Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits (6 page)

SOO-JIN PARK LOOKED
around the Sheraton ballroom and saw pantsuits. Lots of pantsuits. Black and navy ones, mostly, but also the occasional red, which she figured must indicate the presence of a very senior executive. In finance, you didn’t wear a red pantsuit unless you had amassed real power and were unafraid to convey it.

Even though she thought of herself as confident, it was hard for Soo-jin, a risk analyst at Deutsche Bank who stood five-two in heels, not to feel intimidated by her surroundings. She was at the Women on Wall Street Conference, an annual gathering put on by her firm to draw attention to the concerns of women in the financial sector. Two thousand women came to the Manhattan Sheraton from nearly every bank in New York to nibble on cake pops, drink Chardonnay, and listen to a panel of high-ranking women that included private equity executives, bank bosses, and entrepreneurs. And most of them, she thought, seemed to have their shit together.

A few minutes earlier, Soo-jin had finished hearing Deutsche Bank’s male investment bank chief, Anshu Jain—who would later become the bank’s co-CEO—give a fairly harsh condemnation of Wall Street’s boys’-club legacy. “From a national origin standpoint we’re effortlessly diverse,” Jain said. “And yet our industry’s track record when it comes to gender diversity is a long way from what we’d like it to be.”

Sitting halfway back in the ballroom, Soo-jin nodded knowingly. She’d come to Wall Street from the all-female Wellesley College, where she majored in economics. She had hoped to land a front-office banking job at a major firm after graduation. But those were the dark days of the financial crisis, and investment banks were hiring only the bare minimum number of first-year analysts necessary to do business. Instead, she’d been steered by a career counselor to risk management, a division that was considered middle-office but, on the plus side, was hiring.

The starting compensation in risk management was still good—a $60,000 base salary, with a bonus of about $15,000 at year’s end. And the hours were better than in the front office—9:00 a.m. to 6:00 p.m. on an average day. Soo-jin decided she was willing to give up some of the money and prestige of the front office for the sake of having a job at all.

Having come from Wellesley, Soo-jin was attuned to the challenges she might face as a woman in a male-dominated industry. And she’d arrived at Deutsche Bank feeling optimistic. She had pored over the firm’s recruiting materials, which looked like brochures for liberal arts colleges, filled with happy-looking multiracial crowds and testaments to diversity and harmony. To her untrained eye, the bank looked like a place where being female would be, if not an asset, at least a nonliability.

But she had quickly discovered that her risk management group was still a man’s world. The unit was run by an ex–military officer who ran it in the rigid, disciplined style of an Army platoon. Soo-jin was the only woman in the group who wasn’t an administrative assistant. And for years, anyone getting promoted within the division was put through “risk college,” an orientation program that included several boot-camp-type physical challenges. Military culture, in fact, seemed to set the tone for the entire bank—from the chief executive’s office (he, too, was a veteran) right on down to the uniformed officer, outfitted in military fatigues, who stood outside the bank’s 60 Wall Street headquarters every day and greeted employees as they entered.

Soo-jin got friendly with some of the other women on her floor, who were sales analysts, administrative assistants, and brokers. They were nice enough, but they weren’t exactly icons of female empowerment. A typical day’s conversation in the pantry might cover the subjects of celebrity gossip, hair stylists in Manhattan, and fashion. One woman, an older assistant in an adjacent group, had once asked Soo-jin for a favor. “After you get your bonus, could we go purse shopping together?”

Soo-jin cringed at that, and at many of the other social niceties of the bank’s female clique. She was used to Wellesley, where women sat around the dining hall discussing politics and international affairs, planning careers in the halls of power. And she suspected that being seen discussing shopping for purses with administrative assistants wasn’t helping her career prospects.

The cause of female advancement on Wall Street was a perennially thorny issue that only got thornier during the years leading up to and including the crisis of 2008, when several of the most senior women in finance—executives who had served as role models for young women across the sector—lost their jobs. Zoe Cruz, the number two executive at Morgan Stanley, was fired in late 2007 by CEO John Mack. Erin Callan, the CFO of Lehman Brothers, was fired in 2008, shortly before the bank went bankrupt, and Sallie Krawcheck, a high-ranking Citigroup executive, was forced out of her bank two months later. Krawcheck, who was later hired (and ousted again) by Bank of America Merrill Lynch, later made a compelling argument that these weren’t accidents—that women had fared worse than men during the depths of the crisis. “On a case-by-case-by-case basis, as promotions are decided, they choose the known entity, who tends to be someone who looks and sounds a good bit like those already in leadership roles,” Krawcheck wrote of male executives, “and this seems to be particularly true when businesses are under stress.”

