The Investment Banker has many shapes

This article was originally published on the 11th of April 2013 in dECK Magazine www.deck-magazine.com and was written by one of our staff members Mr Banks

After a few episodes of watching the series Suits a lot of my friends wished they were Wall Street lawyers chasing big law deals and clients alike. Some of you will agree with me that one or two fictional shows have compelled an interest within you to pursue some form of organised career. I guess at certain intervals some of you have tried figuring out what it really takes to be an investment banker?

My answer would be to say, “a lot” and also “a few” ,plainly speaking. Good analytical skills and a good mathematical base are an added advantage but l would say image is everything just to add on!No one can in their right state of mind leave their hard earned dollars with a shady looking individual. Bankers are known for their selective taste for the better things in life. Tailored suits, flashy cars and of course a house in the Hamptons if one is up to speed with holiday real estate. Good selling skills are a must and this is where one has to be cultured. Cultured, meaning able to draw the attention of well to do individuals and possibly carry a conversation long enough to have them interested in hearing about whatever product you may be selling. This is a very powerful tool within the interpersonal skills realm as no investment banker ever makes it if they are not good with people.

A sad truth is many investors, stakeholders and individuals alike look to the larger markets for talent. Personally, l see that view as of no value, pretty much every graduate with a financial back ground can sweat it out in the field. Exposure is of high essence as the academic gap grows if one does not have adequate experience. Secondly as glamorous as the fields looks most of the calculations within systems have already been predetermined by actuaries and mathematical geniuses. Firms spend a considerable amount of seed capital buying algorithm systems that can process trades within the second generating small profits but however turning over a billion dollars a day and thereby increasing the rating of both the investment banker along with his firm.

Do not get me wrong, the investment banker does have a steady education, but even he or she,as an individual, does not have the muscle to do the job of the system. However, the education is there to justify the firm’s choice of path and investment. The human element is always required to run the state of affairs of any established entity, humans have not come to a point to trust machines to do everything (no conspiracy intended).

To make it in the investment banking world requires another essential ingredient. Honesty! Indeed a lot of investment bankers fell by the way side due to honesty issues around them.

In December 2008, Bernard Madoff revealed that the asset management arm of his firm, Bernard L. Madoff Investment Securities, was "just one big lie”. In what he described as a Ponzi scheme, it's estimated he took his investors for a cool $65 billion over the course of nearly two decades. And he didn't just con fat-cat billionaires and celebrities (such as Zsa Zsa Gabor, Kevin Bacon and Steven Spielberg); humbler individual investors, banks and even charities lost money in the scheme. The scheme wasn't revealed until Madoff himself confessed his crimes.

In March 2009, Madoff pled guilty to the charges against him, and he was sentenced to 150 years in prison the following June. One reason that Madoff was so successful was that he was a highly respected, well-established and esteemed financial expert -- his reputation was bolstered by the fact that he helped found the NASDAQ stock exchange and served a term as its chair. Furthermore, at the same time he was running his scheme, he was also running a legitimate business. He earned his investors' trust because whenever they requested a withdrawal, Madoff's investment company got their money to them promptly.

Unlike other Ponzi schemers, he didn't tempt investors with unbelievable returns. He reported moderate (albeit, suspiciously consistent) returns to his investor.

All is not sad within the investment profession as there are quite a number of success stories to come out of the field. Locally, Nigel Chanakira founded his financial services firm Kindgom before he hit 30. But while not vastly documented,Kingdom did face many challenges during it’s start up.

Institutional investors such as Old Mutual and the National Social Security Authority did not have the appetite to invest in his dream. But Chanakira was not the man to take no for an answer and through strategic alliances and commendable head hunting he surrounded himself with an inspired team to build what is today a financial empire known as Afrasia Kingdom.

To complement this local success, Tawanda Nyambirai, a lawyer by profession has been able to setup and grow TN Holdings Limited which is the parent company of TN Bank, TN Grill and TN Harlequin before the demerger of the group and subsequent re-listing of the units separately.

This rise, shows that even those not on the investment banker route have an opportunity to redefine their goals and possibly go the other route. Both individuals may have not been able to breakthrough to established entities but rather they braved up and took it upon themselves to establish what they have today.

In my opinion, it is very difficult to define what an investment banker is. There are many routes of specialisation that one can take. Others are in commodities, others in futures and other in speculative platforms such as even the weather. Many students grill themselves in every specialisation and often kill the passion out of their systems. This need not be the case though hard work towards an education cannot be substituted.

