Some years ago Stanley sent me the original copy of a speech he gave to Kidder shareholders in 1977. He used to send me stuff he wrote, and vice versa. And this particular speech is considered to have been his downfall; he was fired that year, yet I can't see what's wrong with it. To me, they shot the messenger. The original is faded so I have typed it up, just as it appears on the original, and share it here because I think it demonstrates Stanley's vision, his talent for articulate expression, and above all his courage.
MEETING JANUARY 1977 - NEW YORK
THOSE OF YOU WHO HAVE LISTENED TO ME AT THE PAST TWO MEETINGS AND LET’S FACE IT WHAT-ELSE-WAS-THERE-TO-DO-AT-THE-TIME WILL KNOW THAT I’VE ALWAYS MADE SOME REFERENCE TO MY FRIEND THE
BISHOP AND HIS ONGOING RELATIONSHIP WITH A SEEMINGLY PERMANENTLY HORIZONTAL ACTRESS.
THAT SHE IS STILL CO-OPERATIVE AFTER ALL THIS TIME AND THAT THE BISHOP’S ENTHUSIASM HASN’T WANED IN THE SLIGHTEST PERHAPS SUGGESTS THAT THIS STAMINA RESULTS FROM SOME DEEP COMMITMENT TO THAT INCREDIBLE ALL AMERICAN HABIT OF JOGGING, OR EVEN, WHO KNOWS, MAYBE THAT HE SIMPLY DOESN’T SMOKE OR DRINK.
I’M SORRY, INCIDENTALLY, THAT UNLIKE SOME OF THOSE WHO SPOKE BEFORE ME, I DON’T HAVE A SLIDE PRESENTATION ON THEIR ACTIVITIES ….
BUT OF COURSE THE REAL THEME OF THIS PERHAPS SOMEWHAT BIZARRE, BUT LONG RUNNING RELATIONSHIP-IS-PROFITS-AND THE ABILITY OF KIDDER PEABODY SECURITIES TO KEEP IT UP, AS IT WERE, ALL YEAR LONG.
PERISH THE THOUGHT ….
WELL THIS YEAR I HAVE TO TELL YOU THAT IF WE WERE COMPETING IN ANY FORM OF OLYMPICS,
I GUESS WE’D HAVE WON-A-BRONZE-INSTEAD OF A GOLD.
FOR-IN-1976-WE-MADE-LESS-MONEY-THAN-IN-1975.
NOW THAT-DOES-NOT-TRIP LIGHTLY FROM MY TONGUE, BUT LET ME JUST ADD THAT IT WAS, NEVERTHELESS, OUR SECOND BEST YEAR EVER WITH GROSS PROFITS OF 4.3 MILLION DOLLARS WHICH GIVEN OUR GROSS TO NET RATIO OF 53% EQUATES TO SOMETHING LIKE 2.3 MILLION DOLLARS NET TOWARDS THE TOTAL STOCKHOLDER PROFITS.
NOT SO BAD, PERHAPS.
MAYBE WE SHOULD AFTER ALL AWARD OURSELVES A SILVER INSTEAD OF THAT BRONZE.
BUT WHERE DID THOSE PROFITS COME FROM?
THE ANSWER IS THE SAME AS LAST YEAR, FROM THE ORIGINAL BASE OF THE KIDDER PEABODY SECURITIES EXISTENCE, EUROBOND TRADING.
THE EQUITY CULT MAY NOT BE DEAD BUT WE NOTICED MORE AND MORE INTERNATIONAL INVESTORS BECOMING DISENCHANTED WITH THE FEEBLE PERFORMANCES OF EQUITY MARKETS GENERALLY.
IN FACT, THIS TIME LAST YEAR I SAID AND I QUOTE “THUS I PERSONALLY AM SLOW TO ACCEPT, HOWEVER HARD EVERYONE, SAM INCLUDED, TRIES TO MAKE ME, THE WIDELY ACCLAIMED WORLD RECOVERY FROM RECESSION”. UNQUOTE
“BONDS ARE BEAUTIFUL” WAS THE MESSAGE, IT SEEMS, ALL OVER THE WORLD AND MORE THAN ANY OTHER THAN I CAN REMEMBER.
1976 WAS THE YEAR OF THE BOND.
NEW ISSUE VOLUME ROSE A STARTLING 94-PER-CENT-OVER-1975 WHICH WAS IN ITSELF THE RECORD YEAR IN THE MARKET’S ENTIRE HISTORY. MOREOVER, THE SIZE OF INDIVIDUAL ISSUES BEGAN TO COMPARE WITH SOME OF YOUR OWN OVER HERE. LOANS OF OVER A HUNDRED MILLION DOLLARS PUBLIC AND PRIVATE WERE NOT UNUSUAL, AS WELL AS SOME OF 300 AND EVEN ONE OF 500 MILLION DOLLARS.
