End of the Wall Street investment bank

“Goldman Sachs and Morgan Stanley last night abandoned their status as investment banks in a move marking the end of an era on Wall Street”

The two investment houses yesterday received the regulatory approval to transform themselves into traditional bank holding companies.

While the change appears to be a technicality, it means that both banks have equal and permanent rights to access emergency funds from the US central bank, the Federal Reserve. They will also be far more tightly regulated.

After the collapse of Bear Stearns, then Wall Street's smallest investment bank, in February, the Federal Reserve extended its emergency lending facilities — called the discount window — to investment banks as well as commercial ones. Investment banks were more limited with the types of collateral they could use as backing for the Fed loans so were at a disadvantage to their commercial rivals

The conversion of both banks is a watershed moment for Wall Street, effectively marking the end of the New York investment bank.

The credit crisis, which erupted on Wall Street a year ago, has shown that the business model of the investment bank no longer works. Commercial banks are cushioned by deposits from retail customers who hold savings accounts and mortgages. However, the bulk of business conducted by an investment bank is done with other banks, and such business can be withdrawn with a phone call.

Bear Stearns and Lehman Brothers, both investment banks, have collapsed, Merrill Lynch was acquired by Bank of America last weekend, and Goldman Sachs and Morgan Stanley have changed their status.

Source: Times Online

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Goldman Sachs Leads Hedge Fund Stragglers

“Goldman Sachs Group Inc.'s (GS) flagship Global Alpha fund recorded the biggest loss of almost any hedge fund last year as the industry struggled to match the double-digit returns of 2006.”

The Global Alpha fund, which started last year with $10 billion, made an estimated loss of 39%, according to an investor in hedge funds, who has seen its initial results for December.

The fund lost money after recording a 7.7% drop in the last full week of July. It made a 6% loss in 2006 and a 40% gain in 2005.

The investor said: "Any independent manager with those figures would have gone out of business."

Goldman Sachs, which in August invested $2 billion of its capital into another of its hedge funds, Global Equity Opportunities, declined to comment.

The hedge fund industry made close to double-digit returns for the year, with many funds failing to improve on their performance for the first 11 months.

Of the seven data providers publishing hedge fund performance estimates, four showed returns of between 8.97% and 9.9% for the year to November, while three showed returns of between 10.06% and 12.04%.

An initial estimate of last month's returns, the investable index published by Hedge Fund Research, showed a loss of 0.07% to December 28.

The industry recorded a gain of 13% in 2006, which investors and bankers described as a return to form after two years of single-digit returns.

Each main strategy is expected to record positive returns for last year, led by emerging markets funds, which were up 22.7% for the first 11 months, according to Hedge Fund Research and 18.7% according to Credit Suisse/Tremont.

Global macro funds, which trade in derivatives based on government bond yields and foreign exchange rates, were up 10.9% for the first 11 months and gained a further 2% in December, according to Hedge Fund Research's indices.

Long/short equity funds, following the largest hedge fund strategy, were up between 9.9% and 13.2% for the first 11 months, according to the main data providers, but fell 0.5% in December, according to Hedge Fund Research's investable index.

Fixed-income arbitrage hedge funds struggled, with an estimated return of 3% for the year. Convertible arbitrage funds were expected to finish the year up 4.3% and distressed debt funds up 5.5%. Individual funds generated high performance.

U.S. firm Paulson Capital Corp.'s (PLCC) event-driven fund was up 52%, according to an investor who has seen the fund's returns, while its credit opportunities fund was expected to record returns in the high hundreds by shorting sub-prime U.S. mortgages.

Kensington, the flagship fund run by Citadel Investment Group, was up 27% and U.S. firm Atticus Capital's European fund was up 26%. Highbridge Capital, the flagship multi-strategy fund of JP Morgan-owned U.S. manager Highbridge, the world's largest hedge fund manager, was up 6%.

Richard Blake, a senior portfolio manager of Comas, Commerzbank AG's (CRZBY) fund of hedge funds business, said its multi-strategy fund of funds had recorded a net investment return of 14.15% for the year, with volatility of 2.75%, its best return since launch eight years ago.

Richard Watkins, chief executive of U.K. investment consultant and placement agent Liability Solutions, said he expected 2008 would be good for hedge funds.

He said: "Investors will pour in money this year. I think the amount of assets in hedge funds will double to $4 trillion within the next three years."

