is a sense that, you know, we all have to work long hours. I worked long hours at the beginning of my career. It's expected that now you are going to work long hours yourself.
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D
I think if you go back to the beginning, really the 1980s, I think it grew initially out of neither of those things. I think it grew out of the fact that business was growing so fast and you had a limited sized team and you had twice as many deals to work on as last year. And next year you had 50% more than that. And I mean it was a really extraordinary growth. And so there just were like weren't enough hands on deck that you could, you know, go home at 7 o' clock at night. Now over time time, that generation of bankers, including myself, you know, they, they bore the scars of those years throughout their careers. And so yes, they pro, there probably was in the industry some element of hey, I worked like this, you're going to work like this. But initially it was just a genuine business issue of hey, there's so much business to do, so few of us here to do it. We have to work very late to get it done.
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A
Hey, Fidelity, what's it cost to invest with the Fidelity app? Start with as little as $1 with no account fees or trade commissions on US stocks and ETFs. That's music to My ears I can only talk.
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B
Investing involves risk, including risk of loss. Zero Account fees apply to retail brokerage accounts only. Sell order assessment fee not included. A limited number of ETFs are subject to a transaction based service VI $100 see full list@fidelity.com commissions Fidelity Brokerage Services LLC Member NYSE SIPC
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C
what about the element of essentially banking, like many other fields, including academia, but also law. You know, there's like a pyramid element where there's like a very small number or a relatively small number of extraordinarily good slash remunerative jobs at the top and a large base of junior analysts and so forth. And how much is it a sort of emergent competition amongst the junior bankers or whatever, such that it's not even necessarily some directive to put in crazy hours. But there's a big field of people and they want to get up to the next rung and there's fewer spots at the next rung and that creates that mechanism of intense competition, the desire
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D
to sort of over, please, you know, to just go over the top. And yeah, that's, that certainly is there as well. I remember back, I don't know why I remember this, but back, you know, kind of in the late 80s, I was probably late 20s at that time, not even a vice president yet at Morgan Stanley. I remember we had this meeting once with the head of investment banking at Morgan Stanley, a guy named Joe Fogg, very, very sort of, very sort of tough guy of that era. And we're sitting around the table, I don't know, there must have been, I don't know, 20, some associates in New York at that time, something like that. And people are asking the question, hey, we have someone who covers the retail industry, someone who covers the industrials, someone who covers insurance companies. What are we going to grow up into? What are the roles going to be for us? People did try very hard to differentiate themselves. Now, of course, what none of us around that table knew is this business was going to be 100 times bigger. It wasn't like, oh, we have somebody to cover the retail industry. So I guess that's not an opportunity for me. No, there was going to come a day when you have 25 people covering the retail industry. But there's always been that sense of few opportunities at the top, even when it wasn't true, even when there was going to be more opportunity.
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A
So I imagine quite a bit of the work you were doing in the 1980s is what we would now characterize as pretty rote work in the sense that we didn't have computers, we didn't have Bloomberg terminals that would show the share price or a bond quote. You would have to actually call someone up and get that information, which I
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D
don't know who owned that company, but Bloomberg put it out of business a long time ago.
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A
Shout out to the Bloomberg terminal, I guess. But you know, you went through a wave of disruption basically. And yet it seems that the work of physically going somewhere to find corporate papers or physically calling someone up to get a share price quote that was replaced with work of a different kind. Can you explain how that substitution kind of happened?
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D
I think it was replaced with going from the sort of very intermittent meetings with a limited number of clients to talk about ideas is to a place the industry is today where you go very, very regularly to almost every company on the planet of any real size. Right. Someone is there and you're there with analysis of their industry, their performance, their stock price, their competitors, what's for sale, what might be for sale. And so it's more like a saturation coverage. It's a little bit, I think investment making is very, very different from consulting, but where it has some similarity is this kind of, this attempt and desire to sort of almost get inside the business and really know your client's business. And that was not something that was even attempted back in the 1980s, but that's what all those people are doing with all those extra hours.
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C
Now you mentioned you in the early 80s, you couldn't have anticipated that the industry was going to grow a hundred fold or whatever it was. And this is one of those things where perhaps many of the people, many in the public, like why is finance so big? Why is there so much money in this area? Finance doesn't produce anything. Why, why is this? Why has this grown so much? How would you articulate that to someone? Why fundamentally there is just so much demand for financial services at the corporate level and so much more than there was say 40 years ago or 45 years ago.