INDEED THE INTERNATIONAL BOND MARKET UNQUESTIONABLY CAME OF AGE IN 1976 AND FINALLY PROVED ITSELF AS A VIABLE ALTERNATIVE CAPITAL RAISING MECHANISM TO THE UNITED STATES.
BUT YOU KNOW, I CAN JUST IMAGINE WHAT RALPH MIGHT BE SITTING HERE THINKING, “OK, OK, BIG DEAL, STANLEY” HE’S PROBABLY MUTTERING TO HIMSELF, “IF EVERYTHING IN THE GARDEN WAS SO GODDAMN ROSY, HOW-COME-YOU-MADE-LESS-BREAD?”
IT’S A FAIR QUESTION AND ANYWAY IN HIS POSITION I’D PROBABLY BE ASKING THE SAME. SO LET’S TRY TO ANSWER IT.
THE REASONS PROBABLY FALL UNDER FOUR MAIN HEADINGS.
THE FIRST OF THESE WAS CURRENCY CONSIDERATIONS - WHERE, DUE TO FACTORS QUITE BEYOND OUR CONTROL, THE ADDITIONAL INVESTMENT CURRENCY VALUE OF OUR TRADING PROFITS DECLINED VERY SUBSTANTIALLY. ALSO, UNDER AN FASB-8 TYPE OF SITUATION, THE DOLLAR VALUE OF THE STERLING THAT WE MUST HOLD FOR OUR PREMIUM DOLLAR TRADING OPERATION SUFFERED A HEAVY FALL.
SECONDLY, WE LOST SOME MONEY TRADING GOLD SHARES LAST YEAR, WITH THE RESULT THAT AS YOU MAY KNOW I CHOPPED OUT THAT PART OF OUR ACTIVITIES IN THE SUMMER. IT MUST BE SAID, THOUGH, THAT THAT OPERATION, THOUGH UNSUCCESSFUL IN LONDON, UNQUESTIONABLY ENABLED KIDDER PEABODY INCORPORATED TO ASSUME THE USEFUL ROLE IT NOW PLAYS IN THE TRADING OF GOLDS IN NEW YORK WHERE, OF COURSE, THE MARKET INCREASINGLY LIES.
THIRDLY, AND PERHAPS THE BIGGEST PROBLEM - COMPETITION.
YOU MAY REMEMBER THAT I SAID LAST YEAR THAT IT’S A PRETTY SAFE BET THAT ALL THOSE EARNEST YOUNG MEN THAT ONE SEES AT AIRPORTS WITH THEIR BROOKS BROTHERS SUITS AND MATCHING NIEMAN MARCUS BRIEFCASES ARE ALL PROBABLY EMPLOYED BY THE C.I.A., THE K.G.B. OR GOLDMAN SACHS.
TODAY THOSE RANKS HAVE BEEN JOINED BY OTHER HEAVYWEIGHTS AND YOU’LL PROBABLY AGREE THAT THEY DON’T COME MUCH HEAVIER THAN THE LIKES OF SALOMON BROTHERS AND MORGAN STANLEY, DREXEL BURNHAM, LOEB RHOADES ETC. ETC.
WE KNEW THEY WERE COMING.
WE SAID THAT WHEN THEY DID THEY’D BE HERE TO STAY.
AND THEY ARE.
AND THEIR ONE JOINTLY AVOWED OBJECTIVE IS TO REMOVE KIDDER PEABODY SECURITIES FROM ITS COMMONLY ASSUMED NUMBER ONE POSITION IN EUROBOND TRADING. INDEED YOU MIGHT BE INTERESTED TO KNOW THAT IN THE LATEST INDEPENDENT POLL OF INSTITUTIONS IN OVER 46 COUNTRIES, KIDDER PEABODY SECURITIES FOR THE FOURTH YEAR RUNNING COMES OUT FIRST, IN TERMS OF THE FIRM WITH THE BEST EUROBOND EXECUTION CAPABILITY.
BUT THE INTELLECTUAL GIANTS OF SALOMON BROTHERS SEEM TO HAVE ARRIVED AT THE BRILLIANT DECISION THAT THE BEST WAY TO STEAMROLLER OPPOSITION IS TO INFILTRATE ALL THE MAJOR ACCOUNTS BY WRITING OUT AS MANY TICKETS WITH THEM AS THEIR COMPUTER CAN HANDLE -USUALLY-AT-A-LOSS.