Source: http://www.efinancialnews.com

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John Thain to deepen 'team work' at Merrill Lynch

“Thain plans overhaul of Merrill Lynch management culture to better emulate Goldman Sachs”

Thain, stated that he believed there was insufficient co-operation between senior Merrill executives. “Merrill has a strong culture but they don’t have the same teamwork at the senior level,” Thain said. “It needs a more co-operative team approach.” Goldman Sachs has long operated on a consensus basis style that dates back to its history as a private partnership firm.

Consensus Style: Effective strategic leaders know how to get everyone involved in policy making and build consensus in the process. Within large complex organizations, whether public or private, consensus is the engine that sustains policy decisions. No strategic leader can succeed unless he or she can build such consensus. Thus, the search for consensus among peers, allies, and even competitors becomes a requirement for shared commitment to a national policy, and to corporate, business policy.

Challenges of Decision Making ...

A team leader has two overriding responsibilities: First, the leader is accountable for the effective functioning of the team. The leader monitors team performance and takes action to improve team effectiveness. Teams tend to perform best when responsibilities are shared and leadership tasks are distributed among members. Empowered team members are more likely to take responsibility for team success. Second, the leader is responsible for developing a stable leadership structure. Many decision-making teams tend to be more effective when the framework for leadership is clear. These teams tend to work more efficiently, have fewer interpersonal problems, and produce better outputs. Common observations of the strategic decision making process that contribute to the leadership challenge include:

Diverse Team Membership
Lack of Policy Guidance
Low Team Authority
Internal Politics
Organisation Inertia
Lack of Integration
Gaps and Ambiguities

Given these difficulties, it should be no surprise that team meetings can be a journey into foreign territory for each team member. By adopting a "consensus style" of leadership, some of these problems can be eliminated.

Strategic Teams
A strategic team's goal is to make decisions that best reflect the thinking of its members, thus 'forging' consensus. One can easily confuse what consensus is and isn't. Here are some guidelines (Scholtes 1988)

Consensus is having a shared vision for change and common ground found through understanding and negotiation. The framework for consensus is

* Set an agenda for change.
* Build networks and coalitions.
* Conduct bargaining and negotiations.

Consensus Team Decision Making Model (CTDM) identifies factors that distinguish high-performing teams from less productive ones:

* High Conceptual Level
* Prudent Consensus Approach
* Vigilant Decision Management.

CTDM portrays a thinking, collective group capable of high performance. Within the three pillars, there are 14 success factors critical to excellence in team decision making.

CONSENSUS is
* both process & outcome. Consensus is a process in which everyone has their say.
* agreement, but not necessarily complete agreement.

CONSENSUS is not
* authoritarian, perfect, conformist, or bland.
* the team leader imposing decisions & team members complying.
* a perfect team agreement representing first priorities of all team members.
* a unanimous decision.
* majority vote.
* "groupthink,"
* a bland, watered-down proposal having no substance, and entailing no risks.

A consensus decision is one that all team members can support.(Brilhart and Galanes 1989). Effective consensus falls somewhere on a continuum between perfect agreement and total discord.(Priem 1990).

Strategic decision-making teams must operate at the proper conceptual level. This means employing multiple frames of reference and "staying out of the weeds." They search for consensus among themselves, within their organizations, among interested groups, and with the public. Finally, strategic teams avoid consuming limited resources or prolonging action, thereby missing strategic opportunities.

* What is the success factor?
* Why is it critical to strategic teams?
* How do high-performing teams exercise the factor?
* How do less productive teams fail to apply the factor?
* What methods help strategic teams improve?

How you make decisions at the strategic level is just as important as the decision itself. The best decision in the world is nothing without a powerful consensus for action. The most perfect consensus in the world is useless unless it has produced a decision that is good for the organization. At the front end of the entire consensus team decision making process is something called "inputs." People who enter into a consensus decision making must come armed with critical and creative thinking skills that will allow them to efficiently and effectively function at the strategic level.

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Goldman Sachs pay exceeds Bear Stearns market cap

“Goldman Sachs has earmarked $16.9bn (€11.5bn) for compensation and benefits for the first nine months of this year”

If its employees pooled all their pay they would be able to buy struggling rival investment bank Bear Stearns with money to spare. The stock market values Bear Stearns at about $14.7bn, so Goldman bankers and other workers would be able to buy the bank led by Jimmy Cayne with more than $2bn left over, according to Bloomberg.

