Has Wall Street Been Tamed?
Fines, job cuts and anger have taken a toll. Traders and brokers are struggling to adapt to stark new realities.
The Bloomberg article, “Has Wall Street Been Tamed?” quoted Russell Reynolds Associates' Heather Hammond. She spoke about the changing culture on Wall Street. The article is excerpted below.
Chris Hentemann has two pieces of art on the walls of his corner office in midtown Manhattan. One is an oversize photograph of the cockpit of his twin-engine Beechcraft Baron. The other is an Andy Warhol print of Muhammad Ali with his fists cocked.
For Hentemann, a rail-thin money manager who has spent 25 years in finance, the two pictures capture the duality of Wall Street. It’s an industry where you need to manage risk with precision and discipline, but it’s also one driven by audacity, ego and the killer instinct. Or at least it used to be.
In an era defined by a populist backlash against rapacious capitalism, the business of finance has lost its mojo. An industry that used to celebrate the invisible hand of the free market, that once showered shareholders and employees with unprecedented wealth, has been chastened by $284 billion in fines over the past eight years. While Wall Street has long prided itself as a hotbed of innovation, today it’s ensnared in a web of rules to prevent bankers from once again threatening the global economy. Profitability and compensation are falling as forces unleashed by the 2008 financial crisis take their toll.
No precinct in the industry is being whipsawed more than fixed income. While stock trading went electronic long ago and now moves at light speed, the $8.4 trillion U.S. corporate bond market is relatively unchanged since Michael Lewis played Liar’s Poker with his pals at Salomon Brothers in the 1980s. The corporate debt game is still dominated by big broker-dealers, and 80 percent of trades are still executed by phone, according to Greenwich Associates.
But the one-two punch of regulation and technology is softening up this bastion of 20th century finance. The 2010 Dodd-Frank Act in the U.S. and new global capital requirements have forced banks to cease borrowing at 30 to 50 times their capital to make proprietary bets in the markets and juice bonuses. The Federal Reserve and its counterparts in Europe stress test lenders every year.
Meeting the capital requirements has made it less profitable for banks to play their time-honored role as middlemen in fixed income. Last year, companies issued $1.5 trillion in debt, double what they sold in 2008. Yet primary dealers have decreased inventories of bonds to help buyers and sellers trade, according to the Federal Reserve Bank of New York.
As a result, there’s less action on trading floors. Profit from dealing fixed income, currencies and commodities, or FICC in industry parlance, has dropped 56 percent globally since 2012, to $26 billion, according to Boston Consulting Group. One out of three bond traders have been fired in the past five years, says research firm Coalition Development. This harsh reality is turning an eat-what-you-kill culture that prized risk-taking into one that’s guarded and paranoid.
“Today it’s play it safe, play it conservatively, don’t rock the boat,” says Heather Hammond, co-head of the global banking and markets practice at executive search firm Russell Reynolds Associates.
To read the full article, click here.