(Singapore, SG) Fagins should have learnt this lesson earlier.

An article which I wrote for the Wharton Journal (Vol52 No. 17), after attending a discussion with Joesph Perella, has been published. I have reproduced the article below.

Mr. Joseph Perella, former vice-Chairman of Morgan Stanley, spoke in Philadelphia on Wednesday, October 11th to Wharton students on his reflections on Wall Street. He joined Morgan Stanley in 1992 first as head of mergers and acquisitions then as chairman of the Institutional Securities and Investment Banking Group before resigning last year to set up Perella Weinberg Partners. He just finished raising over $1 billion for his new firm.

Mr. Perella spoke on how investment banks have lost focus of their clients. He argues that bulge-bracket investment banks suffer from a crisis of mistrust as they play both sides of the table: on one day they are advising a client and on the next, they are acquiring the same client. The swelling profits in private equity arms of investment banks have raised concerns of conflicts of interests. Investment banks might own stakes in competitors of the firms they advise, or might even acquire the very firms they were advising.

Mr. Perella also blames the entry of commercial banks into investment banking as a cause of investment bankers encouraging transactions regardless of whether a deal is in their clients’ interests. Commercial banks have depressed profits and commoditized the service provided by investment bankers. In turn, investment banks compensated for the decreased profits by raising the quantity of their transactions.

The Perella Weinberg Partners’ vision for investment banking is to re-emphasize client relationships. Mr. Perella argued that this firm will be the last thing he does on Wall Street before he retires and he hopes to leave a legacy behind. He believes that investment banks grow at the expense of clients and he even wishes that these banks will continue to grow. This is because the growth of Perella Weinberg Partners’ competitors will only increase their conflict of interests and create greater mistrust between them and their clients. This will enhance the need for the services which Mr. Perella hopes to provide.

In charting out the future for his firm, Mr. Perella highlighted the role of serendipity. Although he has tentative plans for setting up an office in Dubai, he argued that actual plans will depend on the opportunities that arise. In setting up Wasserstein Perella & Co. in 1988, Mr. Perella did not imagine that they would have a junk bond desks bringing in $30 million a year. However, Mr. Perella ended up hiring traders who left leading junk bond trader Salomon Brothers as scandals rocked the firm.

For Mr. Perella, investment banking is not just about bonuses. It is a profession with its own code of conduct which says “clients come first.”

Written by Oikono

Student in the Huntsman program in International Studies and Business (Wharton/ College 2010).