According to Melissa S. Fisher, the author of
Wall Street Women
, the number of women working in finance fell by 2.6 percent between 2000 and 2010, while the number of men in finance grew by 9.6 percent in the same period. Fisher blames the loss of female bodies, in part, on the crisis. “Many believed that a woman from their generation was poised to break through the ultimate glass ceiling in finance and become a CEO,” she wrote. “But instead of crashing triumphantly through the penultimate gendered boundary, these women, like the economy writ larger, were in freefall.”

Of course, compared to women of a previous generation, today’s Wall Street women have made significant progress. Thanks to diversity hiring efforts at major banks, mentorship programs, and the rise of gender parity in corporate America more generally, today’s incoming analyst classes are more diverse than ever before, and many first-year cohorts are nearly evenly split between genders. No longer are job applicants to Wall Street firms asked, “When you meet a woman, what interests you most about her?” as applicants to Merrill Lynch’s 1972 brokerage trainee class were. (The answer the bank was looking for was “her beauty.”) And banks now give their incoming workers lengthy sexual harassment seminars and strictly prohibit behavior that is deemed hostile to women, like holding client meetings in strip clubs.

But women’s progress in finance has been somewhat shallower than it appears. A 2006 analysis conducted by the
New York Times
found that 33 percent of first-year analysts were women, but only 25 percent of incoming full-time associates and 14 percent of managing directors. There are very few C-suite executives at Wall Street’s largest firms, and no female CEOs at all. At Deutsche Bank, where Soo-jin worked, women represented 44 percent of all staff, but only 16 percent of senior managers.

Just weeks before the Women on Wall Street Conference, both Goldman Sachs and Citigroup were hit with class-action lawsuits from female former employees, alleging gender discrimination. The former Goldman Sachs employees alleged that men were “viewed more favorably, receive more compensation, and are more likely to be promoted” than women at the firm. Citigroup’s former employees alleged that “the outdated ‘boys’ club’ is alive and well at Citigroup,” and said that women had been disproportionately targeted by layoffs during the financial crisis.

Soo-jin had hoped to use the Women on Wall Street Conference to sort through some of these issues, and hear from women who had successfully navigated them on the way to successful careers. But she found, to her chagrin, that real gender inequality was only given a light gloss, and most of the women on the panels seemed to cherish bragging about how
little
discrimination they’d faced. (Presumably because they wanted people to think that they were so competent at their jobs that they had overcome gender altogether.) During the panel, one female Deutsche Bank executive said, in response to a question about being treated as a social equal as a woman, that she “never felt that there was a boys’ club that I couldn’t join. If people went out for a drink, I always went, too.”

The executive’s nonchalance was troubling to Soo-jin, since even if it had been true in her specific case, it ignored some of the very real barriers that faced women in finance. Yes, she had often gone to drinks with her male colleagues. No, they had never said anything misogynistic to her face, or tried to sleep with her, or any of the other more common situations women on Wall Street had faced through the years. But there were a hundred subtle, insidious ways in which her experience as a woman in finance had been less than ideal. She felt trapped—in the middle office, in a division where there were few female role models for her, in a bank that seemed to give lip service to the idea of gender diversity but had few mechanisms in place to ensure that female analysts were actually being treated equally. And for the rest of the conference, she sulked, knowing the event had been mostly a waste of her time.

Several months later, Soo-jin saw something even more troubling. During a press conference, in the midst of a European debate about whether Germany’s government should set gender quotas for German corporate boards, Deutsche Bank’s then-CEO, Josef Ackermann, said that he hoped to add women to the bank’s executive committee in order to make it “more colorful and prettier.” The apparent joke landed with a thud in the European press, and caused a backlash among Germany’s political leaders, who accused Ackermann of tone-deaf sexism. (One leader, consumer protection minister Ilse Aigner, responded, “Whoever wants it to be more colorful or prettier should go to a flower meadow or a museum.”)

