Bruce Wasserstein: danger of star culture

Vanity Fair's portrait of Bruce Wasserstein confirms our long-standing suspicion that he was a brilliant deal maker - for himself. The 'bid them up' method of merger 'advice', the sale of his firm to a naive Dresdner Bank and his rapid departure afterwards should be a warning for any firm that tries to build its business on the shoulders of 'stars'.  It also illustrates the Peter Principle as most organisations have their share of senior managers who have outlived their usefulness.  In this respect it is curious that a large new office is constructed for Felix Rohatyn who is about to return to Lazard as a senior advisor. This brings back memories of another new office for a senior official in the dying days of the old Merrill Lynch. Could one say there is a 'New Office Syndrome' where a big ego needs a big office to feel safe and secure in its position?

Private Equity burns its fingers with BAWAG-PSK

News that the value of the stake in Austria's BAWAG-PSK bank that the private equity fund Cerberus bought in conjunction with an investor group may only be worth a quarter of the purchase price makes sobering reading. It demonstrates that overpriced acquisitions are not only the consequence of muddled thinking by the managements of established banks but can also lead the hard-nosed managers of private equity funds astray. While traditional managers are often seduced by the excitement of the hunt the fund managers may be pressurised by the need to put to work the money they have collected in the fund.   

How to control Commercial Property Lending

A report by the US Congressional Oversight Panel states that more than half of all outstanding commercial property loans are larger than the value of the underlying property highlight the need to reign in the banking system's freedom with respect to lending to commercial property. The report prompted us to submit the following comment to the Committee:

One often has to wonder how individual 'developers' can amass huge fortunes when most of them never had a shovel in their hand. A quick glance at the list of Billionaires in the Forbes list confirms that property development (and speculation) is an extremely profitable business for the few. A lot of this apparent success is due to the endless inflationary spiral during the post-war years, some is due to entrepreneurial spirit - but a lot is also due to lax lending practices (sometimes aided by dubious practices, the least pernicious being free tickets to sports events and meals in lavish restaurants provided to loan officers).
Reform should put strict limits on the loan value of any commercial property. At the same time 'interest only' loans should also be put under the spotlight. If they are deemed to be too risky for private homeowners they are even more risky in the hands of professional speculators and cannot be allowed to put the banking system under undue risk.