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D
Look, I think it's no exaggeration to say that there really was an epochal change, that the world of sort of Post World War II big companies building conglomerate, it's work at the same place for 35 years like my father did, and not a massive amount of intense competition, not a lot of mergers, kind of stable companies. And maybe that meant slow growth at some point and maybe that was part of a problem. But in the early 80s you had really a lot of things change. I think corporate culture changed a lot. Jack Welch took over from A guy named Reg Jones, who was very involved at Penn, where I went, a very, very different kind of character. The tax law changed. Capital gains started getting taxed differently from ordinary income. The tax rates got cut quite a lot. Deregulation increase, the kind of pressure on unions, Reagan breaking the air traffic controllers union, the ability to buy back stock, even the sort of theoretical notion of what is a company for. Right. Milton Friedman said the company's sole purpose is to make money. A professor at Harvard Business School named Michael Jensen wrote all these stories or analysis about why you had to maximize shareholder value. And you can't serve two masters, so that has to be the only thing you're trying to do. And he had this long running debate with my first boss, Marty Lipton, founder of Wachtel Lipton, about should a company serve the community, its employees, its customers, et cetera. And that all those things mixed together really made for a tremendous focus on transactions. How do you maximize value? So with more shares outstanding or less outstanding, is it combining with this other company? Is it spinning off a business you've already got? Maybe this year it's spinning it off. Maybe four years later it's buying it back. You know, this game really, in a way, and hedge funds grew up to sort of play that game, to bet on that game, and investment bankers grew up to really drive the transaction activity from that. So the industry that again, was very, very small back in the 70s, and as you turned into that sort of Reagan era, when all those rules changed, just really exploded. And the number of transactions has been very, very high and growing for a long time. I think the interesting question is, does that go on forever? But it's not like it was there forever. If you. The age I am, you started when I did, you sort of feel like it did. But if you look just a tiny bit further back in history, you realize, no, this is all new.
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A
This might be a dumb question, but in terms of the urge to do something, as a corporate manager or executive, did you notice a difference between public and private companies? Was that urgency or pressure more apparent at publicly traded ones?
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D
Yes, because they had, you know, there was this thing that became known as the market for corporate control. Right. If you don't buy into my mantra of maximizing shareholder value, and therefore you don't, I will bid for your company and I will maximize shareholder value. And the difference between the value today and the value later is going to be mine. And so there was pressure on public companies, of course, private companies, you know, there were a lot of sort of Family owned companies that had a longer term point of view and some that are still there, you know, the Mars family. You know, some companies like that are huge, Cargill, some really big ones that have remained, you know, kind of steadfastly private. But today, of course, private company really means private equity owned company, you know, and that has grown, you know, what, 30,000 plus companies owned by that sector. A bit of a logjam right now, but. And they really are the masters of that universe. They're the masters of trying to maximize shareholder value.
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A
Actually, we should talk about that because this is the other thing that's happened in investment banking is you have had the rise of private equity and also hedge funds, which are in some ways, you know, competing directly with bankers. One of the things you sometimes hear actually when it comes to the junior bankers actually working really long hours is this idea that, well, we all know they're going to go join Blackstone in like two years anyway, so we have to squeeze out as much as we can from them before that actually happens. How did that actually change the business? And I guess, like how much pressure did that generate on the banks to respond and I guess retool their own offerings in response?
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D
Well, private equity really became the biggest client base for the whole industry. Right. And that also was a very, very small, nascent industry. You go back to the early days, like Morgan Stanley had its first private equity fund. I can't remember exactly. I think it was like a $44,0 million fund. You go back to KKR's initial fund. I mean, people used to do leveraged buyouts with like, buy a $10 million company with $100,000 down and buy the rest with debt.
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A
We could do that. I feel like we could put 100k together.
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D
I think you may have miss unfortunately, prices went up from there, but these things kind of fed on themselves. Had some early success. And so really in the 1980s, beginning then, you had the rise of the private equity industry. These huge players that for a long time did very, very well, taking companies private, kind of doing a number of things to boost their returns, and then putting them back out into the public. That has also changed quite a lot where the industry is looking to all kinds of private capital. Right? I mean, you know, Blackstone really pioneered this model of, oh, let's do real estate, let's do hedge funds, let's do private credit. And so you expanded to so many different fields, but that, that really fundamentally changed Wall street because the rise of the private equity industry created a client that Was kind of in the. Kind of permanently in the transaction business. Right. Not like a public Fortune 100 or 500 company that might do a deal every year or two or three. You know, these were firms that did, you know, 10 or 20 deals a year. And so they became the most important clients.
