When bankers turn honest

By Felix Salmon
August 28, 2009
Peter Thal Larsen notes that the former CEO of JP Morgan Cazenove is now admitting that investment banks overcharge. This jibes with my experience in Switzerland: at one dinner I sat next to the former CEO of a large Swiss bank, who was very happy to admit that private banks gouge their clients by charging a low 1% management fee but then stuffing their clients' accounts with own-brand structured products, all of which come with enormous fees and commissions attached. Could it be that one silver lining to the financial crisis is an outbreak of honesty among former bank executives?

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Peter Thal Larsen notes that the former CEO of JP Morgan Cazenove is now admitting that investment banks overcharge. This jibes with my experience in Switzerland: at one dinner I sat next to the former CEO of a large Swiss bank, who was very happy to admit that private banks gouge their clients by charging a low 1% management fee but then stuffing their clients’ accounts with own-brand structured products, all of which come with enormous fees and commissions attached. Could it be that one silver lining to the financial crisis is an outbreak of honesty among former bank executives?

8 comments

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It’s that pleasantly naive thing you have that keeps me coming back to read.

Posted by otto | Report as abusive

What’s an increase in honesty worth as long as it’s not accompanied by a change in practices?

I have been hearing the same complaint, directly and indirectly, from investment banking clients for years. The fact–or the belief–that investment bankers “overcharge” for their services is not new.

What is interesting is that this condition has not changed, notwithstanding years of complaints and repeated predictions of the imminent demise of investment banks’ “excessive profits,” usually by firms who were trying to disintermediate them.

I agree with Pickering that the services are largely commoditized, and that there is fierce competition among the market participants. The real mystery is why fees have not dropped. Either the market for investment banking services is not efficient–e.g., is characterized by large barriers to entry–the fees we charge on average are in fact “fair,” or something else is going on.

I am open to suggestions. Thoughts, anyone?

@TED” Thoughts, anyone?

Because the banks’ owner and clients are being played by the bank employees who are constantly threatening to move across the street and are thus busily competing up the banks’ costs?

Posted by Anon | Report as abusive

Aha, a TED impostor!

TED would say: How quickly said client forgets the years of courting leading to engagement; the corporate development activities, the introductions and the entertainment. And what of the risk? The opportunity cost of time spent only to see a competitor win; or worse to lose because of a perceived conflict. Yet why pay?

But love is blind and lovers cannot see
The pretty follies that themselves commit;
For if they could, Cupid himself would blush
To see me thus transformed to a boy.

Posted by Benedick | Report as abusive

Nay, sweet Benedick, you mistake me. I impost not: tis truly me.

I am well aware of the many reasons I and my peers use to justify our fees, which include but are not limited to those you recite. What continues to puzzle me is why our clients continue to *pay* what we ask. Surely you can see that is a different question.

We do not talk of the *value* of investment banking services in this fair assembly; we puzzle our brains over their *price.*

This is nothing more than dinner-party conversation. Wine du jour and rich desserts. Who would say the same the next day?

No one.

Posted by flippant | Report as abusive

For TED is revealed; I yield

Why pay? Perhaps because, for a moment, at least, they believe.


The first thing to get in your head is that every single
Girl can be caught – and that you’ll catch her if
You set your toils right…

Posted by Benedick | Report as abusive