Plain-talking US banker points finger at the greedy

26/07/2009

A report has appeared in the press of how a plain-speaking banker puts the problem bluntly. “Greed will reappear. It happens every time. There will always be as****les on Wall Street because the compensation is so high.” These words were attributed in a recent article in the FT, to Paul Purcell, the chairman, president and chief executive of RW Baird, a middle-market investment bank, who is famous in the financial industry for having a “no as****le” rule. “An as****le,” apparently refers to “anyone who puts themselves ahead of the client, or ahead of the firm.” Mr Purcell expounds on his theory by saying, “In a polluted work environment, and this is especially true on Wall Street, people end up spending 25-30 per cent of their time positioning internally to make more money,” he says. “So when you get rid of those people, everyone else focuses on being more productive.” Mr Purcell is quite specific about who caused the downturn. “It’s all about the greed of fixed-income people,” he says. “Go back and look at the history of Wall Street – Drexel Burnham, Salomon Brothers, Kidder Peabody, Bear Stearns, Long Term Capital Management, Lehman Brothers, Merrill Lynch – the fixed-income guys blow up every firm.” Although Baird’s client funds have fallen back to $66 billion (from $77 billion at the end of 2007) it avoided the worst by employing a more cautious approach to investment. “The difference is we actually take care of our clients. We want to make money for people. The big firms created proprietary product they put through their own distribution systems to make them more money, whether the clients needed the product or not. Our business is to sell people the right product at the right time for the right price.” Although it retains its headquarters in the city, Baird has long been much more than a regional firm. It has more than 100 offices throughout the US, Europe and Asia. In a sign of confidence, Baird has opened a 23,000 square foot trading floor in Milwaukee, the largest of its kind outside New York and San Francisco. With his decades of experience in the financial industry (and as the younger brother of Philip Purcell, former head of Morgan Stanley), Mr Purcell is reportedly exasperated when asked about the Obama’s administration’s attempt to overhaul financial regulation. “We’re going to get overregulated. It’s inevitable,” he says. “We’ll have to spend a lot more time and money on it and they’ll send in more 27-year-olds who don’t know what they’re doing. Here’s the problem of politics in Washington. First, most banks don’t expand lending in the midst of a big global recession. Second, most of these banks got leveraged 25-30 times and the Federal Reserve has told them they have to deleverage to 12-15 times. Then you have the politicians saying: ‘lend, lend, lend’ and the Fed saying: ‘you don’t have enough capital’. Nobody’s talking about the balancing act that needs to go on to shrink and repair the balance sheets.” Mr Purcell doubts a future crisis can be prevented. “Ultimately, the problem is that technology changes everything,” he says. “The world is so fast and flexible and the people in these institutions are so far ahead of the regulators.” Although refreshingly candid, one can see why most spokesmen take care with the niceties of communication. If every article in a newspaper were written in this plain-speaking way, after reading a couple of editions one can imagine people starting to jump off bridges at the futility of it all.

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