I had first hand knowledge of a Merchant Banking Culture in the early 80″s. It may not qualify me as an expert, but I was hired to find a significant loss reported in the Annual Report of Banker’s Trust. I followed the money, the procedures, and found the loss. I was authorized to hire an AVP and 6 assistants to investigate, understand and set Policy for the Bankers Trust “back office ” operations.
When I was at Bankers , I , also, inherited a VP whose sole responsibility was to wine , dine and entertain the Regulators prepared to fine the Bank. I was a VP at the Merchant Bank and I never supervised this guy. He took orders directly from the top. No expense was spared, no entertainment too excessive, of course Prostitutes may have been provided, this was 1984, there were Millions of Dollars in fines at stake. He never failed to significantly decrease the fine.
While I understand Bankers Trust was fairly “progressive”, we made a trip to Chicago to view the Continental Illinois Bank of Chicago’s operation. It was the 7th largest Bank in America in 1984 . Continental’s eventual failure led Congressman Stewart McKinney , To coin the term TBTF . One executive, John Lytle, went to jail for not doing due diligence and receiving kick backs. Continental Illinois was , wiped out along with it’s shareholders , there was a run on the Bank necessitating a bail out by the FDIC, and when defunct (1994),it was sold to Bank of America. Do you think the culture disappeared ?
During this time (1991, I was running my Dad’s contracting business), Bankers Trust crossed the line with it’s derivative trading operations. They , too, became insolvent and were bought by Deutsche Bank . They had envied the Continental Bank’s models, became equally creative in their product line up ; choosing derivatives as a favored product , they committed fraud and ceased to exist. Did the culture die?
It appears that the players stay the same and only the name changes as the Bankers develop more elaborate schemes to make money for themselves and rotate through the Global Economy spreading their ” above the law” culture. Has anything changed? Realistically, with out Regulation, accountability, responsibility, can anything change? We need choices, education on subjects we wouldn’t ordinarily concern ourselves with, when Politics Effects Us.
An update: While reading The Financial Times, 1/9/14, an update on Deutsche Bank appeared. “Arch -rivals with everything to Play For,” Deutsche Bank vs Barclays; “They still have some unwelcome traits in common:There is investor distrust of the assets on the Bank’s books, since they aggressively determined asset valuations. They are both recovering from the LIBOR rigging scandals, though Deutsche hasn’t settled yet. While Barclays is undergoing a “Serious Fraud Office” probe, Deutsche Bank, is experiencing investigations by US and German Regulators over the way it valued complex illiquid derivatives at the height of the Financial Crisis.”
For your amusement, I’ve included a fictitious corporate letter, composed by my friend Justin Weingartner, “The A Corporation”. Enjoy