In a remarkable interview with the Weekend Financial Review, leading investment banker, Peter Hunt, executive chairman of boutique advisor, Caliburn, launched a stunning attack on his own profession. Hunt told the AFR that while “investment bankers come across as sincere, decent and genuine people”, a lot of them are also “very greedy, out for themselves, and prepared to compromise institutional and personal standards of integrity to get the best personal outcome for themselves.”
Hunt, who was previously co-head of corporate finance at BZW and ABN Amro (before founding Caliburn in 1999 alongside Ron Malek, Simon Mordant and Richard Phillips) also claimed that “many elements of the culture of large integrated investment banks — particularly in the US and the UK — have become toxic and self-centered”. Hunt continued, “many of these investment bankers represent and extreme form of capitalism – they are out for themselves, looking to maximize their own personal returns, almost regardless of the potential damage that their actions might inflict on third parties or even the institutions that they work for.”
Hunt’s comments are extraordinary given the usually insular nature of many investment bankers, whose large pay packets and access to billion-dollar deals generally results in a pervasive “master-of-the-universe” mentality. Hunt even compared bankers to, gasp, used-car salesmen, noting that:
When investment bankers are in selling mode, they psyche themselves up to sell a product. Like used-car salesmen seeking a quick sale many of them are able to convince themselves that a flawed product or flawed advice is actually food for the client. The drive to achieve targets and the enormous amount of money involved can lead to a total loss of objectivity and decency.
While Hunt’s comments may be applicable to a sub-section of investment bankers the criticism failed to delineate between corporate advisers and salesman/traders of financial products. In general, relationship banking or the provision of corporate advice (like that provided by Caliburn and all large investment bankers), while expensive, would rarely see the kind of disloyalty outlined by Hunt. (By contrast, it appeared that those who sold CDOs or other toxic assets appeared to care little for any ongoing relationship between their firm and client). If corporate advisors compromised their client’s interests for their own benefit, they would suffer a rapid and significant drop in business.
Understandably, Hunt’s comments did not appear to impress his colleagues. One investment banker told Crikey that Caliburn itself had been a large beneficiary of the enormous amounts of money paid to bankers, despite the boutique bank often serving as a purely advisory, rather than an executory role. For example, Caliburn is believed to have earned upwards of $4 million for its high-level role on the sale of the third tranche of Telstra (alongside UBS).
Similarly, in May 2008, Mark Hawthorne noted in The Age that “on the relatively simple $750 million IPO of Westpac’s BT Investment Management last year, one of the last deals done by David Morgan before he left Westpac, Caliburn was first given an ‘estimated fee’ of $5 million, which then rose to $7 million.”
Hawthorne also stated that “Caliburn has a habit of picking up a success-based fee of 1% on … takeover deals” and based on its advice in St George’s takeover defence, “at 1% of value of St George…that’s $149.5 million to Caliburn.” Hawthorne also noted an investment banking source who claimed “you have to wonder how hard [Caliburn] are working for the money.”
Caliburn has also had a difficult time of late, recently advising Oxiana on arguably the worst transaction of the decade — its ill-fated merger with zinc miner, Zinifex. In that deal, Oxiana, led by former CEO, Owen Hegarty, merged its gold and copper assets with the flailing zinc and nickel assets of Zinifex. Since the deal was announced, the value of the merged entity has slumped by more than $10 billion while the company undertakes an urgent sale of its assets to Chinese interests to stave off insolvency.
Last year, Hunt’s firm, Caliburn, reported a 13% fall in profit to $24.2 million, however, The Australian noted that “the slowdown…did not diminish the pay cheques of Caliburn’s principal partners: [including Peter] Hunt, chief executives Simon Mordant and Ron Malek, and managing directors Richard Phillips and Roger Feletto. At a time when many investment bankers are in mourning for once bonus-laden salaries, the five Caliburn partners shared in a combined compensation pool of $22 million last year.”