With the decline of the five major investment banks, the glory of Wall Street has become a thing of the past. The reporter had a dialogue with Dr. Gao Zhikai. Reporter: You have worked in Morgan Stanley for many years and served as the general manager of the investment banking department of CICC. Where do you think the root of the Wall Street crisis is?
Gao Zhikai: The biggest problems in the collapse of several major investment banks on Wall Street are the pursuit of profiteering, failure of risk control and failure of self-operated business. What impressed me most was.
Before the Asian financial turmoil and the bursting of the Internet bubble, the year 2000 was the boundary. Prior to this, the major investment banks on Wall Street were mainly traditional investment banks, namely financial consultants and corporate financing. From the perspective of income and profit, at that time, the traditional investment banking business accounted for more than half, and the sum of valet business and self-operated business was less than half.
At that time, the cost of capital was high and there was no doorway to financing. Merrill Lynch, for example, has long been a securities company providing stock trading services for thousands of households, with little self-operated business. At that time, Morgan Stanley always paid special attention to investment banking, and its self-operated business was far less important in the company than investment banking. Because the company does not have sufficient equity capital, any projects and transactions that use the company's own equity capital are cautious.
I remember Morgan Stanley once underwritten a company's bonds. Shortly before and after the issuance of bonds, the market has undergone tremendous changes. In the end, there were many bonds that could not be sold, and the $400 million was already panting. Christmas is coming, the boss of the company said half jokingly.
However, after the Asian financial turmoil, especially after the bursting of the internet bubble, the self-operated business of investment banks began to develop rapidly and expand viciously. Of course, the external reason is that the Fed cuts interest rates continuously to stimulate economic development, which makes the cost of capital very low. If inflation is taken into account, capital even reaches the point of no cost or even negative cost. The low cost of capital makes investment banks have the impulse to expand their scale and operate their own businesses. Driven by the pursuit of profiteering, the self-operated business of investment banks has expanded rapidly, constantly adding higher leverage in various ways, leaving risk prevention behind, thinking that there really is a never-ending feast. In fact, if you really do the traditional investment banking business, you don't need that much money at all. Finally, it deteriorated to dig its own grave, sinking deeper and deeper, and it was out of control.
Cheap liquidity in the market, coupled with high leverage ratio, makes Wall Street investment banks develop in a strange direction. In other words, financing first obtains a large amount of low-cost funds, then carries out self-investment with increasing risks, and then intentionally or unintentionally covers up risks with complex structural design and tricks, making the actual leverage ratio larger and larger.
In this process, investment banks continue to obtain cheap funds as a source, constantly distorting the leverage ratio, making risk control ineffective. There is a strange phenomenon that can confirm this point, that is, most of the top executives of investment banks come from the investment banking department. At the same time, the status of the traditional investment bank and the old bank is gradually weakening, and its role is relatively reduced. At the same time, the relative independence and service of traditional investment banking business have also changed, becoming a means to obtain customers through the front desk at no cost. Finally, proprietary trading business is used for subsidies and profits. By the time the financial tsunami struck, the self-operated business of Wall Street investment banks had occupied a dominant position, and the investment banking department had degenerated into an embarrassing situation of acting as the advance team of self-operated business. If there is no internal arrangement shared with proprietary business, it is impossible to pay the high salary of investment bankers. This not only completely changed the business philosophy of Wall Street investment banks, but also caused huge conflicts of interest, because the investment banking department ostensibly serves customers, conducts a comprehensive analysis of customers and grasps their sensitive information. In fact, its own business is also counting customers. It is not surprising that the low line of ethics, morality and law is constantly falling because of artificial wealth.
It can be said that Wall Street investment banks have turned the so-called expert investment bank model that uses mental labor to obtain and create value into a business model that uses funds as a bet to obtain huge profits. No matter in foreign exchange trading and commodity trading, as well as financial products such as subprime loans, it has become this kind of trading method. In addition, coupled with the greed of human nature and the negligence of government supervision, it is not surprising that Wall Street investment banks finally closed down. Reporter: In the face of the expanding financial tsunami, what challenges does China's investment industry face and how to deal with them?
Gao Zhikai: I think domestic securities firms can be divided into two categories, one is CICC and the other is other securities companies. Admiralty is unique. Because of its accurate grasp of China's economic operation and superior international positioning, CICC has gradually become the best investment bank in China. At that time, we returned to China with Morgan Stanley's technology and brought some excellent ideas, ideas and working methods of the whole Wall Street investment bank to China. For a long time, CICC can do what other domestic securities companies can't, because there is no professional background in this field.
Except for CICC, domestic investment banks are far from reaching the level of excellent investment banks on Wall Street in 1990s. So many domestic securities companies are almost carved out of a template, and there is no difference. They often make money for the same reason and lose money for the same reason. Due to institutional reasons, they do not attach great importance to professional wealth creation, nor do they attach great importance to the ability to help customers create wealth. The operation of investment banking business is usually formulaic, tabular and formatted, lacking skills and risk awareness. Have a unique control over risks. It is also necessary to understand the development trend of the industry and the real needs of customers. We must have the ability to find value and problems, help customers avoid risks, provide financial services and professional consulting services, and help enterprises climb up. Reporter: What do you think of the development of domestic securities firms?
Gao Zhikai: Although there are many problems in Wall Street investment banks, it is worth noting that these shining aspects are exactly what we have not yet obtained; If you don't remind yourself in time, this tragedy may happen to domestic brokers in the future.
There is nothing wrong with financial innovation itself. What is wrong is greedy, ignoring risks, covering up risks and beggar-thy-neighbor financial innovation. In fact, these behaviors are no longer financial innovation, but close to fraud. When we learn from the failure of Wall Street investment banks, we should not deny innovation, but encourage reasonable and fair innovation. Investment banks should become boosters and accelerators for enterprise development.