Do we investment bankers actually create value for society?

Having some existential/purpose-searching issue at the moment. Do you guys think us investment bankers are actually contributing to the society?

Comments (43)

Jun 30, 2022 - 3:28am
PaleNimbusWhite, what's your opinion? Comment below:

Yeah I would say the deals that investment bankers work on end up having a massive influence on the future of the company/companies, and in turn on the jobs and lives of people who work in that company.

Jun 30, 2022 - 5:46am
stevedujour, what's your opinion? Comment below:

One of the vestiges of Protestant thought that persists to this day is this notion that banking and finance merely manipulate money and 'create' nothing of value for society. This type of thinking is common in Germany and bankers and banking are looked down on in German-speaking Europe for this reason.

In the 60s and 70s, you would not be completely wrong in saying this type of thing. Bankers enabled consolidation of major industries largely to the detriment of the American consumer and economy. In the 80s they then helped corporate raiders in dismantling the conglomerates they'd help to build in prior decades.

Fast forward to today, in 2022, M&A bankers (especially in industry teams) are doing the Lord's work. Revolution in SaaS/ cloud-based tools pointing to smaller optimal firm size, nimbleness of smaller and medium-sized business, dynamic creative destruction in capital markets, widespread activism policing indulgent behavior of management teams, waning influence of 'good ol boys' clubs on IB and PE in general. The miracles of modern finance are what make the miracles of modern life possible. Old anti-banking clichés almost invariably come from financially illiterate and entitled masses whose frustration always boils over when the business cycle swings down as it is doing now.

Jun 30, 2022 - 10:37am
IncomingIBDreject, what's your opinion? Comment below:

The past few years have been like the 60s and 70s again. A lot of high profile deals that are hurting the consumer, the employee, and the community.

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  • Associate 1 in PE - Other
Jul 8, 2022 - 12:56pm

I think the blame there really goes to private equity firms and what their plans are post acquisition. It's been understood for years that roll-ups and other common strategies generally hurt the consumer. 

Jul 5, 2022 - 11:32pm
Jeff Skilling, what's your opinion? Comment below:

I think this is the most concise and most accurate description of the way M&A advisory works in 2022. Saving this for the next time I have to explain what my job is to someone who's only background in finance is Adam Mckay movies and FX day trading influencers running 419 scams and pyramid schemes on TikTok.

Jun 30, 2022 - 9:48am
rabbit, what's your opinion? Comment below:

In their own way, good investment bankers create value for clients, real value. Everyone else is just clipping fees.

Real value is many many things. For example, finding the right investor for a growth company who gets and supports the strategy, is cognizant of the burn, and dips into all the financing rounds, rather than just the party who writes the biggest check at the highest valuation. Or delivering an acquirer that meets the sellers goals over one that just again writes the biggest check at the highest value (unless that's the objective). You'd think this is the norm, not as often as you think.

Not going to name and shame, but there is a certain MM firm (hint: killer killer bonuses last year) that has a reputation in Canada of shotgunning go-publics for companies that absolutely should not (talking pre-revenue / barely revenue), with the "promise" of research and aftermarket coverage (which they don't deliver), shove the equity + warrants into volatile retail and hedge funds (who short the stock), and then disappear, never to be heard from again. Clip killer fees, have insane deal volume and pay out big bonuses, but the TSXV is littered with the corpses of companies these guys have abandoned.

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  • Associate 2 in PE - Growth
Jun 30, 2022 - 10:17am

Rabbit as always is wise.

Everyone can say different roles are evil/ good, but ultimately it comes down to personal views. Are lawyers evil? Some are for sure, but some are defending or helping prosecute in situations where an individual genuinely needs help. 
 

The value of an investment bank is they help buyers and sellers match up providing liquidity to the market. The best analogy is a real estate agent-do real estate agents add value and are they good? An unsophisticated person would say "oh a company can sell itself and bankers just take a fee" which isn't wrong, but it's the same rationale as "every person should sell their own house without a realtor" which isn't realistic. 
 

In terms of helping society, some bankers help growing firms by getting them access to capital which helps innovation. Alternatively, some banks make it easier for mature individuals to retire by giving them exits/ matching buyers and sellers. Finally, I think the value of an investment bank can at times act as a referee in deals. If a single company was interacting with a buyer, the transaction is a one-shot game, and all sorts of behaviors could exist that are unethical due to the fact that the transaction is a single shot deal. However, when a bank represents a client, the buyer can't act as unethically because they likely might need to interact with the bank again in the future. As an example, if a buyer tries to dig into a company just to learn about them and walk away at the 11th hour an investment bank will then tell its future clients that buyer is untrustworthy and encourage their client to not interact with them. As a result, buyers tend to behave better when a company has a bank engaged.

Jun 30, 2022 - 10:36am
IncomingIBDreject, what's your opinion? Comment below:

Don't disagree what you are saying but feel you are downplaying the negative impacts of M&A to society. Sure the transaction might be more ethical in terms of representation but that only matters for the big businesses involved. For the common man "synergies" means more layoffs, "efficient cost structure" means wage suppression and "optimal margins" means higher prices all while stifling competition leading to a poorer quality of service. There are no positives for society for M&A at the F1000 level (different for smaller scale businesses). 