IN SHORT, TO BUY YOUR WAY BY SHEER FINANCIAL STRENGTH INTO THE TOP LEAGUE OF THE MARKET AND TO HELL WITH THE COST.
I CAN SEE THE LOOK OF HORROR ON BILL LOVERD’S FACE FROM HERE.
WHAT-WE-HAVE-TO-REALISE-THOUGH-IS-THAT-EVERY-TICKET-THEY-WRITE-IS-POTENTIALLY-A-LOST TRADE-FOR KIDDER-PEABODY-SECURITIES.
AND THERE’S MAYBE WORSE TO COME.
FOR IN 1977 MORGAN STANLEY WILL ACTUALLY BE COMING ON STREAM TO BE, AS -ARCHIE-COX-TOLD-ME-PERSONALLY, THE BIGGEST AND THE BEST TRADING FIRM IN THE BUSINESS.
AND THEY’RE PULLING NO PUNCHES IN THEIR EFFORTS TO BEGIN ACHIEVING THIS OBJECTIVE.
INCIDENTALLY, IN TRYING TO LURE AWAY SENIOR EUROBOND PERSONNEL, INCLUDING, I MIGHT ADD, MOST OF THE KIDDER SECURITIES STAFF, THEY HAVE BEEN ABOUT AS DISCREET AS IT WOULD HAVE BEEN TO TAKE ZSA-ZSA GABOR TO EL MOROCCO OR ANNABELS.
IN FACT THEY ALMOST CLOSED DOWN ONE OF OUR COMPETITORS BY HIRING THEIR KEY TRADING TEAM.
BUT HOWEVER THEY GO ABOUT IT, THEIR PROMINENT POSITION IN THE INVESTMENT BANKING WORLD WITH THEIR ENORMOUS POTENTIAL CLIENT FOLLOWING, PLUS THEIR DECLARED COMMITMENT AND INTENT MAKES THEM IN SOME WAYS MORE FORMIDABLE THAN SALOMON BROTHERS, SINCE BOTTOM LINE CONSIDERATIONS WILL ALWAYS HAVE A HABIT OF GETTING THROUGH TO TOP MANAGEMENT EVENTUALLY.
WE HAVE SEEN THAT BEFORE WITH OTHER COMPANIES SUCH AS WEEDEN, WESTERN AMERICAN AND ORION BANKING.
BUT I MENTIONED FOUR REASONS FOR OUR REDUCED PROFITABILITY AND THERE IS NO DOUBT THAT THE FOURTH - INVENTORY CONSTRAINTS, PLAYED A PART IN HOLDING BACK OUR GROWTH.
TO BE FORCED TO DUCK THE SIZE BUSINESS ONCE OR TWICE IS PERMISSIBLE WITH SOME OF OUR CLIENTS WHO HAVE, AFTER ALL, BEEN TRADING WITH US A LONG TIME.
BUT MORE THAN THAT, DELIVERS THEM INTO THE HANDS OF OUR OPPOSITION ON A PLATE.
SO HOW CAN WE STAY AHEAD OF THE GAME?
SHOULD WE TRY TO?
OR DO WE ACCEPT THAT HOUSES OF THE MORGAN, SALOMON AND GOLDMAN WILL-AUTOMATICALLY-ASSUME-THE-PREMIER-POSITIONS, JUST AS THEY DO HERE IN NEW YORK?
WE CAN OF COURSE RESORT TO THE SAME TACTICS AS THE OPPOSITION.
WE CAN PINCH THEIR TRADERS, AND SINCE WE NOW LOOK RIGHT DOWN ON MORGAN STANLEY’S OFFICES, WITH A BIG ENOUGH TELESCOPE WE MIGHT EVEN MANAGE TO ZEROX THEIR POSITION SHEETS AND TRAVEL SCHEDULES. WE MIGHT EVEN DEVELOP A GAME PLAN FOR SEDUCING THEIR SECRETARIES AND BUGGING THEIR BRAS.
BUT STAYING AHEAD - BEING THE BEST, DOESN’T DEPEND UPON THE ADOPTION OF THOSE SORTS OF TACTICS.
JUST AS THEY DO-NOT-NECESSARILY-DEPEND ON NAME, PRESTIGE AND MONEY ON THE LINE, THOUGH THE LATTER CERTAINLY HELPS.
NO, REACHING THE TOP OR STAYING THERE REVOLVES MOSTLY AROUND PERSONNEL AND THERE-QUITE-SIMPLY WE STILL HAVE THE BEST.