After reading about Ackermann’s comments and the outrage that followed, Soo-jin decided to take action. She wrote a lengthy e-mail to the female Deutsche Bank executive who, months earlier, had made the comment at the Women on Wall Street Conference about never feeling left out by virtue of her gender. As politely as she could, Soo-jin thanked the woman for her presentation, but suggested that “unfortunately, I think what you said threatens to undermine the steps you are taking to correct the gender issues that exist at Deutsche Bank.” To Soo-jin’s surprise, the executive replied, and pasted in a statement that seemed to have been written by a lawyer or a PR expert. (The statement touted Ackermann’s “concrete endorsement together with that of his colleagues on the Group Executive Committee of greater gender diversity in the bank’s management positions,” which showed that “he and the bank support a performance-driven promotion of women [and men].”)

Soo-jin read the statement with a sigh. Officially, the bank was still essentially claiming that all women at Deutsche Bank needed to do in order to advance was work as hard and perform as well as men—that there were no barriers in place that kept them from moving up the ladder, except the limits of their own talent and ambition.

She hoped that was the case. And, deep down, she didn’t know if Deutsche Bank was truly an openly hostile place for women or was simply mired in the past. But she found the executive’s response flimsy and trite. It completely ignored the structural challenges that have existed for females on Wall Street for decades. And that night, Soo-jin found herself getting paranoid and fearful about her professional future. After all, if a top female executive wasn’t willing to stand up for young women like her, maybe nobody was.

IT WAS A
slow afternoon in the Goldman Sachs commodities division, and Jeremy Miller-Reed was finishing up a conversation with one of the vice presidents in his group. He spun around to go back to his desk, and ran with a thud into a passing colleague.

“Ah!” he said. “Sorry, man.”

Jeremy looked down, and was horrified to see that the man dusting himself off was none other than Lloyd Blankfein, the firm’s CEO, who had been making the rounds on Goldman’s trading floor. Jeremy was mortified. He’d always wondered when he would run into Blankfein, who by virtue of his position was generally considered the most powerful man on Wall Street. But he hadn’t meant it literally.

Luckily, Blankfein had a sense of humor about the collision.

“Security, get this kid out of here!” he said, a broad smile on his face.

It was a rare misstep for Jeremy, who was quickly distinguishing himself as one of the most promising first-year analysts at Goldman.

Jeremy was in the energy group within commodities, meaning that most of his job consisted of acting as the middleman between buyers and sellers of oil and gas derivatives. The bank’s clients—typically large airlines, shipping companies, and refineries—used these derivatives to protect themselves against fluctuations in the price of fuel caused by a production shortage, a major geopolitical event, or a natural disaster. Goldman’s traders would run the numbers and decide the right price to offer, and salespeople—who worked right beside them—would execute the actual transaction and take a commission on the deal.

At first, Jeremy’s work had consisted of booking trades made by more senior members of his team. But he soon advanced to making deals of his own.

Energy sales and trading, like most jobs in finance, involved a huge amount of jargon and shorthand, and Jeremy had quickly learned to decipher most of it. He’d learned the difference between NG (natural gas) and HO (heating oil), and between Nymex (the New York Mercantile Exchange) and the IPE (the International Petroleum Exchange). He’d learned about options, enhanced-value swaps, swaptions, costless collars, and something called a three-way, which sounded kinky but was in fact a complex kind of derivative trade.

Several times a day, clients would call the desk asking for some exquisite beast of a trade, and Jeremy would get to put his newfound knowledge to use.

“Can I get an offer on the 70-by-110 collars in Cal 15 for 50 lots per month?” a CFO of a large airline might say. (Translation: “How much will it cost me to buy a collar trade—a trade that allows a buyer to effectively take out insurance against rising oil prices without paying a large up-front premium by simultaneously buying call options and selling put options on the same security—that has a put option struck at $70 a barrel and a call option struck at $110 a barrel, that settles based on where oil prices end up in the calendar year 2015, and that covers 50,000 barrels of oil per month?”)

Jeremy would put the client on hold, and use Goldman’s proprietary options pricing software to figure out the correct price of the trade. Then, once he had the price, he would take it back to the phone.

“I can do that structure at $4,” he’d tell the client, meaning that the trade would cost $4 per barrel in option premium, or $2.4 million in total.

“Okay, let’s do that,” the client would say.

Before closing the trade, Jeremy would stand up from his chair and yell to Magnus, the senior trader who sat several rows away, to make sure that the $4 price was still valid.

“Hey Magnus!” he said. “Are you still there on that 70-by-110 collar in Cal 15?”

“Yep!” Magnus would yell back.

“Okay, we’re done on that,” Jeremy would tell the client before hanging up and entering the trade in his log.

