I lament thoughtfully as to how the perception of today’s “investment banker” has evolved conjuring up a vision of greed, glut, and mistrust. As I read the papers, listen to the media, and watch as large groups gather to “occupy” in protest, I am struck by how our profession has been tainted by the glare of public scrutiny. As perception is part reality, this image like many images, is part real and in many cases patently false.
I learned a long time ago that what is good about a company can be laid at the doorstep of top management, and that which is bad about a company also can be laid at the doorstep of top management. For this reason it is my responsibility to analyze and comment. I am old enough and experienced enough to have witnessed the slow decline of public sentiment. It wasn’t always this way and in many sectors still isn’t.
There was a time when major investment banking firms were partnerships and were founded on a basis of long term value creation. That premise rode on a gentlemanly relationship- oriented type of banking. As partnerships, investment banks could take a long-term view and work with clients for many years. Now though most of the bulge bracket investment banks have become public firms they are pushed to meet quarterly earnings just like public corporations. They report to public markets and must continually strive to report increasing profits thereby putting a great deal of pressure on the people who work in these organizations to take a short-term view rather than a long-term one. This has created tidal waves of change in the culture of large banking firms. It doesn’t mean that many of the people that work in these organizations are intrinsically evil or bad. They are trying to respond to the directions they are given from the top of the organization.
Adding to these pressures is the advent of a variety of algorithms and sophisticated computer programs attempting to outwit or forecast the market. Some of these banking activities are short term in duration with the only goal is to beat the market at someone else’s expense creating an individual gain in the form of a bonus. Larger investment banking firms can be viewed as taking advantage of clients in one area while serving them well in another.
As I approach my 74th birthday, I am greatly distressed at what I see today in part of the American culture. Many people today lack faith in our institutions. It is quite easy to understand why Congress is held in low esteem. There is a total lack of civility on the part of members of Congress. Seemingly proud of their polarity, they are involved in mutual destruction as opposed to working for the benefit of the people they represent. Wall Street has similarly lost our nation’s confidence. A whole pile of investors are sitting out this stock market even though the market has climbed back considerably from its depths of a few years ago. The reason so many investors are no longer interested is lack of trust.
And while investment banking always has been a business of high risk, high reward the American public doesn’t realize is that while investment banking covers a wide variety of activities all having to do with some form of finance – trading stocks, bonds, derivatives, investing in everything from gold to currency, there are a number of small investment banking firms across the United States where the client is paramount and their bankers work very hard to earn and build their trust. These bankers view good client relationships as something to be valued, and they are careful not to jeopardize those valuable relationships. Their financial success is directly tied to achieving outstanding results for their clients.
When young men and women come to me wanting to become investment bankers, I share with them that if the only reason they are choosing this field as a career is the chance to make a lot of money, they are doing it for the wrong reason. If they are really interested in helping clients and making them successful, they will enjoy the world of deal-making; if they are excited about helping the folks they represent, then money will be a byproduct.
Why do I care? Frankly, I despise being lumped in this pot of people called investment bankers. 14 years ago I started a lower middle market private investment banking firm with the goal of providing a high level of expertise and competency to the lower middle market. Our firm works with companies that typically have earnings of $5-50 million and generally are privately held and closely held. As a result, we are working with owners, partners, entrepreneurs and families. At Allegiance we help these companies grow their business through acquisition, raise expansion capital and sell their company when they are ready to monetize their years of labor. Most of our clients are the salt of the earth, have good values, and have worked hard to reach the point where they can cash out of their business. Many of them spent 20-30 years building their company. Over the years they have created many jobs, paid a lot of taxes, and significantly helped their local economy.
My partner and I have invested a lot of time, money and sweat equity to create and grow this client-focused organization. We carefully selected quality individuals who form teams of uniquely experienced senior investment bankers. We purposefully sought people who have run businesses, who know what it means to meet Friday’s payroll and next month’s bank payment. Our bankers can relate to their clients because they appreciate what it takes to interview, select, hire and train people and lead an organization. Just as our clients are entrepreneurs, so are our bankers. If we don’t achieve our clients’ goals, they lose. We lose, too. We lose the money we have invested in working on their transaction, which can be quite substantial.
Allegiance Capital is the 8th company I have founded and built from scratch. Maintaining a client-centered brand position has been our cornerstone, because for many years I myself was the client who hired investment bankers to help me. Consequently, I was determined to build an organization based on relationships and trust – two pillars that are tough to uphold in any business. I have known the disappointment of failure. I understand what it takes to survive. Most of all, I have been privileged to enjoy the fulfillment of sweet success.
Now, after all of these years, it seems that the general public labels all investment bankers as the same type of untrustworthy scoundrels. Perhaps it is time to we quit calling ourselves “investment bankers” and instead adopt the more fitting term gifted to me by a client who was my age now when he sold his parts manufacturing company early in our firm’s history. He was skeptical of me at first claiming that a man of his experience and success didn’t need an investment banker. But I knew I gained his trust when we met the buyer who introduced his “investment banker”. My client turned and introduced me as his ‘trusted advisor”.
Maybe I’m old-fashioned, but I want us to put together quality deals that are good for our clients. I want our dealmakers to build good relationships with our clients. I want Allegiance Capital to be a superior firm where our clients are glad to give us a good reference. Yes, it is a painstakingly slow way to build a business and it takes many years, but our clients and our integrity are well worth it.
David Mahmood is Chairman and Founder of Allegiance Capital Corporation, a lower middle market investment banking firm that works on a national and international basis. You can learn more about Allegiance Capital at its website www.allcapcorp.com.