Publicly traded investment banks = big mistake

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Scott Minerd, a former big-cheese investment banker at Morgan Stanley and Credit Suisse who now runs Guggenheim Partners Asset Management, isn’t a big fan of today’s investment banks. He made this clear a couple times this morning at a Milken Instutute Global Conference discussion on Private Versus Publicly Held Financial Institutions: Which Are Best Positioned? (Minerd wasn’t on the panel, but the moderator works for him and kept calling on him, clearly because she knew he’d say more provocative things than the other panelists, most of whom were mutual insurance company executives.)

Here’s Minerd on the rise of leverage on Wall Street:

I worked at Morgan Stanley a number of years. I was a partner, left in 1994. … At that time Morgan Stanley ran a balance sheet with 10-12X leverage. … They thought that was aggressive. By the time we got to the last decade, 30X leverage was the norm, and that includes only stuff on balance sheet.

Why’d that happen?

The drive to get stock price up became so overwhelmingly important … A lot of what went on on Wall Street was playing with shareholders’ money to benefit executives … It becomes especially suspect when the largest partnership in country becomes public and the CEO of company becomes Treasury Secretary to avoid tax liabilities.

Finally, as for the supposed increased access to capital that being publicly traded gives a company:

The idea that public companies have better access to capital is illusory. They have better access to capital 10 days of the year. Maybe 10 days of the decade, the way things are looking.