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A
They're raising debt, is raising money, I guess.
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C
That's a good one.
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A
Thank you. I stole that from Lloyd Flankfine, actually. Oh, I feel bad. I've been reading his book, which is why I keep mentioning him.
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C
That's a good one. Okay. You get a little bit further into your career and you get a sort of role where perhaps you get to think little big picture. And you have to. The more junior people are the ones staying up late, et cetera. Talk to us a little bit about recruiting. And I admit this is an area, of course today that there's probably a lot of anxiety for people going into the biz. But talk to us a little bit about, like, okay, some things obviously can be taught. Math can probably generally be taught. Put aligning bullet points on a PowerPoint. I think that could probably be taught, though, fastidiousness and attention to detail, maybe inherently, maybe not. How would you talk to us a little bit about how you. How you found people at the right Fed, how you. What that process was like?
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D
Well, that also, of course, has changed dramatically as the industry has grown. If you go back to the early days, we recruited very few schools. I mean, it really was sort of the Ivy League and maybe a few others, and it was for a small number of jobs, so there were plenty of students there for that. Now, when the industry really exploded, those schools weren't producing enough people. And I can say in the early days of Greenhill, we had, in terms of, like, what knowledge these. These young people had. We had a little bit of a strategy of. Of let's take half of the class. Just kids who are really smart. They can do math, they can speak, they can write. They just got great grades all the way through. They're really, really smart. And let's take the other half as people who actually have some substantive knowledge that's useful. They went to Wharton. There are other great business schools as well. University of Virginia had one. We recruited a lot from University of Texas, Indiana University, University of Michigan. And so we'd kind of do half and half and figure, you know, the kid who majored in finance at Wharton can teach the kid who majored in English at Y today. What's changed is that the typical student, wherever he or she sits as they're in their senior year of college. I mean, they've had like four internships by now. They've taken various online courses. They come in so ready to roll. Even if they majored in something that's completely unrelated to what Wall street actually does. So you're getting someone who's almost trained before they even arrive. Now you give them a lot more training, of course, but it's not the kind of thing where you bring in an English major, as we did in the early days, and teach here's what a stock is and here's what a bond is. These students have been working on that since they were in high school. Maybe, I'm sorry to say I think they should probably be doing other things in high school. But it's become a very, very competitive world. Even though there's many, many more opportunities for students to get a job on Wall street today as they come out of college at the same time, it's very, very competitive.
- [27:07]
C
Was there a point where you started noticing that or around when that change? Because it certainly tracks that you meet young people and they're just like, oh my God, like, how do they know all this stuff? And about things that maybe it's the Internet or something. The things that I certainly didn't know about when I was in high school, really, even college in many instances. But I'm curious when you started noticing that.
- [27:28]
D
I think maybe in the sort of the post.com bubble bursting kind of in the early 2000s when business really started to pick up again and you had those several great years leading into what of course became the financial crisis. But there was such an increase in opportunity then. And now everyone was in on the secret, right? I mean, they could read about the industry, they could understand the, you know, compensation structures and the potential for themselves to get ahead in life. And so these students started kind of working backwards, like, okay, I want to get a first year analyst job. How do I do that? Okay, what internship should I get after, you know, freshman year? Well, you can't get a very good one then, but maybe you can get something tangentially. You know, do you know somebody that works as a stockbroker? Can you be a, you know, work in the mail room there or something? Well, after sophomore year, maybe you can do a little better than that. After junior year, maybe you can get something better than that. And by the time you show up as a college junior looking for that first year analyst job at Goldman Sachs, you've got five names on your resume that look like, wow, this person's been around the industry a long time, Even though they're 21 years old at that point.
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A
Scary. Do you think as many people are going to want to go in finance given that we've already been through shifts in the popularity of finance as a career? At one point it was the place that you wanted to go to if you were like a Harvard grad or whatever. And then it became tech for a little while and now there's all this anxiety over AI disrupting particularly analytical jobs. Do you think it's going to be as popular a choice?
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D
I think it will evolve and fluctuate and probably decline over time. The industry is all about cycles, right? Markets are all about cycles. I mean we've had incredible run. Incredible run. Okay. Covid was a little bit of a hiccup where market sort of plummeted and things slowed down. But then it exploded in activity in just a matter of months later. So it's been a long run really since the financial crisis. Really wonderful times, largely on Wall Street. And at some point there's going to be a retrenchment from that. There's going to be some kind of decline. Who knows, maybe, maybe a war turns things around, maybe a private credit problem turns things around. But something will happen I think and sort of dampen the interest again just as happened with the dot com crash or the financial crisis.