LAST YEAR I SAID AND AGAIN I QUOTE “THE STRAIGHT BOND BOOK UNDER BOB SMITH HAD ITS BEST YEAR EVER, BUT IF THERE WERE ANY CURTAIN CALLS DUE IN LONDON THEY MUST GO TO HARRY SIBLEY AND HIS PARTNER IN CRIME, DAVID PHILLIPS, WHO COMBINED BRILLIANTLY ON THE EUROBOND CONVERTIBLE TRADING DESK”.
I TOLD YOU THAT THOSE NAMES SHOULD MEAN A LOT TO YOU AND THAT-YOU-SHOULD-REMEMBER-THEM.
THAT IS EVEN MORE TRUE TODAY.
LOSING A DEALER TO SALOMON (WHO ELSE) WE HAD TO PUT PHILLIPS ON TO THE STRAIGHT BOND BOOK AND, AS BOB SMITH WILL TELL YOU, HIS FLEXIBILITY IN MAKING THE TRANSITION SWIFTLY, AND MOREOVER, VERY PROFITABLY, HAS BEEN LITTLE SHORT OF INCREDIBLE.
HARRY, ON THE OTHER HAND, WORKING THROUGHOUT MOST OF THE YEAR VIRTUALLY SINGLE-HANDED, GROSSED-NEARLY-TWO-AND-A-HALF-MILLION-DOLLARS AND IS MOST DESERVEDLY HERE TODAY AS A STOCKHOLDER AND A NEW DIRECTOR OF KIDDER PEABODY SECURITIES. I HOPE THAT EVERYONE HERE WILL MAKE A POINT OF MEETING BOTH HARRY AND BOB, AND WARMLY CONGRATULATING THEM ON THEIR ACHIEVEMENTS.
OF OUR FORTY-FIVE PEOPLE, I’VE MENTIONED ONLY THREE OF VERY CONSIDERABLE TALENT BUT WE HAVE BEEN TAKING ON YOUNGSTERS WITH STOCK MARKET TRADING BACKGROUNDS AND INSTEAD OF COMPETING FOR DEALERS IN THE OPEN MARKET-PLACE WE ARE, SO TO SPEAK, GROWING OUR OWN, FOR OUR NEW 16-POSITION, 150-LINE DESK.
SO I AM SURE THAT WE SHOULD, WITH THE NEW YORK BACKING WE NEED, REMAIN STRONG, COMPETITIVE, ACTIVE AND PROFITABLE.
BUT THAT’S NOT ENOUGH IN ITSELF ANYMORE, TO COMMAND THE LEAD IN INTERNATIONAL MARKETS.
IN 1974, WHEN THE MARKETS WERE AT THEIR LOWEST POINT EVER, I TOOK ON A YOUNG MAN TO BEGIN AN ADVISORY DEPARTMENT. I THINK SOME PEOPLE THOUGHT I WAS POTTY TO BE DEVELOPING SUCH A CAPACITY AT THAT TIME. BUT AS I TOLD ‘EUROMONEY’ THE OTHER DAY, THAT IS JUST THE TROUBLE WITH OUR MARKET.
FOR SO LONG IT’S BEEN GOING TO FOLD ITS TENT AND GO BACK TO WHERE IT BELONGED, NEW YORK, THAT THE LEVEL OF ADVISORY CAPACITY HAS ALWAYS REMAINED TRULY ABYSMAL, SINCE NO ONE HAS BOTHERED TO DEVELOP IT.
IN A MARKET OF NOW FIFTY BILLION DOLLARS, THE UNTAPPED OPPORTUNITIES FOR PORTFOLIO MANAGEMENT ARE ENORMOUS.
WHEN, FOLLOWING PREVIOUS ADVISORY SUGGESTIONS WHICH RESULTED IN SOME MILLIONS IN NOMINAL VALUE OF PROFITABLE ORDERS FOR THE DEALERS, A MAN COMES IN, AS HE DID A WEK AGO, AND PUTS ON MY DESK A PORTFOLIO DRAWN FROM ALL OF HIS INTERNATIONAL OPERATIONS, AND SAYS, “THERE’S A QUARTER OF A BILLION DOLLARS WORTH OF ASSORTED BONDS - PULL IT INTO SHAPE FOR US” YOU KNOW THAT YOU ARE BEGINNING TO ACHIEVE THE OBJECTIVES ENVISAGED A COUPLE OF YEARS AGO.
SINCE IAN KERR IS NOW BEING SWAMPED WITH ENQUIRIES AND THUS BEGINNING TO BECOME MORE AND MORE AN INTEGRAL PART OF THE EUROBOND OPERATION, WE ARE IN THE PROCESS OF EXPANDING THIS AREA WHERE OUR COMPETITORS ARE NOWHERE AT ALL.
