A reader of Salmon's blog then presents the point of view of a banker regarding Goldman's conflicts of interest which turn out not to be a barrier to working for clients but the precise reason why Goldman is sought out by clients. Goldman is chosen for its conflicts of interest which represent the many and varied relationships that Goldman has established over its many years of business experience. See the article here.
Finally, Matt Levine weighs in on investment bank conflicts which are sought for their "Execution and Connections" strategies. So the meaning of conflict of interest depends on your point of view: a judge will see "breaches of fiduciary duty;" an investment banker will see Execution and Connections; and if you are a citizen wondering about how Goldman Sachs keeps getting wealthier and wealthier while ordinary pensions and savings slowly erode, you see the legalization of fraud and corruption that is buried in complexities created by the financial system.
Meanwhile we, the public, are desirous of having more transparency in investment banks' dealings; we would appreciate new rules which would make both unethical and immoral behavior illegal behavior with severe penalties for breaching those behaviors.
One More Thing For Governance Day
By Matt Levine - DealBreaker
Felix’s correspondent is a guy who has actually been an investment banker, and has used investment bankers while in private equity. If you are an investment banker, or a consumer of investment banking services, your view of those services will be roughly the view he outlines*: bankers provide a mix of tactical advice, financial modeling assistance, market knowledge, execution expertise, and introductions and relationships.
But if you are a Delaware court or, let’s be fair, a shareholder, your view will come from what you actually see. And what you see is: banks provide fairness opinions (and the underlying comp-and-DCF analyses). They tell boards, and by extension shareholders, whether the price obtained in a merger is a good price, or is not a good price.
That is actually a stupid function for banks to provide. Like, let Egan-Jones do it. But through a quirk of history,** it is a function provided by the investment banks, and a function examined with great intensity by courts – who like nothing more than producing paint-stripping 50-page opinions excoriating the unfairness of particular fairness opinions.
That quirk is, I suspect, a fertile source of badness. There’s the badness identified by Felix’s correspondent: the public gets suspicious of investment banks for having the relationships that are the source of their value. There’s a badness in court decisions: one way to read the M&A decisions that require additional go-shop periods for target companies which never produce overbids is that the court believes that the M&A deal is just about an objectively determinable “fair” price, whereas it’s actually about contacts and context and relationship, and various human factors combine in unsurprising ways to prevent an overbid in a court-ordered go-shop.
It is also maybe a source of principal-agent badness: bankers really do provide value by creating relationships, and by understanding the human dynamics at work in a merger. That involves building friendships and trust not with a black box with arrows pointing to shareholders, but with the actual human beings who run companies. As long as everyone understands that bankers work with and for those human beings, that’s great. But when people begin to think that the banks’ role is to provide only objective computation of merger fairness, and to work cold-bloodedly to get the highest price regardless of what that does to repeat-player relationships, then they set themselves up for disappointment.
Read the entire article here