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C
Foreign. Let's talk a little bit more about technology and the technological changes that you saw in your career. So okay, mentioned like you're using Lotus 1, 2, 3 in the beginning which I, I have some memory of Lotus 1 2, 3 and ease of data retrieval is so much, is so much different now. But talk to us about okay, 2024, what at recent years and some of the other ways like what what other technological innovations came out, what time consuming activities did they shrink to near zero and then what new things did people do on top once okay, the technology is here. You don't have to allocate your time to this. You're now going to allocate your time to that. Talk to us what else you saw there?
- [30:46]
D
Sure, yeah. Look, in the early days even companies weren't even that aware of their own share price, right? I mean everybody had a Bloomberg terminal or CNBC screen on their desk if you're sitting in Dayton, Ohio. So you didn't know as bankers you could bring very little information. And it was new to the client. It was interesting to the client. Over time we used to do a lot of laborious work to create a comparable companies analysis Here are the 10 companies in your business segment. You trade at this PE multiple or this EBITDA multiple. And here's where the other guys trade and here's how their leverage is different than yours and here's how their stock has performed. That used to be a tremendous amount of work, you know, now really a machine can largely do that and a lot of the other kind of creation of sort of standard charts on what's going on in the industry, even what's going on in your company can be done very, very quickly. So I think the pyramid, I have to think is going to get less fat at the bottom because you're going to be really leveraging technology to do a lot of things. That used to be somebody sitting up all night trying to find out what PE multiple Coca Cola was trading at and now you can get it. The touch of a finger does the
- [31:59]
A
edge in that scenario. You know, if, if it's not about how much knowledge you're accumulating and can share with your client, is the edge more on the execution side of things, just the, the knowledge or the client's belief that you out of everyone else in the IB business is going to be able to execute like a smooth deal?
- [32:18]
D
I think that's true to some degree. And you know, particularly among sort of the so called independent firms like Greenhill was for a long time and many others are today. But I think among the larger group of competitors, I think a lot is going to come down to what else is in the relationship. Are you in their revolving credit facility? Did you do their bond offering? Are you doing equity research for them? Are you touching them in just every, are you doing their hedging? Are you talking to them about currency, talking to them about commodity prices? So I do think it may, that's why I think sort of the one stop shopping is kind of a little more appealing again because if nobody really has the magic anymore, right? The magic is now at your fingertips. And even a lot of things, you don't even need to do the Excel model, I mean you can say in the AI, if you have this stream of cash flows for this period of time, this discount rate, what's the number? I mean it will give it to you without you typing a single number onto the page. But I think that with everyone having access, equal access to that information, I think it will come down to, yeah, maybe are you smarter than the other guys? Can you execute better? But probably in most cases, you know, what else are you doing for me? And hey, I could give this to Anyone. But I'm going to give it to you.
- [33:36]
C
How much Tracy alluded to this at the very beginning, but how much of the job is being a good hang. Being a good hang at the golf course, knowing. Being able to get a good dinner reservation, it's seriously. No, for real. This is like, I don't, you know, this is where I, when I think about, if I were in this, I don't think I'd be very good at that. I like, start looking at my watch or yawning or sort. Most likely start looking at my phone and start looking bored, et cetera. The endurance to stay.
- [34:03]
A
This is true. It's very obvious when Joe is bored. Talking to you. I speak from experience.
- [34:08]
C
Yeah. So this is not. This would not be my field. But talk to us about that element and just the sort of, of people skills and all that.
- [34:16]
D
Now, of course, that's at quite the high level. Right. It doesn't matter how, you know, how fun you are to be with as a senior associate at JP Morgan, that's not necessarily going to win the business, but maybe your boss's boss, whether he's in the right golf clubs and inviting clients and getting to know them on a personal level, there's always going to be that element to the business. But that's a pretty small piece. And of course, everyone has that too, right? I mean, you can one up others, you can bring somebody to the masters. You can, you know, rather than to a, you know, a country club on Long island, you know, you can. There's different levels of sort of client entertainment, but you know, that, look, it's important to build relationships. It always is. I think what, you know, whether you're talking about sort of personal wealth management or corporate financial management, what the advisors have to realize is like, everyone in the world is calling on this guy and trying to get, you know, either his personal money to manage or trying to manage his corporate affairs and helping do acquisitions and so on. I mean, it's not. That's another thing really, that changed a lot in the industry. It used to be that people, you know, firms had clients like, no, that's my client and this one is your client. Now everyone now they're just all clients and everyone's clients of everyone.