IN TERMS OF CLEARING OPERATIONS WE ALSO HAVE THE BEST MAN IN THE BUSINESS HEADED BY THE-INDEFATIGABLE-PETER-STUART-WILLIAM WHO IS LONDON’S ANSWER TO THE INCREDIBLE WILLIAM N. LOVERED HIMSELF. I CAN, I THINK, GIVE PETER NO HIGHER PRAISE THAN THAT.
INCIDENTALLY, HE IS HIMSELF BEING, AT THIS MOMENT, AGGRESSIVELY SOUGHT AFTER BY A FIRM OF HEADHUNTERS, BUT SINCE HE AND I HAVE WORKED TOGETHER FOR A QUARTER OF A CENTURY NOW, I PROMISE YOU THEY ARE WASTING THEIR TIME - BUT YOU CAN GET SOME IDEA OF THE PRESSURES WE ARE WORKING UNDER.
BUT EVEN WITH ALL THIS TALENT AT OUR DISPOSAL, 1977 WILL BE A YEAR IN WHICH WE AT SECURITIES WILL ALL HAVE TO WORK HARDER.
ONE REASON IS THAT WE’VE MOVED OFFICES.
YES, IT SEEMS THAT THE BRIEF MENTION THAT I THINK-I-MADE-LAST-YEAR-ON-SPACE, WAS HEEDED.
JUST BEFORE SIGNING HOWEVER, I STARTED GETTING COLD FEET AND WONDERING IF WE SHOULD NOT STAY PUT, BUT ONE EVENING WHEN DICK COONS WAS IN TOWN I LEFT EARLY TO GO DOWN WITH HIM, (ABOUT 9PM I THINK IT WAS …..)
AND JUST AS WE EMERGED FROM THE LIFT, WALKING ALONG THE EMPTY BUILDING, A MOUSE-RAN-RIGHT-OVER-MY-FOOT …..
I NEARLY HAD A HEART ATTACK SINCE I HAVE A HORROR OF MICE AND FROM THEN ON OUR MOVE COULDN’T HAVE GONE FASTER.
INCIDENTALLY, THE FIRM WHO MADE UP THE OFFICES CARRY OUT WORK FOR NO LESS A PERSONAGE THAN THE QUEEN HERSELF - TALK ABOUT FROM RAGS TO RICHES.
SO WE’VE GONE UP - LITERALLY - TO THE 24TH FLOOR NO LESS.
BUT SO HAS THE RENT AND THE MONEY HAS GOT TO COME FROM SOMEWHERE.
THUS THE MOTTO WE NOW HAVE TO ADOPT IS WITHOUT DOUBT, ‘CHERCHEZ L’ACHETEUR’ WHICH ROUGHLY TRANSLATED INTO AMERICANESE MEANS:-
FIND-THE-MAN-WITH-THE-FOLDING-GREEN.
NEW AREAS HAVE TO BE OPENED UP.
WE ALL KNEW FOR EXAMPLE THAT THERE WAS CONSIDERABLE INTEREST IN HONG KONG IN EUROBONDS, BUT IT WAS NOT UNTIL I SENT MY OWN MAN TO LIVE THERE THAT WE BEGAN TO SEE A VERY LARGE PORTION OF IT.
LIKE THE PIED PIPER, WE ARE NOW BEING FOLLOWED OUT THERE BY CREDIT SUISSE WHITE WELD, MANUFACTURERS HANOVER, SALOMON BROTHERS AND I DON’T KNOW WHO ELSE.
STILL IN THE FAR EAST, TOKYO REMAINS A DISAPPOINTMENT WITH REGARD TO SECONDARY BUSINESS WHILST THE MIDDLE EAST, LIKE ITS GREAT PROTAGONIST, T. E. LAWRENCE, REMAINS AN ENIGMA.
EVERYONE TELLS ME THAT THERE IS A HUGE POT OF GOLD AT THE END OF THE MIDDLE EASTERN RAINBOW, BUT ALL I’VE EVER BEEN AWARE OF IS A LARGE PAIL OF …..
SSSOMETHING QUITE UNMENTIONABLE.
BUT WHAT I DO KNOW IS THAT SOME OF OUR COMPETITORS HAVE MADE-A-GREAT-DEAL-OF-MONEY FROM MIDDLE EAST SECONDARY BUSINESS.
WHILST-WE-HAVE-MADE-PENNIES. BUT I AM ADVISED AND I BELIEVE IT, THAT THIS POSITION WILL-CHANGE-VERY-SIGNIFICANTLY-IN-THE-NEAR-FUTURE
SO EVERYTHING COMES TO HE WHO WAITS.