Locally, there is not a lot to talk about on the investment banking platform. Most banks deliver the service quietly as the masses are still not keen to join in. Another factor, is that in Zimbabwe, it is very expensive to even partake of the service as many institutions are still quite targeted. Unfortunately to add most locals are stuck on the pre dollarization interest rates which have compromised their opinion of real US dollar return.

Globally, economies believe in their systems, which is why when one bank coughs all the other may catch a cold. First world countries have systems so inter dependant that every citizen is somehow concerned about the running of investment banks as their life policies may be bench marked against them and so forth.

Referring back to my opening question of what it takes to be an investment banker, it really is true that there is a lot and a few (excuse the misplacement), that's involved when one looks at being an investment banker. Some charm their way all through to retirement in the field. Some will work their socks off to make it in the field. A contradictory conclusion indeed, but a conclusion all the same.

The Gold market at a glance

The world with all its diverse opportunities has a few avenues that determine the direction of most economies. Gold for one, in our opinion is the best hedging commodity which is being used by pension funds and now a growing appetite has risen from the major emerging markets. This is one metal that one can be able to diversify their wealth as it is a sure value keeper for investors and also its hedges against inflation and other economic shifts in the market.

This year performance on the gold market has not been attractive enough for investors who want to make quick and fast money, it has turned out to be a buy and hold product for the long-term investor. The Euro zone has been one of the most economically unstable markets and at times it has offered the motivation needed in the commodities market to push the price of gold up. The major highlight of the performance of gold was in the global financial crisis when prices of the commodity spiralled to new high levels and even after the crisis during the recovery process which is still taking place up until now. Gold once reached $2,000.00 per ounce in the market during its most bullish days. That’s the kind of motivation investors are looking for especially with how the Euro zone is looking at the moment one can just wait and see the kind of effect it might bring once the market gets out of hand. At the moment the smaller players in the Euro zone are providing tremors to the market opening up ground for a tsunami which has to be plugged before it gets out of hand like the global financial crisis. Greece took to the ground with mounting debt and with no reprieve in sight gold prices were on a significant rise up until a bailout package was unveiled to the nation with austerity measures which they were supposed to implement to curb the ballooning debt that they have. Cyprus is the latest of the countries in the Euro zone to be floored and a bailout package came to its aid as gold was showing signs of going over the slump and slumber that it was at. During the first days of the crisis it leapt from its comfort of $1,580.00 zone to the $1,600.00 zone up until the bailout package came to the rescue of the stock markets and investors had to dump gold and go back to the stocks. The policy to not let cash leave Cyprus for now has sent some jitters to the markets as there are possible leakages which might expose the country but as of now all seems to be in order with markets still gaining and the gold commodity falling to $1,567.00 per ounce.

Solutions have been tabled to help struggling countries but the rescue plans also have come at a cost which will also lead to a crisis because countries are now more and more into debt and their credit ratings have been on a downward spiral which is not good for the global economy as more and more types of risks are being attached to the markets. At the moment the smaller countries in Europe are the ones tumbling with suggestions that Ireland might be next in line and so this might mean the bigger economies will be shaking as these effects are more connected and they shift from one small country to the bigger ones, it happened in the global meltdown and what can prevent it from happening again with Europe being the player to watch. Austerity measures have had a huge effect on most economies receiving them and the more they are implemented in countries without other credible solutions than the austerity measures, economies will crack and this is the motivation that gold prices are waiting for. Unemployment is on the rise on a global scale with Europe’s rate rising at an alarming rate. Also growth for Europe this year has been pegged at zero percent and this might mean that it can also go down to a negative territory. Italy also has struggled mainly due to its politics which is now more of a game than business as at the moment there is  an impasse on the formation of the government. Asia also which has the fastest rising economies in the world is not much interested in investing in Europe due to the conditions that apply there as they claim that the economy is run by the Americans, Germany and Britain whereas it needs its space to do business at its will just like what it’s doing in Africa.

With all these factors gold is still the best hedge commodity against the risk that the economies now bear which will negatively affect the stock market and lead the world to a another crisis. Gold prices might be on a rise in the second half of the year as at the moment the stocks are the current money-makers but after the 2nd half we might be singing a different tune. Also with uncertainty in most economies gold is a good buy for the long-term investors as gains might not be seen now but in time it will shine bright. In time all that glitters will be Gold.