- [35:32]
C
Right.
- [35:32]
D
And it's a kind of a free for all, where you've got a lot of parties out there, you know, and you being special because you invite somebody to, you know, something and get to know them better. I mean, everyone else is doing that. And as a matter of fact, if you don't have the relationship. You're probably more prone to do that because you're trying to break in, get to know them.
- [35:51]
A
You mentioned this word earlier in the conversation, but can you explain culture to us? Explain all culture to us? No, the investment banking culture. Because this is one thing that we hear all the time from especially executives, former executives at investment banks, this idea that, well, we have a culture that is different to someone else's culture. And whenever you hear them summarize the culture, it's almost always like we're client facing. And it's all. I've never heard a bank say it's not about the client. Actually, our culture is about something else. What does culture mean in investment banking?
- [36:27]
D
I think it's probably fair to say every firm aspires to the same culture. Right. You aspire to be driven by excellence and attention to detail and client service and. And you produce that great coverage through teamwork and training and mentorship. I mean, everyone aspires to all that. There are, though, different cultures. There are some places, I think are much harder to work than others, although I think the industry has become a little more in common. I mean, I think there was a day when the difference in culture between a Morgan Stanley and a Bear Stearns was vast.
- [37:04]
C
I would say say more about that. What would have been the difference?
- [37:07]
D
There were some firms that sort of the word scrappy sometimes gets thrown around on Wall Street. If you're the elite firm like say back in the day, Morgan Stanley and Goldman Sachs were. Of course, they're still elite firms in many ways today. But as opposed to someone who's scrappy trying to get business that maybe you wouldn't do. There was a day, one of the interesting things, not to bring up the Epstein files, but there was a day when firms had a lot of rigor over who they would do business with, with. And I know that Morgan Stanley, that was the case. Think at Goldman Sachs, that was the case in the law firm business. There were firms that didn't like hostile takeovers. They thought that, oh, that's kind of unseemly for us to be trying to buy somebody else's business on a hostile basis. And so these firms that you could put in the category of scrappy were the ones that were trying to be a little more like, hey, if the client wants that help, I'm going to give the client that helps. Or if the client has a little bit of a.
- [38:04]
C
Dollars are still green.
- [38:05]
D
That's right. And also by maybe doing a transaction for someone that's a client that maybe of, you know, back in the day a Morgan Stanley or Goldman Sachs wouldn't have worked for. Now you've got a credential in that industry. Now you've done a media deal. Now maybe you can do the next media deal. Maybe you can swim upstream toward the more prestigious clients. So I think at one point the cultures were a lot more different than they are today. I think over sort of flattening, it's kind of flattened. I think think this is probably a function of scale of activity and of things like technology and of things like just so much open information on everything. Everyone can sort of copy everyone else, right? It's pretty obvious what a good culture is. Hire smart young people, train them well, treat them decently and they'll grow up to be good bankers. Pay attention to your clients, have integrity, et cetera. You'll build a good business. But those aren't secrets, right? Everybody knows those.
- [39:01]
C
I have a question. It's sort of this long standing puzzle within finance. It might be relevant this year because there are some very big companies that might come public. Why does the IPO process as we know it exist and persist? Because this is one of the long standing academic things is why is there frequently a pop. Why did the companies have to pay large fees to underwriters particularly given you'd think the Internet could just, just have an auction, right, and auction out the allocation of shares you want and then get the market price instantly and so forth. And yet this has been tried for a very long time. And going back to the dot com era, there have been attempts to disintermediate the traditional IPO process with almost no success backs tried. That seems to be sort of not a particularly a counter signal perhaps. How would you describe the persistence of the ipo?
- [39:51]
D
Well, you know, first of all, first of all, start with public companies. That's what you have after you do an ipo. That market really has shrunk. I mean it fell in half. The number of public companies in America fell in half in the 25 years or so that our firm was an independent firm. I don't think that's a good thing. I think it's a good positive thing to have more companies in the public realm where there's more information and more transparency to what they do and so on. But I think to go from the world of private where nobody really knows much about your company to public, I think think having a lot of sort of activity around that, a big almost like PR campaign, lots of things like
- [40:33]
C
a corporate Bar mitzvah kind of. And you stand up there on the thing and choose a dj. Yeah, yeah, exactly.