PATIENCE IS A VIRTUE THEY SAY AND I GUESS THAT WE MUST BE THE MOST VIRTUOUS BUNCH OF INVESTMENT BANKERS IN THE BUSINESS.
A PARTICULAR AREA OF DISAPPOINTMENT TO ME HAS BEEN HERE IN THE UNITED STATES.
AS MY BARBER AT THE WALDORF ALWAYS TELLS ME
“THIS IS THE RICHEST, MOST POWERFUL COUNTRY IN THE WORLD FOR CRISSAKES”.
BUT DESPITE THE VERY EVIDENT FINANCIAL ACUMEN WHICH IS HERE, NOT ONLY IN THIS ROOM BUT IN EVERY CITY WHICH I VISIT, THERE IS RELATIVELY LITTLE KNOWLEDGE OF, AND CERTAINLY ONLY TOKEN COVERAGE OF, THE EUROBOND MARKET.
I RECENTLY WENT TO BOSTON, BALTIMORE, PHILADELPHIA, AND CHICAGO WITH MY COLLEAGUE IAN KERR AND THE COLLECTIVE VALUE OF THE FUNDS MANAGED BY THE VARIOUS INSTITUTIONS WE MET, MUST HAVE TOTALLED SEVERAL HUNDRED BILLION DOLLARS.
BUT WITH THE NOTABLE EXCEPTION OF ONE OFFICE THERE HAVE NOT BEEN ANY SIZEABLE ORDERS RESULTING FROM THOSE VISITS.
WHEN WE LEFT A VERY COLD AND BLEAK CHICAGO TO FLY TO BERMUDA, IT WAS TO A CHORUS OF “GOODBYE STANLEY, HAVE A NICE HOLIDAY ….”
NOW I MUST ADMIT TO LIKING BERMUDA, BUT IT MAY BE OF INTEREST TO HEAR THAT WE PROBABLY TRANSACTED FIVE TIMES AS MUCH BUSINESS FROM THOSE TWO DAYS IN BERMUDA THAN IN VISITING FOR TWO WEEKS SOME OF THE MAJOR FINANCIAL CENTRES IN THE UNITED STATES.
I FIND IT ALL SLIGHTLY DISHEARTENING, FOR THE UNITED STATES, IN MY VIEW, IS THE GREATEST-OF-UNTAPPED-MARKETS-FOR-EUROBONDS.
HOW CAN WE HELP, TO HELP YOU, TO HELP US - AND IN THE PROCESS HELP YOURSELVES IN THIS BUSINESS?
THE EXCUSE ALWAYS USED TO BE THAT THE U.S. INSTITUTIONAL INVESTORS DID NOT UNDERSTAND THE CREDITS, BUT THAT IS SIMPLY NOT TRUE ANYMORE. S. E. C. REGISTERED FOREIGN ISSUES - PRIMARILY GOVERNMENTS - WHICH ARE COMMONLY CALLED YANKEE BONDS - TOTALLED ALMOST EIGHT BILLION DOLLARS IN 1976 ALONE, AND WERE ABSORBED BY THE MARKET WITHOUT UNDUE DIFFICULTY.
YOU WILL RECOGNIZE SOME OF THE NAMES - WHICH WE HAVE BEEN TRADING FOR YEARS IN EUROPE.
BUT U.S. DOMESTIC INVESTORS SEEM RELUCTANT TO LOOK AT THE EUROBOND ALTERNATIVE OF THE SAME GUARANTOR EVEN WHEN THEY ARE FREELY ALLOWED TO BUY THE EUROBOND.
SOMEBODY OUGHT TO TELL THEM OF THE PREVAILING YIELD DIFFERENTIALS ALTHOUGH WE DO DRAW ATTENTION TO SOME OF THESE DISPARITIES IN OUR REGULAR WEEKLY EUROBOND LETTER - WHICH STILL CONTINUES - I AM FREQUENTLY TOLD - TO LIGHTEN MANY A DARK MONDAY MORNING. RALPH I KNOW IS OFTEN ALIGHT AFTER READING IT.
BUT THE EURO-MESSAGE SHOULD IN FACT BE CONVEYED DIRECTLY TO THE CLIENTS BY OUR DOMESTIC SALESMEN.
WE HAVE GOT TO REALISE THAT IT’S WORTHWHILE. WE MUST UNDERSTAND THAT YANKEE BONDS AND PERHAPS AT A LATER STAGE EUROBONDS, WILL BE BIG BUSINESS FOR KIDDER, PEABODY.
