Financial Times Ken Moelis Interview - "View From The Top"

http://www.ft.com/cms/s/0/5d923738-0471-11de-845b-000077b07658.html?nclick_check=1

Ken Moelis, who built a name for himself at some of Wall Street's best-known banks during the past three decades, founded merger advisory firm Moelis & Company in July 2007 and has been hiring at a rapid pace ever since.

After starting his career at Drexel Burnham Lambert, he moved to Donaldson, Lufkin & Jenrette and helped DLJ gain prominence in the 1990s as a high-yield bond underwriter and mergers and acquisitions adviser.

Mr Moelis, 50, a father of four, then joined UBS and rose to become president of its investment bank before leaving to launch his own operation, drawing an exodus of bankers with him.

In a video interview with FT.com this week, Mr Moelis said there was no single "fix" for the financial crisis, and agitated for a more sophisticated level of dialogue about an inherently complicated situation. He expressed frustration over competing for talent against banks that have received money from the US government, and predicted that the US economy would lead an eventual global recovery. Edited highlights appear below.

How deep do you think this recession will be?

I think it'll be fairly deep, very deep. My view is we're going into a very strong period of deflation. I think the people worried about inflation and hyper-inflation are off market. I understand people are worried about spending $700bn, but that is actually a drop in the inflationary bucket when you're destroying wealth, credit and money at the rate we are.

How do you rate the US government response so far?

I'm not a fan of the stimulus. If you prop prices up, if you prop wages up, if you prop credit up, you're just going to extend the length of what's going to happen. I was a little worried in October because there were rumours that retailers weren't taking credit cards. You can't show up at a restaurant with your own gold bar and slice off little pieces to pay your bill. That would cause difficulty in the economy, so I do believe in maintaining some transfer of payment system that is dependable.

But I don't believe the economy is fixable, just like the weather. We don't send anybody out to fix the weather. We put on a raincoat.

In order to have an efficient system you have to be able to fail. If your business model didn't work, if your stock holders allowed that business model, they should lose.

Was it right to let Lehman go bankrupt?

I didn't know there was anybody in charge of not letting Lehman go bankrupt. I thought their shareholders and board of directors would be in charge. If you missed Bear Stearns six months earlier, don't blame me. There were signs.

Lehman Bros was a manifestation of a system that was financed improperly as a whole. Lehman accelerated the awareness. I do not believe Lehman was the cause.

So should the government simply say 'we're not intervening in the financial system any more'?

[If it did] I think you'd have a real drop, but we're going to have that drop anyway. The key is to have it quicker and reinvigorate quicker.

I am wholly convinced that this is going to be difficult, but the country that comes out of it the strongest is going to be the US because we will let the free market work as much as anybody will. I don't know why everybody is so anxious to discredit the free market. There's no better system. That also means you're free to be wrong. Will we find a Bernie Madoff? Absolutely. But does that make the whole system bad? No.

What do you think is the distinguishing quality of those people who got it right?

Luck. Whenever a crisis hits, somebody gets it right, somebody gets it wrong. If you're right twice you become the king of something, or the oracle. We make up a title and we carry you around.

How is this crisis going to reshape Wall Street?

It will break up into capital providers and advisory providers. I think that you'll see Wall Street reform itself back into smaller, more manageable entities. To manage teller networks and credit card receivables in the same context [that] you're advising a CEO on a major transaction - they cannot be managed the same way. I used to say Wal-Mart's a great retailer and Tiffany's is a great retailer and we should hope they never merge.

Do you think the government should impose some restrictions if it gives banks more money?

I don't believe the government should be there in the first place. But if you're going to invest in a business I really believe you have to let those companies then run a business. If you don't pay people and you don't allow them to have meetings, the investments we're making in these companies will end up being problematic. If they're going to be owners they have to learn to act like owners.

Where is the action in your business right now?

If it's not restructuring, it's thinking through your balance sheet. Everybody has an issue. We are thinking about going into the business of risk advisory. There are things out there that make credit default swaps look like plain vanilla ice cream. We think there will be a large advisory business helping people understand the risks they might have obtained indirectly or directly. They might have terminated the whole department that acquired that risk, but they still have the paper.

Some argue the crisis will accelerate America's relative decline in the world. Are they right?

No. If we can maintain the US as a place where you can put money to work and depend on the outcome, we'll actually come out of this ahead of the rest of the world.