Saturday, February 21, 2004

The Perils of Investment Banking

Here's a story that nicely illustrates the often punishing reality behind the glamour associated in many minds with investment banking.

SLEEPY lawyers and bankers, exhausted after working on the takeover battle for AT&T Wireless, almost cost Cingular, the winning bidder, an extra $1.6 billion (£847 million) because of a clerical slip-up.

Cingular was forced to file a new acquisition agreement with the US Securities and Exchange Commission last night because the costly error had not been noticed and was therefore legally binding.

[............]

There was much confusion among Cingular’s advisers in New York last night. At first they said that the interest payment was part of the deal, but was unlikely to be invoked because they expected it to clear all regulatory hurdles ahead of the December 16 deadline.

After some reflection, however, they changed their minds, saying that the interest payment, while apparently in the sale agreement, had actually been removed before the deal was signed. But within minutes, they changed their minds again when it emerged that the error had not been removed.

A senior City source tried to explain: “Look these guys haven’t slept for four days.” (emphasis added)

That last bit probably wasn't much of an exaggeration either - 48 hour stretches are surprisingly common in the business. There's a good reason why investment banking pays as well as it does, and it has nothing to do with the intellectual difficulty of the work to be done.