IT IS GALLING FOR ME TO SEE THAT WHEN KIDDER PEABODY SECURITIES IS CONSIDERING THE SALOMON BROTHERS OF THE EUROBOND MARKET, AND I WOULD ADD THE-COMPARISON-IS-NOT-MY-OWN, IN THE YANKEE BOND MARKET WE ARE PROBABLY LUCKY IF WE ARE PLACED IN THE FIRST HALF DOZEN.
BUT-INVESTORS-NEED-THE-SERVICES-OF-FIRMS-WHO-HAVE-AN-ALL-ROUND COVERAGE OF AND-COMMITMENT-TO THE FOREIGN BOND MARKET AS A WHOLE.
ADDITIONALLY WE MUST UTILISE ALL THE OUTLETS AND CAPACITIES THAT A FIRM OF 43 OFFICES AND 2400 PEOPLE SHOULD GIVE US, INSTEAD OF MOSTLY RELYING ON OUR LONDON DEALERS TO PULL TOGETHER THE GREAT MAJORITY OF-ALL-THE-INTERNATIONAL-SECONDARY-MARKET-BUSINESS- THAT WE TRANSACTED IN 1976.
BUT IN ALL EVENTS, AND HERE IS THE REAL CRUNCH POINT OF MY ADDRESS TODAY,
A TALENTED TEAM OF TRADERS, HOWEVER MUCH THEY COVER,
A TOP ADVISORY CAPACITY,
THE BEST OF SETTLEMENT MECHANISMS AND ANY AMOUNT OF DIVERSE MARKETING AREAS
ARE-ALL-TOTALLY-MEANINGLESS-TO-US UNLESS THE EXECUTIVE COMMITTEE OF THIS COMPANY APPRECIATES TO THE FULL THE CHANGING INVENTORY NEEDS OF OUR OPERATION.
HAPPILY I WAS TOLD YESTERDAY THAT WE ARE BEGINNING TO MOVE IN THE RIGHT DIRECTION ON INVENTORY
BUT WHEN ONE CONSIDERS:
THAT SO FAR IN THIS BRIEF PERIOD OF OUR FINANCIAL YEAR WE HAVE GROSSED 1.4 MILLION DOLLARS OR ABOUT ONE THIRD OF LAST YEAR’S ENTIRE PROFITS
AND WHEN WE CLEARLY SEE THE SIZE AND RUTHLESSNESS OF THE COMPETITION WE NOW HAVE TO FIGHT,
IT IS SO OBVIOUS THAT THE COMMITTEE MUKST REMAIN ALIVE TO THE TREMENDOUS PRESSURES AND CHANGES WHICH ARE BUILDING IN OUR MARKET. MOREOVER THE WHOLE STRUCTURE AND WAY OF DOING BUSINESS IS CHANGING. FOR EXAMPLE, A SIGNIFICANT DEVELOPMENT WAS THE WAY IN WHICH UNION BANK OF SWITZERLAND, USING ITS AGGRESSIVE TERMS AND MUSCLE, WAS ABLE TO PULL AWAY FROM KUHN LOEB THEIR TRADITIONAL LEAD MANAGEMENTSHIP OF THE KINGDOM OF DENMARK ISSUES, AND ONLY LAST WEEK TOOK MOBIL FROM MORGAN. WE SAW IT WHEN THE DEUSTCHE BANK TOOK AWAY ALSO FROM MORGAN STANLEY THE LEAD MANAGERSHIP OF THE AUSTRALIAN ISSUE AND IT IS CLEAR THAT THIS KIND OF DEVELOPMENT IS GOING TO INTENSIFY THIS YEAR.
AS YOU KNOW I HAVE ALWAYS CONTENDED THAT THE BIG COMMERCIAL BANKS WERE GONG TO GET INTO OUR BUSINESS IN SUCH A WAY
AND THAT OUR MAJOR FORM OF DEFENCE, BEARING IN MIND THAT THE BANKS HAVE ALL THE MONEY IN THE WORLD, AS WELL AS ALL THE CLIENT CONTACT, WOULD COME BACK ONCE AGAIN - YES, YOU’VE GUESSED IT,
TO THAT ALL IMPORTANT SECONDARY MARKET CAPABILITY.
THAT IS THE ONLY AREA WHERE OUR REAL STRENGTH AND MUSCLE TO COMPETE IS TO BE FOUND.
WE SHOULD NOT FORGET EITHER THAT HANS JORG RUDLOFF’S TREMENDOUS AND TIRELESS WORK WHICH CULMINATED IN HIS BRINGING OFF INTERNATIONAL’S COUP OF THE YEAR IN THAT NOW HISTORIC DEUTCHE BANK E. E. C. ISSUE, WOULD NOT HAVE BEEN EVEN REMOTELY POSSIBLE WITHOUT THE STRENGTH OF THE KIDDER PEABODY SECURITIES DISTRIBUTION AND TRADING CAPABILITIES BEHIND HIM.