- [40:39]
D
It is a bit like that. I mean, I remember for our own IPO back in 2004, we had like 60 something, one on one meetings as well as big group meetings in places like New York and Boston and so on. But if you're trying to get known by a lot of investors in a real hurry, you kind of need to go through something like that. And, you know, and, and it's not like the industry has been some sort of a, you know, where the fees are fixed and there's nothing you can do about it. I mean, for a long, long time, an IPO was, I remember it was 7%. That was an underwriting commission, you know, over. I remember we worked and advised a Visa when it did what was then the biggest IPO in 2000, probably seven or something like that. And that was like a fraction of a percent, you know, so. So the IND it is, it sort of succumbs to competition. Right? And somebody says, okay, yeah, if you, if I'm doing a classic early year Silicon Valley IPO and we're raising $100 million. Yes, I think a $7 million fee is fair for that. And probably your competitors feel that way too. It's a lot of work, it's a little bit risky. But when you're doing an IPO that's in the hundreds of millions, the billions, and maybe today the tens or hundreds of billions, the fees will be very, very small and driven by pretty ferocious competition, I'm sure.
- [41:50]
A
Did you say Greenhill IPO'd in 2004?
- [41:53]
D
Yes.
- [41:53]
A
So that's kind of late, right, for. Well, certainly in the context of like some of the larger investment banks, because I think by then even Goldman had
- [42:02]
D
gone from a partnership in 1999.
- [42:04]
A
Yeah. So what was the sort of push pull process of actually going public for you? What were the considerations?
- [42:10]
D
Well, for us it was that there had been a long. I mean, obviously some bigger firms like Morgan Stanley went public in 1986, and I think Goldman in 99 or something like that, that. But for a firm like ours, that was kind of a smaller, more focused firm. The long history of that was that you normally sold the firm, and even in its fairly early days, you'd kind of build something, prove you had a team, prove you had a brand, prove you had some clients, and you'd go out and sell the firm. There were many, many cases that happened. And we viewed the IPO as an alternative, an IPO as a way to realize the value you had created, but also keep. Keep what you thought was the special culture to go back to that word. You didn't want to change things, you don't want to give up control, et cetera. And so that was really what drove us to go public and I think many others as well.
- [42:57]
A
But also in an IPO process, you're raising capital. Right. What does capital actually mean for a boutique advisory firm like Greenhill?
- [43:08]
D
That used to be the case. That was the original idea that you go public to raise capital. And to some extent, that's still true. But you look at even take these mega technology companies, say, do they need capital? They can raise all the capital they want in the private markets. So it really has evolved from that to wanting liquidity. I would say you want to have a marker that says, here's what my company is worth, and you want to have the liquidity to be able to transact at that price on any given day. So I think that has driven more IPOs in recent years than the earlier notion of. Of, wow, we need to build a new factory or we need to invest a lot to build an overseas business or launch a new brand. So we need to do an IPO to raise money.
- [43:53]
C
Has something changed on the IPO front now? I'm just. Maybe I missed it, but I feel like several years ago, maybe in the mid 2010s, I still used to hear. Read a lot of stories about so and so won the Uber deal. Right. Or so and so and which would be a big thing. And the like they're flush left on the S1 or the prospectus or whatever it is.
- [44:14]
A
Family getting Facebook or something. Yeah.
- [44:15]
C
And stuff like that. Used to. And now I feel like I don't. Has something changed there or am I.
- [44:19]
D
No, that's still a thing.
- [44:20]
C
Okay. That's still. That's still a thing.
- [44:22]
D
You still want to be on the left and. Yeah, but. But you know what?
- [44:24]
C
What?
- [44:24]
D
Also again, the industry became very, very big, very, very competitive. And so, you know, it used to be like there was one lead underwriter and then you got into, well, you're the. The global lead. You're the co. Global lead. You're the lead left.
- [44:37]
C
Massive lead inflation. Like everyone gets title information. Everyone gets to be a lead. Right.
- [44:41]
D
It's. It's like getting an A at Harvard.
- [44:43]
A
I understand they participation troers for trophies for investors.
- [44:47]
C
Remember like the Uber one. Like the wasn't there was a banker who became an Uber driver for was. Yes, there was Remember that? Because he wanted to show that he. And, like, I get it. It's like, that's cool. He, like, really, like, got it. He really took the job seriously and he drove for Uber and stuff like that. But still, in my mind, I was like, does this really make a difference from Uber as they're just selling some shares, that they're moving on? Like, I mean, it's cute.