TLDR: OP stick to cap raises or a bank that deals with smaller deals if you don't want to leave a negative contribution on society

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  • Associate 2 in PE - Growth
Jul 1, 2022 - 12:55am

I'll chime in here again-are layoffs bad/ evil?

It sucks if you or your family gets laid off, I would know my dad did when I was a kid, but it's part of owning a business. Is it better for society for the businesses to operate less efficiently?
 

Again, it depends how you view the world. My personal view is the banker isn't making the acquisition happen or doing the layoffs, they facilitate it. It would be like saying a truck driver for remington is the reason for gun violence. Further, to argue any big merger is unethical is just ignorant to business operations. Some might not make sense, but many do and people who lose their jobs and are unable to find one should point the finger more at the economy, the laying off company, or the fed, over an investment bank that facilitates a transaction. If layoffs are evil then every corporation that exists is evil, which is a bit of a stretch. Sometimes layoffs are necessary.

Jul 2, 2022 - 11:47pm
Sharky286, what's your opinion? Comment below:

More layoffs mean that Labor as a resource will be used more efficiently therefore improving economic performance therefore (not necessarily but as a tendency) improving everyones life.

People don't just vanish when they lose their jobs you know.

  • Intern in IB - Cov
Jun 30, 2022 - 11:39am

Negatives: One of the biggest factors of stagnant wages and one of three factors of the current inflationary environment is corporate consolidation and monopoly formation. M&A bankers do this. Net negative most of the time except for slight bump to EPS for mostly wealthy shareholders. Also, most mergers are unsuccessful in the long run based upon a ton of academic research. Banks also structure and promote irresponsible and overly complex financial instruments but this is less of an issue since '08.

Positives: Provide equity exits for entrepreneurs/ risk takers of society when selling/taking a company public. Incentivizes new ideas and feels good to help someone be compensated as much as possible for their value add to society. Most standard debt and equity raises also aren't a net negative to society and businesses need that capital to grow/innovate etc.

Overall: Although M&A is the best place to be for the PE skill set I would say buying and selling companies is net neutral if not net negative to society overall. While debt and equity capital markets functioning efficiently is a net positive.

Jun 30, 2022 - 6:14pm
rhoedeman, what's your opinion? Comment below:

Yes, we are adding value to society. Innovation is driven from greed for a better life. We create liquidity which enables the greed to be there. Pushing the logic all the way through, we are responsible for new products, more competitive markets leading to lower prices, and greater quality products from synergies such as if mnm's used Hershey chocolate and tasted better.

It may not feel like you're doing important work when you are turning in your fiftieth model, but if you trace the wheel and outcomes, you'll realize how much value we actually create.

  • Analyst 1 in IB - Cov
Jun 30, 2022 - 6:42pm

Breaks my heart to read stuff like this. The AOC brainwashers really do get to us, huh. To them you provide more value to 'society' by sitting on your ass, unemployed at home collecting stimmy checks and complaining. More value being a professional victim than contributing to the economy. Without investment bankers, the economy would come to a screeching halt and we'd be back in the pre-industrial era. Hell, maybe even the dark ages, even the renaissance was full of merchants and bankers. 

AOC and big-government politicians take money they didn't earn, hand it out, get all the glory and applause for being 'good people,' and then have the audacity to get angry at the people who make their handouts possible. They should be seen as the parasitic posers that they are. 

All investment banking and free-market business is based on CONSENSUAL transactions that benefit both parties involved. Clients willingly, happily agree to pay investment bankers, it's not forced. It's not a zero sum game. That's the core of the economy which has brought society out of the Dark Ages. Investment Banking is based on consensual transactions, while the government taxing people is a non-consensual transaction. 
 

You people need to read less CNN and  more Ayn Rand. Have some pride in your thankless work. You've earned it. 

Jun 30, 2022 - 9:13pm
IncomingIBDreject, what's your opinion? Comment below:

As always, your free to point out the flaws in our reasoning. I'm just translating into every day terms what commonly used finance jargon actually means. Yes, both parties (meaning the C-suite of both companies) benefit but society as a whole does not.

Where did I say I supported AOC or that people who sit at home and collect welfare checks are a positive to society? I'm conservative and want a smaller national government and voted for Trump in 2020. If you want to talk about "socialism" let's start with close interests between the governments and corporations, corporate bailouts, corporate tax breaks , lobbyists, and the other plethora of benefits that corporations get at the expense of the American taxpayer that even small businesses don't get. If we had a true free market system many more corporations would have gone down under during the GFC and the C-suite should not be shielded from all liability. I'm all for capitalism (monopolistic competition) but that is not the system we move towards with increased M&A activity in the F1000 space. We move towards an oligarchy or even monopoly.

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  • Analyst 1 in IB - Cov
Jun 30, 2022 - 10:29pm

Why would just the C-suite benefit? The entire company benefits. Do you think when a corporation gets financing through an investment bank they just put it right in some fat cat CEO's pocket who sits there smoking a cigar cackling in a back room? Hate to break it to you, but unlike all of media today where corporation = bad, corporation actually = good. The financing enables everyone in the corporation to have a job and pursue growth opportunities that benefit everyone. 

