New Book Reveals How Wall Street Firms are ‘Gaming’ the Capital Markets


Mike Mayo, a banking analyst who has worked at six Wall Street firms and has a reputation for independence from the banks he covers,recently published a book that reveals the fundamental unreliability of Wall Street research recommendations. When Mayo started out on Wall Street, he says he called them as he saw them. But when his analysis was negative on a firm the firm cut back on business with his bank, and Mayo was penalized. In 1999, Mayo made a controversial call to sell bank stocks. Even though he was proven correct, he was fired by Credit Suisse in 2000. In 2002, he testified before Congressional committees about the conflicts of interest on Wall Street, and took his message to the media, but nothing changed. Ten big Banks paid over $1 billion to settlement analyst fraud charges in 2003. Then Wall Street returned to business as usual, and the system is still riddled with conflicts.

Now Mayo has written a book entitled “Exile on Wall Street: One Analyst’s Fight to Save the Big Banks From Themselves.” The book blasts big Wall Street banks for putting their own interests ahead of their clients when it comes to their research.

“This is not capitalism, this is butchered capitalism,” Mr. Mayo was quoted as saying, adding: “The book encompasses a couple of decades of experience of how the markets aren’t functioning properly.”

“The banking conflicts are real,” veteran analyst Nicole Parent agreed, adding: “Research within the large banks’ business model is seen as a cost center. In our model [i.e., the independent research firm model], it is a source of revenues ? the only source of revenues.”

Many mutual fund managers privately say they pay little heed to the big banks’ research.

Today, Mayo is a bank analyst at Credit Agricole Securities. He expresses sympathy for the Occupy Wall Street movement, and outrage over the excessive pay Wall Street banks lavish on executives, even when they perform poorly. “That’s not capitalism, that’s entitlement,” Mayo was quoted as saying, adding: “I’m as outraged as them. I’ve been on the inside protesting for 20 years.”

Mayo explained: “Citi is a prime example. Just look at the last decade. The bank has paid out one of the highest CEO compensation of any bank and had the worst stock price performance. And here they go again with what we view as another rigged compensation scheme. The current CEO Vikram Pandit has made a big deal about taking a token $1 as salary after the financial crisis. But that’s disingenuous. Before that, Citi had already awarded him about $38 million in 2008, along with another $165 million from the sale of his hedge fund in 2007. Citi stock is down 90 percent during his tenure.

Capitalism works when rules are put in place and strictly enforced. Not when government looks the other way when rules are broken and then steps in to protect banks that cannot deal with the consequences of their bad decisions.
Capitalism works when executives are rewarded for performance, not when the rules are written so that they walk away with fat paychecks even when things go wrong.
The bad actors on Wall Street have done a lot of damage to capitalism. Those who speak up are sometimes exiled. The watch guards need to be allowed to see and act. They are the checks and balances that make capitalism work.”

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