- [45:10]
D
Like, people used to do that sort of thing, I think. By the way, I can't remember his name. He was kind of slightly after my time, I think, but he is. That banker is still at Morgan Stanley and is, I'm sure, going to be the one driving the pursuit of Elon Musk's large IPOs to come.
- [45:26]
A
We should.
- [45:27]
C
Michael Grimes. That's who it is. Michael Grimes. Yeah, he became. He was. He became the Uber. He became an Uber driver for a while.
- [45:33]
A
Yeah, he was a. He was a big deal at that time.
- [45:35]
D
I remember.
- [45:35]
C
He's definitely in the mix today with some of these big potential IPOs.
- [45:38]
A
We should actually talk about league tables, though, because I feel like this is sort of perhaps an inordinate amount of. Of what an investment banker's life is actually about. And back when I was covering the banks, the league tables were the things I probably got called up about the most. You know, lots of banks explaining to me why the league table rankings were not, in fact, an accurate reflection of their business. How much do those actually matter?
- [46:04]
D
I think whether you're, frankly, if you're number one or number four, number seven, you know, or number nine or 11 even, you probably have a. A pretty equal chance at pursuing something. But look, the bankers do aggressively fight to try to be number one in something, right? But again, with the increase in just availability of information and transparency, I mean, it used to be that there was a lot of gamesmanship around the league tables. You'd say, well, we're number one in IPOs. And you'd look into the footnotes and it would say this includes all deals for radio stations with a market cap more than $250 million. If you're trying to pitch some media deal or something, and you'd always have some way to slice and dice. Like US IPOs, UK IPOs, this industry, this deal size. Now, it's kind of all out there, but there's 10 or a dozen firms that are very, very competitive. And the fact that one ranks number one versus four is not a big deal.
- [47:06]
C
It's hilarious. Michael Grimes, he not only drove for Uber, he mastered the online game Farmville before Facebook's ipo, they spent hours playing that and hey, if that paid off for him, good for him. And now he is bad because it looks like he'll probably be a lot
- [47:21]
A
of people master farmville for free with no expensive payout here.
- [47:25]
C
He turned it into something and I guess it's likely to be involved or perhaps positioning himself for a potential role in the SpaceX IPO. Final question for me, but I'm just curious. So like, okay, we don't know what the future is going to look like, but I'm curious. So like people you're talking to or things you're saying, the AI question and there's some obvious things today anyone knows that you can do a very good comp analysis already with, with almost no knowledge, like what are some comps here? And well, maybe that's not the kind of output that you would show to a client, but it might get you 95% of the way there. And so that's a, that's extraordinary. And we talked about Excel files and stuff like that. What else, like what does it feel like AI is going to, to do to this space? Or what would be your guess? Or where today would you imagine we're already seeing AI change the nature of the job?
- [48:14]
D
No one really knows the answer to that question, of course, because it's such a fast moving technology. But look, I do think it will change a lot about how bankers interact with clients because the information now is going to go from kind of available, but you have to sort of work to dig it out to available just literally at your fingertips. And by the way, not just to you, the banker, but also to your client. So I think differentiating yourself as a banker inside one of these firms or as one of these firms relative to your peers trying to win the ipo, trying to win the M and a deal, trying to win the bond offering is going to be more complicated. You'll be more efficient in preparing your materials, you'll be more efficient in communicating with that client and delivering interesting, insightful information to them. But a lot of that information is going to look, it's going to be commodity like.
- [49:03]
C
Yeah.
- [49:04]
D
And so the, the real challenge is going to be, you know, if a client has access to all the information you do and they're getting all the feeds of, you know, various data they like and so on, and you have a one hour meeting with that client, how are you going to use that meeting, that one hour meeting? You know, they already know a lot as you're walking in there. So how do you use that? It's got to be more about, you know, the human dimension, the tactics, why.
- [49:27]
C
Why?
- [49:27]
D
This company may be more amenable to a deal now than they were in the past. You know, things like that that are more about psychology really, than about math.
- [49:35]
A
I feel like the trend is towards extroverts with large balance sheets, I suppose.
- [49:41]
C
Yes. All right, Scott Bock, thank you so much for coming back on the podcast. We love catching up with you and we gotta do it again sometime. I would love to.
- [49:49]
D
It was great fun.
- [49:50]
C
Thank you.
