Although I am pretty cynical about what happens on Wall Street I still found myself shaking my head as I read Mike Mayo’s book. As he recounts his two decades as a bank analyst, he gives readers insight into the banking system in an easy-to-read and entertaining tome. It’s a compelling overview of the intersection of powerful bank executives, politicians, regulators, investment bankers, and analysts. Shareholders are treated like second-class citizens.
During his career the size of banks has increased twenty-fold and executive compensation has soared. He attended many presentations of merger announcements and had one eye-opening experience when he worked at Credit Suisse. He was introduced to the compensation expert who was described as “The person who made the deal happen.” Mayo wrote, “I had a clear glimpse of the role compensation played in that wave of consolidation.” He felt at times CEOs were selling companies to enrich themselves.
Two chapters are devoted to the checkered history of Citgroup. As he said, “Citi has been involved in virtually every major financial screw-up from Enron and WorldCom, to the analyst scandals of the tech bubble, to the mortgage fiasco.” Unfortunately, Citigroup was in the news again this week, with the announcement of plans to layoff 11,000 employees. The Wall Street Journal reported the bank’s recently ousted CEO Vikrim Pandit received $221.5 million in compensation in his five years there. In my opinion, rank and file bank employees end up as collateral damage as these banks go through their predictable periods of upheaval due to these practices.
Mike Mayo ends with his ideas on how to transform “crony capitalism” to a better version of capitalism. He calls them his ABCs. Accounting– should reflects the substance of a transaction rather than accounting tricks. Bankruptcy—let the banks fail. Clout—reduce it for the insiders.
I’d like to close this post by saying that I see little evidence that “crony capitalism” has been cleaned up. If you think it’s time for reform, I’ve included convenient contact information for all U.S. Senators and Representatives.
Links to helpful resources:
- A list of America’s CEO pay. Feel free to compare it with your own salary. “America’s Highest Paid CEOs” Forbes, April 2012
- Contact information for U.S. Senators and Representatives. There is a link to an easy-to-use email form for each one.
- A video of an interview of Mike Mayo discussing the book. Video: Tom Keene Interviews Mike Mayo on His Book Bloomberg, November 2011