Kiss & Tell at Goldman Sachs! With the joke about doing God’s Work getting a little old, one Greg Smith has done himself and the gossip columns a favour with that rather stinging and public resignation letter. Now first off, as best I can tell he was not badly treated at Goldman and did not put his hand up or stand up when he was there, so as a simple guy, I would say he had his eye on life after Goldman and that reputed $1.5 million book advance. Mud sticks. I don’t like that at all, and I am a Liverpool FC fan, where the club’s best business has been done in private. But, all is not lost, as Mr. Smith introduced some scandal by alleging that clients were referred to as muppets. That is certainly not an appropriate use of the term, but I can think of some good, correct uses of it in our industry.
For this week’s installment, I have selected my top 3 Swiss Muppets in Financial Service in Switzerland of the last 23 years. Unlike the stories in Mr. Smith’s recent rant, which may or may not be true, I can assure you that the following are 100% true and really happened.
3rd Place. Bronze Medal. For just not thinking it thru!
Many years ago, I was in a discussion with a local operations guy at another bank. Something had gone wrong and if memory serves well, we at Goldman Sachs had accidentally delivered the same stock twice to his shop. So our Operations Control folk were jumping all over us because we had a break. They were demanding, and rightly so, that we sort this out pronto and get the stock back. They checked our positions daily, comparing the bank statement or depot statement to the ledger. Daily was sacrosanct and with some justification, since it was a bog business and lots of money was involved. You don’t need to do that for your checking account, but you do at a bank. No question. So the conversation with this other Swiss bank went something like this: “Hi, we accidentally delivered you two lots of 20 Nestle Reg, can we have one lot back please.” “Maybe” replied the Swiss guy on the other end of the phone. “Maybe, how come only maybe. You should be able to see from your depot rec(onciliation) that you have 20 too many!” (Editor’s note: back in the day, 20 of these things was 200’000 Swiss Francs), “Oh, ve von’t know zat till we do ze depot rec at the end of ze month.” “End of f@@@ing month, what are you talking about, depot recs get done every day, you must know what you have? “No, zat is not ze case. Ve only check ze positions once every month. Zen, by ze time ve hev fixed all ze differences, ze month iz over and ve start again” Clearly a muppet and it did not occur to him or his shop that if they did them daily they would solve them faster. I think we did get the stock back, but took a beating from our own folks in Operations Control
2nd Place. Silver Medal. For doing the wrong thing by his clients and his firm and being dumb enough to think it was ok!
In previous Blogposts, I have mentioned my involvement in Goldman Sachs’ plans to build a bank in Zurich. Part of this grand plan involved hiring some folks for the Institutional Sales team. Headhunters were hired and the Goldman interview process swung into gear. Some local hot shot from Credit Suisse made it thru the first rounds, probably about 15 of them and found himself invited to Orsini, a swank local eatery, with the local General Manager. At some point in the process, the local GS guy asks this hot shot what he likes about working in Insitutional Sales at Credit Suisse. Now for all the recent bad press around Goldman, the place has standards and 99.9% of all the people I have met there are pretty forthright at following them. Local hot shots’s answer is: “Vell, for me, ze best zing is zat in Institutional ve see all ze customer orders and get our PA (Editor’s note: personal account) orders in ahead of zem” This is called front running, in other words putting your own order ahead of others when you have a fiar idea what is going to happen to the price. Now front running back then was not illegal in Switzerland, but was pretty much anywhere else on the planet, quite apart from being morally reprehensible. Needless to say, this left the Goldman GM somewhat unimpressed and brought hte interview process to a quick end.
1st Place. Gold Medal. For thinking he had a plan!
One afternoon all our front-line Ops team was busy, so I ended up answering our Ops team line. Young man on the phone was from Bank Rinderknecht, which was then one of the local stock exchange members. He asks me about a trade he has a problem with; my assistant, Marcel, looks it up for me and tells me that the trade had settled the day before. “Look mate, good news, the trade settled yesterday so no problem.” “Nein, zer iz a problem ja. Ve do not know ze trade!”, “Please do explain to me how you lot can not know a trade that actually settled. You must have instructed it or else it would not have settled, so how do you get from there to don’t know?” Next to me, my assistant is looking at me incredulously, sort of like Obelix in Asterix & Obelix in one of his “these Romans are crazy” moments. “Well, ve knew zat ve did not know ze trade, but ve thought it vuld be easier if ve instructed it and then sorted out the problem later, ja”. All that both Marcel and I could was to burst out laughing; this muppet knew something was wrong but was willing to exchange his firm’s money for some warrants, even though he knew it was wrong. that bank has since become extinct, which after reading this little anecdote will come as no surprise.
Lessons Learned: Well, these were a long time in the past. I suspect the front-running guy was and still is beyond salvation. He is in good company though, as this has been and quite possibly still is the most popular indoor sport in banks in Switzerland. The guy who had it wrong with the depot recs has probably returned to a more suitable profession, like hairdressing or being a traffic warden. But, jokes apart, all good Ops folk should make sure that all accounts and depots are reconciled daily. The guy at Rinderknecht and his bank are beyond redemption. I might add though, that for the Ops professional the lesson to learn here is to face up to the problem, deal with and deal with it properly. Two wrongs do not make a right.
I hope this installment has gone some way to demonstrating the correct use of the term muppet!
Epilogue: Goldman did build their Institutional Sales team. Their talent picking skills were working just fine. Urs Wiedlisbach joined, I think from Credit Suisse, and in later years went on with two private bankers, Marcel Erni and Freddy Gantner to found Partners Group, the most successful alternative investment shop in the country.