Goldman was the best-performing investment bank in the third quarter when it reported a 79% surge in net profits, while most of its rivals suffered lower or non-existent profits. This enabled the bank to raise compensation for the third quarter by 68%, compared to the same period a year ago, to $5.9bn.

Compensation and benefits expenses were increased by 21% for the first nine months of the year, from $14bn at the same stage in 2006.

Compensation at Bear Stearns for the nine months of the year was $3.1bn, down 5.9% on a year earlier.

Goldman employed 29,905 people at the end of August, while Bear Stearns had almost half that number, with 15,516 workers. Based on those figures, the average compensation of a Goldman employee this year stands at about $565,000, compared to about average pay of about $200,000 at Bear Stearns.

Source: Financial News Online . Dominic Elliott

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Rollins Out; Michael Dell Returns as CEO

Its all change at the top for Dell. Does Michael Dell have what it takes to turn the $60 billion company around? It's been years since he shouldered day-to-day operational responsibility on his own. Dell says he has a clear plan. Michael Dell believes the company's supply chain and manufacturing can be improved.

“I think you're going to see a more streamlined organisation, with a much clearer strategy.”

In recent months, Dell has struggled as its market share has slipped and an SEC investigation into Dell's accounting and financial practices has dragged on. According to Goldman Sachs, Dell is losing share in business spending for PCs.

[Hewlett-Packard is also losing share of spending, while Lenovo (LNVGY) and Apple are gaining.]Dell, which has watched as rival Hewlett-Packard has drained away its once dominant market share, announced late on Jan. 31 that its namesake founder Michael Dell will return as the company's CEO immediately. Kevin Rollins, who took over as CEO in 2004, has resigned as the CEO and will abdicate his spot on the company's board of directors.

Read full article in Channel Insider

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Management Consulting top Career Choice

Top Consultants Survey ...Management Consulting still a top careers choice among MBA students McKinsey, meet Google, the new runner-up in the race for the most desirable place to work for MBA students.

McKinsey remains the most popular place to work for MBA students in the 2006 University Survey MBA Edition, but the upstart web-wizard Google shot top the ranking from 129th to 2nd place this year.

Google is now a serious threat to McKinsey's 12-year reign as the most desirable employer among MBA students. Goldman Sachs is a very close third - only 0.01 percent behind Google. General Electric and Johnson & Johnson - two consumer brand household names - retain their top 10 positions, landing on 8th and 9th respectively. Other, more traditional MBA employers round out the Top 10: Bain & Co. (4), The Boston Consulting Group (5), Citigroup (6) and Morgan Stanley (10).
Key findings of the survey include:

New Top Industry: Management consulting grabbed first place again after spending one year as the runner-up. Financial Services dropped to second place.

Moving West: The West Coast is regaining its position as a business hub. Nike (12) and Walt Disney (14) break into the Top 15 for the first time while Starbucks (22), Microsoft (16), Harrah’s Entertainment (40) and Intel (25) are among West Coast companies that moved up on the ranking this year.

Men want family: For the first time, work-life balance is the top career goals among male MBAs (48%). Moving up from fourth place, it passed build sound financial base (37%), influence corporate strategies (31%) and reach managerial level (27%).

− More than work: Overall, work-life balance is strengthening its grip on the top spot for career goals, some 50% of the respondents chose it as a major career goal followed by build a sound financial base (37%) and influence corporate strategies (28%). This global trend is picking up speed again as the economy is getting better and students enjoy more job security.

New Goals: Students were for the first time asked to rank "manage projects", "contribute to society" and "become a specialist" as career goals. "Manage projects" and "contribute to society" were the most important goals of the new alternatives, finishing 7th and 8th - ahead of more traditional goals such as "start a business" and "develop new products".

More Money: MBAs want $88,000 in annual salary at their first job after graduation - a $6,000 jump compared to last year. Expected annual salary five years after graduation rose to $167,000 - a $10,000 increase from last year.

Money-Makers: Venture Capital is back in the top spot as the industry with the highest salary expectations ($103,200). Investment management finished 2nd ($98,100) followed by management consulting ($97,600).

Focus on Health: Health insurance is the second most important factor when students decide to accept or reject an offer from employers. Only annual base salary is more important.

IDEAL Image: Industry leadership, attractive location and financial strength are the three most important characteristics that MBA students associate with their top employer. Innovation is more important to men, while women value a strong corporate culture more.

IDEAL Offers: Competitive compensation is by far the most attractive offer an employer can make. Women however, value flexible working conditions more than men while men value long-term compensation potential more.

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