Books: When bankers used to look after their clients

The author proved to be one of the last of the breed who enjoyed weighty influence in the boardroom. John McLaren relishes his tale of survival.

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Last Updated: 31 Aug 2010

- The Accidental Investment Banker, Jonathan A Knee, Wiley £9.99

Among kiss-and-tell memoirs of investment banking, Michael Lewis' Liar's Poker is still the totem. Jonathan Knee tacitly accepts this: the preface to the UK edition of The Accidental Investment Banker suggests that it rankled mightily that Lewis only praised it with faint damns. But Lewis had two big things going for him. First, the bearpit of the Salomon trading floor provided a much livelier backdrop for glorious excess than the more sober mise en scene of mergers and acquisitions. Second, Lewis has a novelist's eye for the touches that bring characters to life. In Knee's case, although we follow the characters' politicking with real curiosity, they rarely leap into 3D.

But that's me about done with criticism, because this is a compelling read both for navel-gazing corporate financiers and voyeurs of the City and Wall Street. Knee first worked for an airline, got an unsolicited call from Goldman Sachs (that's the accidental bit), later moving to Morgan Stanley, where he stayed till his star waned, the job palled, and he parachuted out to write and teach, keeping his hand in at a financial boutique.

His tale is told through the prism of those two banks. Goldman has long been the McKinsey of investment banks - pre-eminent most of the time, but slightly creepy in its Jesuitical earnestness and relish for insecure overachievers who can be manipulated into believing that, without the hallowed business card, they are nothing. This exerts such a pull that when Knee went to break the news of his departure to Goldman, Morgan Stanley sent its headhunter to stand guard in the street outside, in case he wobbled.

Goldman has always been different. I recall one of its young lieutenants boasting to me that his vacation plans had been thwarted three times in six months. On the last occasion he got as far as the departure lounge. Eyes bright with excitement, he told me that the client had called him in person to ask him to cancel. Anyone sane would have been thoroughly hacked off, but this pup was thrilled. It proved that he mattered.

After the missionary, but at least collegiate, zeal of Goldman, Knee finds Morgan Stanley a largely rudderless free-for-all, where no-one helps anyone else unless there's something in it for them. It provides a particularly good vantage point for a breezy ride through the boom and bust of dot.com, since Morgan Stanley's then superstar analyst, the inaptly named Mary Meeker, ruled the web. The account of her rise and disappearance into well-heeled but total obscurity is one of the highlights.

Of Knee himself we learn oddly little beyond his philosophy. He was monumentally untidy, was generally maladroit at company politics, probably suffered from acute bouts of foot-in-mouth, and survived as long as he did only by building a strong and lucrative client base. The antidote to the internal stuff, which he clearly hated, was becoming a real confidant to important CEOs, probably having more influence over their major decisions than their own boards. I know that feeling - and also found it seductive.

He was one of the last of that breed, though, and the weakening of the bond between bankers and clients provides a recurring theme of 'things ain't what they used to be'. As causes, Knee cites the impact of principal investing by banks, the power of balance sheets, and private equity overtaking corporates as a source of bank income and thus importance. Even more fundamentally, the pay structure of banks and revolving-door mobility of their staff run counter to the nurturing of deep relationships.

What Knee calls the one-time Goldman approach of being 'long-term greedy' has been replaced everywhere by a headlong rush to cash in quick. The easiest way for investment bankers to get ahead now is to strongarm clients into doing lots of deals and then move on fast. Sticking around with one employer only qualifies for what's known as the 'loyalty discount'. As to the consequences if those deals unravel, well - again quoting Knee -'IBG, YBG' ('I'll be gone, you'll be gone'). Only events as dramatic as the turmoil this summer make the music stop so abruptly that some of the authors suffer personally from the misfortune.

Knee can't stop himself feeling natural sympathy for corporate clients who are now denied honest and wise advice. I only partly share this - those clients collectively conspired in the creation of success-driven fee structures which lie, long buried, at the root of the conflict. And they became just as promiscuous as banks - why should a banker selflessly advise them to avoid a dodgy transaction if his reward is to be dropped next time when a competitor shaves its fees or conjures up some shiny new deal?

He rounds the book off with a plaintive lament that so many young people succumb to the Faustian pact of investment banking without considering whether it's really for them. As someone who had experienced another life before, he was often singled out by doubters searching for the wider meaning of life. But as long as investment banking (or private- equity or hedge funds) offer such good pay with virtually no risk (other than burn-out and ennui), the volunteers will keep coming.

- John McLaren is a novelist, the founder of Masterprize (a competition for composers), and chairman of Barchester Group.

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