Making a trade took five minutes, at most. But it would leave Jeremy with an adrenaline rush for hours. He loved the quick thinking and sharp analysis it required, and getting to stand up and yell on a trading floor made him feel like he was acting in a Wall Street movie set in an earlier, more exciting era.

Jeremy was still a long way away from being a rainmaker. The trades he executed might generate fees of $100,000 for Goldman on a good day—a far cry from the haul some senior traders pulled in. But he still felt proud. He had no formal financial education—hell, he’d never heard of most of this stuff until the previous summer—and yet, in a matter of months, he’d been able to assimilate himself into the Goldman Sachs machine and act as an official representative of Wall Street’s premier investment bank.

Compared to the bankers upstairs, the salespeople and traders on floors 3, 4, and 5 of 200 West Street lived lives of leisure. Unlike bankers, who work around the clock, traders and salespeople generally work from 6:30 or 7:00 a.m. to 5:00 or 5:30 p.m. They generally aren’t tethered to their phones outside of market hours, and many don’t even think about coming in on the weekends. (The exceptions are traders who deal in foreign markets and who often work hours that correspond with the time zones they trade in.)

Traders also define success differently. Banking is a client-service business, and being able to schmooze for new business is part of the job. But trading is a meritocratic exercise in execution. As a trader, it doesn’t matter whether you’re charming, whether you dress well, or whether you went to Harvard or community college. All that matters is what your P&L, your running “profits and losses” tally, looks like at the end of the day. (Salespeople, too, focus on P&Ls, but they have to be slightly more polished, since they interact with clients.)

That emphasis on results over charm made Jeremy’s job highly volatile and gave him a smaller margin of error than a banker might have. He’d found out how small the margin was when, during his first-ever solo trade—an options contract for jet fuel that he sold to a major airline—he’d made the mistake of rounding the number in the fourth decimal place down, instead of up. The error only cost him a thousandth of a penny per gallon, but given the huge volume of the trade, those thousandths added up—to more than $8,000 in total profits given away. By getting one number wrong, he’d cost the bank the equivalent of a Rolex. Sheepishly, he told his boss, the Senator, what had happened.

“Well, that was pretty fucking stupid!” the Senator replied with a laugh.

Despite his early mistakes, Jeremy had grown to appreciate his desk. The Senator was a tough boss, but he was fair and always made sure to offer help when it was needed. Jeremy liked most of the people in his immediate group, and he respected the way they did business. He had halfway expected to discover fraud and wrongdoing after the Abacus scandal and the bad press of the last few years, but he found, to his pleasant surprise, that the bank treated its clients fairly and decently most of the time.

Which is not to say that Jeremy’s experience had been boring. Every day, things happened on the fifth floor of 200 West Street that seemed to have originated inside a Wall Street cartoon. There were the European analysts who had come over to New York for training and had bragged about going out to exclusive Manhattan clubs thirty-six nights in a row. There was the head oil trader, a former Ivy League wrestler named Fred, who once bet his colleague $200 that he could hold a plank position for five minutes straight. (Fred won the bet and used the winnings to buy pizza for everyone on the floor.) There was the endless lighthearted mockery of analysts by older traders and salesmen, which simultaneously flattered the analysts and made them fear for their lives.

And there was the endless, relentless pursuit of money. In Jeremy’s little corner of the trading world, all that mattered was a person’s P&L and a related number, called “gross credits” (or just “GCs”), which measured revenue generated by a single employee. Workers used both their P&L and their GC count to estimate their likely bonuses the following year.

Jeremy had gotten a sense of how little else mattered early in his first year, while sharing a drunken cab ride back from a group outing with several of his colleagues. During the ride, one colleague—a third-year associate—put him on the hot seat.

“So, Jeremy, why did you come to Goldman?”

Jeremy, who had downed a few drinks too many, slurred out the closest thing he could to an explanation. He told the associate that there was a lot of economic value in the work the desk did—that helping companies hedge their energy costs was a legitimate function of the capital markets, and that Goldman was the best place on the Street to do it. The associate took a moment to contemplate, then said, “You know, helping the world is great and all, but you need to be motivated by money.”

He’d said it so bluntly that Jeremy attributed it to the booze, but the next day, as he came down from his hangover, he couldn’t help but think that the associate might have been telling the truth.

