Govind Kumar Verma
Investment Banking Industry in 2001
In 2001, the main practice prevalent in the industry was consolidation. Companies went about it via purchasing smaller businesses, partnering with banks and Mergers & Acquisitions. Many preferred stable revenue over higher margins during the year and targeted the custody business instead of the lending business. The custody business is mainly about buying and selling securities/shares for the investors and is a low-risk fee-based business with high interaction between seller and customer. At the time 50% of revenue was paid as employee salary and therefore profits of the company were showing a declining trend. In the 1990’s investments banks were paying large amount of salaries in order to retain talent and make sure employees didn’t start their own businesses in competition with the banks. That strategy was backfiring on the banks as compensation costs became so high, that the company had declining profits. In recent years, the trend has changed; students are looking at large investment banks as career opportunities. However, this has brought about another problem for the banks, they weren’t built to handle the influx of so many eager and interested students.
Societe Generale is a bank based in France which started operations in 1864, nationalized in 1945, privatized in 1987 and purchased Cowen & Company in 1998 for $600 million. On the other hand Cowen was a bond brokerage firm which started in 1918 and was dedicated to research, equity sales and trading. Once the two companies consolidated and became SG Cowen, the loss turned into operating profit. Currently the company has 1,500 professionals and the main focus of the bankers is health care and technology, highly profitable areas of business. The company started operations in Boston...