- [49:50]
D
All right.
- [49:50]
C
That was. Tracy. I love talking to Scott. I think that's great. I'm glad we. I'm glad we met, Scott. I think the. Just this idea, and it came up at the very end about the information asymmetry just being gone, and it feels like, you know, that's not something that is just true with AI now. Right, right. But it feels like there is a version of this story that you could say, going back for the last 45 years, in which degradation of the information edge that a bank would have had over its clients for all kinds of different, largely, you know, technological changes since then.
- [50:37]
A
Yeah. I mean, I found that conversation fascinating. I guess the. The two takeaways for me are the. The first technological revolution in investment banking and the idea that, well, we don't have to spend as many hours like actually pulling phys filings or something like that, or looking up quotes on a Quotron or whatever. And what replaced that work was more meetings. Right. I feel like humans can always find
- [51:03]
C
a reason to meet with each other.
- [51:05]
A
Exactly.
- [51:05]
C
Humans love meetings. Oh, my God.
- [51:07]
A
I know. It's crazy, isn't it?
- [51:08]
C
It's ridiculous. Humans just love touching base. And anyway, am I. Maybe I'm revealing my own.
- [51:15]
A
Your own biases.
- [51:16]
C
My own biases of how humans use their tongue.
- [51:18]
A
I think it's very good that we have an extrovert and an introvert on the show. We get both sides of the story. But the other thing I was thinking is the trend towards bigger, bigger balance sheets, more services, the one stop shop idea. And. And it feels to me like, okay, if. If you can't have an informational edge anymore, and if you do have this sort of flattening of culture for various reasons, because everyone's getting smarter and smarter about what a good culture actually looks like, and they're able to sort of execute on it in various ways, then it feels to me like it's very much going to be fought just on size and scale.
- [51:57]
C
You know, I don't think share buybacks are evil the way a lot of people do. But it is interesting. We could just go back and ban them.
- [52:03]
A
That's so interesting.
- [52:05]
C
I always forget that they haven't been around that long and that they were seen as market manipulation at one point. We could just ban them. I mean, the fact that capitalism worked fine for a very long time without SharePoint back share buybacks would probably be. Probably wouldn't be the end of the world.
- [52:21]
A
We should do another episode on this. But that reminds me, the other thing I was thinking was this idea that, like, well, we had an entire, I mean, multiple industries really, that grew up whose entire sense of purpose was about doing transactions, Right. So you have the traditional Wall street banks, but then you had private equity and private credit, and so you just have this explosion in. In deals.
- [52:44]
C
I wonder if Michael Grimes is going to ride on a rocket to get the space. He's going to do a little space joyride to get that. But there was one thing. Oh, you know what I thought was also very interesting. And I think this says a lot about culture in general beyond just banking. The idea that at one point, for better or worse, and maybe for better, that there were clients that the banks wouldn't touch, that they educated, that they're like, no, we're above this. This is not what we do here.
- [53:14]
A
Well, some of them had investigators, like, on staff to go out and investigate potential clients.
- [53:20]
C
I think that's really interesting. And a certain level of, you know what, we're going to leave some money off the table because this is not what we do here.
- [53:28]
A
Standards.
- [53:28]
C
We have standards and so forth. And I do feel like these days it's just money. It's just across the board board. It's just accumulating more and more money. And so the idea of some money isn't good enough for here. Like, it does not feel like that's a thing anymore. And maybe. Well, I think a lot of people would say, in retrospect, people, they should have had better standards about who they do business with.
- [53:53]
A
Yeah, it feels much more amoral now. And I mean that in the sense that, like, there's a possibility that people hide behind that and say, like, well, we shouldn't be making qualitative decisions about our clients. We're just here to, you know, share the good gospel of capital capitalism.
- [54:08]
C
Yeah.
- [54:09]
A
All right, shall we leave it there?
- [54:10]
C
Let's leave it there.
- [54:11]
A
This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Allaway.
- [54:17]
C
And I'M Joe Weisenthal. You can follow me at the Stalwart. Follow our producers Carmen Rodriguez at carmenarmondash, o' Bennett at dashbot, and Kale Brooks at Kale Brooks. More Odd Lots content go to bloomberg.com oddlots we have a daily newsletter and all of our episodes and you can chat about all these topics 247 in our Discord, Discord, Discord, GG Oddlots.
- [54:37]
A
And if you enjoy Odd Lots, if you like it when we talk about the business and culture of investment banking, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.
- [55:00]
C
Sam.