Ok, so basically, i'm going to start soon in a structuring team at a major BB.
To keep it short, i'm under the impression that serious money is made in structuring by building seemingly attractive complex products for the sole purpose of hiding some risk. Banking on the fact that the client is overlooking that risk and paying way too much for what he is getting.
All the other stuff about desiging customized products for client needs in wonderland and so on smells bullshit to me.
Basically you have to be some kind of sneaky guy, and maximise the value you get from asymetric information to its full extent.
I might be wrong but, is this the sad truth ?
I don't want to be the guy that has issues facing himself in the mirror in 5 years.
Morality =/= tax law/rules.
You are possibly right. Let's forget about the first point.
What about the second one ?
These articles were fun to read: http://www.guardian.co.uk/commentisfree/2012/mar/23/voices-of-finance-s… http://www.guardian.co.uk/commentisfree/2012/mar/28/former-equity-deriv… http://www.guardian.co.uk/commentisfree/joris-luyendijk-banking-blog/20…
[quote=Alt-HOI]These articles were fun to read: http://www.guardian.co.uk/commentisfree/2012/mar/23/voices-of-finance-s… http://www.guardian.co.uk/commentisfree/2012/mar/28/former-equity-deriv… http://www.guardian.co.uk/commentisfree/joris-luyendijk-banking-blog/20…]
Is this worth reading or is it just typical non-sense from Generalist newspapers ?
Doing everything possible within the law to avoid paying taxes isn't immoral, it is smart. The government has come up with an overly complex (and in my opinion unconstitutional) tax code. This complexity creates loopholes, some intentional and some unintentional. Companies looking to minimize their tax burden aren't making a moral choice. They are working within the rules established for them. Why would anyone pay more taxes than required?
I deleted the tax part as it's not really the one i'm interrested in.
I'll bite on your second scenario. And I'll start with one rule and an old cliche.
The first rule of investing (in any form) is NOT to invest in something you do not understand.
A fool and his money are easily separated.
Fools invest in things they don't understand. Even if you're good at hiding risk, it can still be found. You're not going to be putting a gun to anyone's head forcing them to buy your product. It's not your fault they buy something from you without doing due diligence and fully understanding what they are buying.
Many areas of finance are zero-sum games. There are winners and losers and everyone should know that before getting in to the game. If that bothers you it probably means that you are a very good person, but also that you might want to pick an area of finance that is not so zero-sum.
Wrong. At least in my opinion the holy grail of investing is looking at the risk/returns. Looking at the correlation between assets (%s), growth vs. inflationary environments and volatility levels the more assets you add (back to correlations and 'diversification').
Damn, I thought Brady was back for a moment. (That dog!)
What exactly that I said are you taking issue with? I didn't think I refuted anything you stated in the above post.
Like most areas of finance, at its core it actually has a relevant "value add" component. From there, whether or not its "moral" has more to do with the company and people you're working with than anything else. There's nothing wrong with structuring something to shift risk around and sell to people who are looking for said risk. On the other hand, piling a bunch of low rated tranches together and then calling it a highly rated product isn't quite as kosher. So imo it has a lot more to do with "how" you're doing it than the fact that you're merely doing it. Just my $.02
There are instances where both parties can win and taxman loses via tax arbitrage. Nobody cares about the tax man anyway. And yes I do think they are worth the read.
really liked this post
Let's say you think red shoes look stupid. But, a lot of people will only buy red shoes. You can either sell them the red shoes or sit on your high horse telling them they should buy black shoes. Meanwhile, your competitor sells them the red shoes and you go out of business.
Clients can buy whatever they want. If certain clients like things structured in a certain way, then so be it, give it to them. Many clients will buy something because of the way it makes them feel, despite everyone saying that they would only act in pure self-interest. That doesn't happen in the real world. If that were true, then everyone would only buy the CD with the highest rate. That definitely doesn't happen. People buy things for a lot of reasons, not just which thing is 'best' objectively, especially when 'best' is hard to define.
You always know more than your clients, but that doesn't mean you need to run a charity and price things with zero profit. Make your money.
I find it a little surprising that you got an offer in structuring with seemingly relatively little knowledge about what structuring actually is. The whole she-bang about designing customised products to meet client needs is what the vast majority of structuring is. I shadowed on a structuring desk and the vast majority of transactions consisted in a client asking for a very precise set of exposures and the structurer simply plugging in those values to a model and coming back to the client with a price. The margins are pretty thin on most of these transactions as it pretty much involves changing a few details on a pro-forma structure and agreeing a price. The competition between banks for this type of business ensures that clients get a pretty damn good deal.
The type of 'dodgy' asymmetric information transactions you are talking about are fairly rare. There's only a small subset of the structuring divisions of banks which is made up of quants, and it's only that subset who are involved in the more complex, higher margin structuring involving the creation of entirely new, exotic structures. Assuming you're not a PhD you'll probably have no part of that.
So have no fear, if you're actually joining a structuring division, you're most likely going to have a boring old time plugging values into excel and quoting prices on Bloomberg chat. You're not likely to face any serious moral dilemmas, except perhaps whether to tell your girlfriend about all the blow you're doing to get you through the tedium of your job.
....
I will repeat my usual spiel. It is not 2006-2008 sorry you are going to have actually work. Structuring involves knowing your customer better than they know themselves, in my opinion if that customer understands what they agree to and want that so be it.
It annoys when customers come back to do the "look-back" on a deal simply because they forgot what they were hedging to begin with. You goal should be to make your customer's life easier, find a way to hedge risk for them.
The deals you speak of do not really happen anymore and are tough to find, you gonna have to work for reals.
Thanks for all your answers and opinions !
I think you're taking a rather cynical and oversimplified view of what you do, or maybe you're joking the way that a structurer might over drinks. Either way, this job is necessary. If you want to "save the world", then join the peace corps, I don't know what to tell you.
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