Also, I disagree with your take that M&A is bad. There's nothing inherently bad about it. That's the free market. Everyone tries to make the big multinationals out to be evil. Well if Starbucks is so evil, make your own coffee shop that's better. There's nothing stopping you. Make your own smartphone if Apple sucks so much. The truth is, these multinationals are often better than their competitors and the consumer is better off because of it.

Jul 1, 2022 - 10:12pm
Xhamster02, what's your opinion? Comment below:

Yes, despite the hype and ire, they help allocate capital and provide a meaningful service, most normal companies don't have a model. expertise, or list of contacts to market themselves, raise debt or equity, or pursue acquisitions. This is a capitalist society and it's easy to not see the effects of a system when it's working.

Jul 1, 2022 - 11:33pm
Fugue, what's your opinion? Comment below:

Banking has been around for centuries, and for good reason. It is the aorta through which capital flows. Capital which raises armies. Capital which supports the crown or the seat of government or the joint stock company. Capital through which any two goods (and even labor itself) may be transmuted into one another.

Capital (and the social institutions that ensure its flow) is no less essential to the functioning of our society than blood itself is to our bodies. I suggest you read about the history of capital (I would recommend Niall Ferguson's "The Ascent of Money") to understand what a longitudinal force capital and its acolytes have been in the story of man when viewed from a 30,000 foot view.

Of course we create value for society. To suggest otherwise is cartoonish and reductionist, and demonstrative only of a stunning lack of awareness of history.

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Jul 1, 2022 - 11:59pm
arbjunkie, what's your opinion? Comment below:

On average, M&A is more value destructive for buyers than it is creative for sellers (buyers tend to overpay). This is an academic result. Bankers primary function is to maximize competitiveness of an auction, so their role is distributive- they are carving out a larger share of value for the seller, which is a zero sum game
so no, banking doesn't, on average crate value for society, only for the sellers of businesses

Jul 2, 2022 - 5:44am
SoraisWind, what's your opinion? Comment below:

Investment bankers are one of the icons of Capitalism, a system that has benefited billions of people in the last 60 years. Without free markets where companies can't raise funds to expand growth, the economy dossent move on. Bankers provide these companies with valuable know how to undertake these expansion projects. From IPO to M&A, these deals hopefully create organic growth for companies in the future that otherwise was not going to be possible

  • Associate 1 in IB - Restr
Jul 2, 2022 - 8:27pm

You're creating value for someone in society - it's a relatively free market and none of us would be getting paid well if we weren't creating value.  Also, you're creating value for yourself and your family, which is all that actually matters.   You will not find fulfillment through making less money in a different job where you feel that you're benefitting "society" more.  There are no altruistic people who work solely for the benefit of others - if there are, it's a terrible thing.  Throughout history, the only people who have worked solely for the benefit of others were slaves who were forced to do so.  Enrich yourself and don't worry about society. 

Yes - I believe that Fountainhead and Atlas Shrugged are the second and third best books ever written, after the Bible.

Jul 2, 2022 - 8:29pm
ccfarmer, what's your opinion? Comment below:

From Margin Call (2011)

"Jesus, Seth. Listen, if you really wanna do this with your life you have to believe you're necessary and you are. People wanna live like this in their cars and big fuckin' houses they can't even pay for, then you're necessary. The only reason that they all get to continue living like kings is cause we got our fingers on the scales in their favor. I take my hand off and then the whole world gets really fuckin' fair really fuckin' quickly and nobody actually wants that. They say they do but they don't. They want what we have to give them but they also wanna, you know, play innocent and pretend they have no idea where it came from. Well, that's more hypocrisy than I'm willing to swallow, so fuck em. Fuck normal people."

  • Teller in Non-profit
Jul 2, 2022 - 11:17pm

I'd be really curious as to what the results would be for a survey among Fortune 1000 CEOs on this particular question. Value doesn't necessarily need to be in a tangible form (i.e. higher sale price). Could be efficiency in running a tight process, ideation, finding the exact right contacts at potentially interested parties, etc. I've moved to the buy side and do my own share of chirping out IB guys in many ways, but IB not adding value is not one of them.

Jul 3, 2022 - 5:26am
jonaskl, what's your opinion? Comment below:

I would say that M&A deals and capital market transactions are done to optimise the capacity of a firm to create economic value for its shareholders. Investment bankers make these processes more efficient and even enable them in large parts.

So I would argue that without investment bankers, the economy and financial markets would be a whole lot less efficient which would hinder economic growth which in turn hurts the prosperity of society as a whole.

Of course there are situations where transactions are done for other purposes, but I don't think that it's the responsibility of the investment bank, but rather that of the free markets and the government

  • Analyst 2 in IB - Gen
Jul 6, 2022 - 9:06am

They add value by facilitating capital raising and m&a, not every company can run these processes on their own

Jul 8, 2022 - 12:45pm
medellin, what's your opinion? Comment below:

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