Jeremy was no milquetoast. He knew banks like Goldman existed to make money for their shareholders, and that any societal benefits of the work they performed were mostly a coincidence. But he’d always been able to justify the moral dimensions of his specific role within the bank’s profit machine. Trading oil derivatives
did
seem like a useful function, and a well-timed trade could in fact create massive cost savings for a client—savings that, he imagined, could eventually be passed on to customers. Jeremy wanted to believe that a bank didn’t have to exist solely for its own preservation and enrichment—that all that stuff he’d heard in recruiting about being a “trusted advisor” to clients wasn’t just marketing fluff.

But now, he was starting to wonder whether he’d been fooled.

*  *  *

While Jeremy was being schooled on the commodities desk, Samson was plowing ahead in mortgages.

Samson’s group was a subset of the mortgage division that helped Goldman’s clients unload complex piles of mortgage assets they no longer wanted, and lined up buyers to take those assets off the clients’ hands. Samson typically got to work around 7:00 or 7:30, just in time for his group’s daily all-hands meeting. At the morning meeting, the heads of the group would discuss market events, outline a strategy for the current day’s trading, and announce the “axes” for the day. “Axes,” in Goldman-speak, were the trades that executives wanted to give the highest priority. Executing an axe might be getting rid of sovereign bonds that were expected to decline in value, or buying oil futures that were expected to spike later in the day. As a trader, it was in your interest to take care of as many axes as possible. Traders who came through on big axes would often get congratulated in the morning meetings, and often found their year-end bonuses increased as a result.

Three months after Samson joined the desk, he saw the biggest axe of the quarter unfold. One day, an associate in his group confided in him that Goldman had just closed a deal with another investment firm, whereby the firm had agreed to buy billions of dollars’ worth of mortgage-backed securities off the other firm’s books. This huge pile of mortgage-backed securities were much like the ones that had gotten banks in trouble during the crisis, but now that prices had stabilized, Goldman’s traders knew they would be able to resell them to clients at a markup. Over time, those bonds would likely produce more than $200 million in pure, unadulterated profit for Goldman. The deal was an “elephant,” in Goldman-ese—one so big that it could change the fortunes of the entire group.

Most days weren’t that exciting, of course. On a normal day, Samson might spend the early morning meeting with his VP about an insurance deal the bank was pitching. He might spend the late morning listening in on a conference call with a regulatory agency, outlining a rule change that affected clients’ capital needs. And he might spend the afternoon and evening putting together a presentation for a client, in which the client’s assets were sliced and diced into a panoply of charts, graphs, and tables, all of which combined to explain to a client why they should do business with Goldman Sachs—the only firm that could help them sort it all out.

There was a lot to sort out in the mortgage market in the fall of 2010. The housing market was still clawing its way back from the depths of the crisis, and foreclosures were still happening all over America. Thanks to the Troubled Asset Relief Program, the so-called backdoor bailout of AIG, and its own risk-management measures, Goldman had emerged from the crisis healthier than many of its competitors, and now it was making money by helping those same competitors get risky assets off their books.

It was a hell of a business model, and Samson liked taking part in what seemed, some days, like solving a giant puzzle—one that involved trillions of dollars in capital and touched on every region and sector of the financial economy. But the banking-type hours and the responsibility, combined with his hard-driving bosses and coworkers, were grinding him down. One night, after a tough day at work, he took his journal out and wrote:

Work fucking sucks. I can’t tell if my job sucks anymore than anyone else’s job. I don’t think it’s just the hours. It’s the hours + the people + the work. If I were learning something and around people I liked, I’d be much happier, and the hours wouldn’t fucking matter. I’m trying to determine whether or not I learned anything this week. Anything?

That summer and fall, Goldman Sachs continued to struggle with both its public image and its profitability. In July, it settled the Abacus fraud lawsuit by agreeing to pay a $550 million fine to the SEC, without admitting or denying guilt. In September, it began to disband Goldman Sachs Principal Strategies, its profitable prop-trading hub, due to the Volcker Rule and other new regulations. A month later, the firm announced mediocre quarterly earnings that were down 40 percent from the year before, and said it had cut its employee pay pool for the year by 26 percent. And, in a blow that may have hurt more than the others,
Vanity Fair
demoted Lloyd Blankfein—who had been number 1 on its “New Establishment” power ranking in 2009—to number 100 on its 2010 list, from first place to last place in the span of a year. The magazine called Goldman “the Wall Street powerhouse the population at large continues to hate.”

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