City lives in Bruce Wasserstein’s shadow
ANYBODY who really wants to understand today’s City of London – its culture, its customs and its personalities – needs to acquaint themselves with the life of Bruce Wasserstein, one of the greatest corporate financiers of all time who died last night at the cruelly premature age of 61. He was, of course, a New Yorker through and through; but his aggressively professional style of banking started to cross the Atlantic in the 1980s and is now the norm here too. He turned the multi-billion dollar hostile takeover bid into an art form, advising everyone from billionaires such as Karl Icahn to buyout giants such as KKR – and most recently, Kraft on its bid for Cadbury. His 1,000 or so deals netted him a fortune, especially after he sold Wasserstein Perella to Dresdner Bank, going on to run Lazard and simultaneously building a media empire. Whether or not they realise it, anybody who works in any of London’s investment banks, hedge funds, private equity firms, commercial law practices and many other financial institutions lives in his shadow.
JP MORGAN CUTS RISK
THERE are not that many bankers who have emerged from the credit crunch with a better reputation that when they went in. One such man is Jamie Dimon, the 53-year old chief executive of JP Morgan Chase, who saw the crisis coming and ensured that his bank made far fewer mistakes than his competitors. Despite rising loan-loss reserves, and a warning of greater credit card losses ahead, yesterday’s strong results from the firm will have further cemented Dimon’s grip on the firm. Third-quarter profits rose from $527m in the third quarter last year to $3.59bn; revenues hit a record $28.8bn, up 79 per cent on the same quarter last year; investment banking return on equity hit 23 per cent, led by booming fixed income trading. Dimon, who has repaid the US bailout, was in combative mood yesterday. He attacked many of the government’s new policies, pointing out that the cost of consumer regulation will be passed on to consumers. Nobody will listen, of course, but while many bankers’ views should be ignored, Dimon is different.
It is worth looking at some of his results in greater detail. I hate the Value at Risk (VaR) measure but it’s the best we have. It shows how much a bank is likely to lose on a bad day: this stood at $206m in the third quarter, down from $218m in the third quarter of 2008. So JP Morgan is less risky. It has cut the size of its balance sheet to just under $2 trillion from a recent high of $2.167 trillion (comparisons are tricky because of acquisitions). It has increased its Tier I common capital ration to 8.2 per cent from 6.8 per cent a year ago. There has been no return to over-leveraged “business as usual”, even though the firm needs to accumulate much more capital and cleanse itself from bad debt.
What about bonuses? The investment bank has set aside 38 per cent of revenues towards compensation so far this year, which is much healthier than last year’s 52 per cent. That is not especially high: most service sector industries which use limited heavy-duty equipment or capital pay the bulk of their income in wages.
All this shows that the forthcoming round of bonuses should not necessarily be seen as evidence that risk is returning to the financial system. Whether anybody is listening is another matter.