THERE-CAN-BE-NO-QUESTION-ABOUT-THAT.
INDEED IT WAS THE DEUTSCHE BANK THEMSELVES WHO CALCULATED THROUGH THEIR DEALING DEPARTMENT THAT THE COUNTERPARTY WITH WHOM THEY WRITE THE MOST EUROBOND TICKETS IS NONE OTHER THAN KIDDER PEABODY SECURITIES, AND INCIDENTALLY THE DEUTSCHE BANK IS ITSELF SUCH A HUGE TRADER IN EUROBONDS THAT THEIR DEALER IS CALLED ‘JAWS’ BRIDGEMAN FOR HIS ABILITY TO SWALLOW IN SIZE.
I THINK IT IS RATHER APT AT THIS POINT THAT I SHOULD TELL YOU OF A CONVERSATION THAT A COLLEAGUE OF MINE HAD WITH AN AGGRESSIVE PROMINENT OFFICIAL AT THE MANUFACTURERS HANOVER, WHO INCIDENTALLY IS NO FRIEND OF MINE.
HIS OPINION WAS THAT KIDDER PEABODY AS A GROUP HAD FAILED TO RECOGNIZE THE TRUE POTENTIAL OF ITS TRADING OPERATION IN LONDON. IN HIS VIEW, IF THE KIND OF COMMITMENT THAT COULD HAVE BEEN MADE TO OUR TRADING OPERATION HAD BEEN MADE, IN THE WAY THAT SALOMON FOR EXAMPLE ARE PREPARED TO MAKE THEIR COMMITMENTS TO TRADING MARKETS, KIDDER PEABODY WOULD HAVE BEEN ABSOLUTELY PRE-EMINENT AND MORE IMPORTANT, THAT VERY FEW EUROBOND ISSUES WOULD HAVE COME TO MARKET WITHOUT KIDDER PEABODY BEING INCLUDED AS A CO-MANAGER.
THAT MAY INDEED BE OVERSTATING THE CASE TO A CERTAIN EXTENT BUT IN MY VIEW THERE HAS BEEN IN THE PAST AN ELEMENT OF TRUTH IN HIS STATEMENT.
OF COURSE, BEFORE YOU CAN FACE THE MUSIC YOUHAVE TO KNOW THE SCORE.
I THINK THAT THE SCORE, AS FAR AS THE INTERNATIONALISATION OF OUR BUSINESS IS CONCERNED SHOULD BE VERY SIMPLE TO READ.
1976 SHOWED THAT REPORTED PROFITS, THAT CERTAIN BANKS HAD EARNED FROM THEIR INTERNATIONAL OPERATIONS, WERE AN INORDINATELY HIGH PERCENTAGE OF THEIR TOTAL EARNINGS, 70% OF CITICORP’S, 64% OF CHASE’S, 60% OF MORGAN GUARANTY TRUST’S, AND ALMOST 40% OF THE DEUTSCHE BANK’S EARNINGS CAME FROM INTERNATIONAL OPERATIONS.
FOR OUR PART I HAVE CERTAINLY TRIED TO BRING HOME TO STOCKHOLDERS EACH YEAR THE IMPORTANCE OF THE INTERNATIONAL OPERATIONS OF KIDDER PEABODY, PARTICULARLY IN SO FAR AS KIDDER PEABODY SECURITIES IS CONCERNED.
SURELY THERE CAN BE NO DENYING OUR FIGURES. INDEEED, I CALCULATE THAT THE NET INCOME OF OUR 45-MAN LONDON GROUP OVER-THE-LAST-FIVE-YEARS- AVERAGES-OUT-AT-AROUND-30-PER-CENT-OF-THE-ENTIRE-STOOCKHOLDER INCOME OF OUR COMPANY, WHICH NOW NUMBERS 2400 PEOPLE.
THIS IS AN INCREDIBLE CONTRIBUTION, SO, YOU KNOW, NEVER HAVING BEEN ONE TO HIDE OUR LIGHT UNDER A BUSHEL, (“AMEN TO THAT” DID I HEAR RALPH SAY?), MAYBE I’LL AWARD US THAT GOLD AFTER ALL.
GENTLEMEN, I AM SURE WE ARE GOING TO CONTINUE TO GET THE INCREASING FLEXIBILITY OF OPERATION THAT IS ESSENTIAL TO US.
FOR I TELL YOU FRANKLY AND SIMPLY, WITHOUT HISTRIONICS,
IF WE DO NOT - GIVEN THE TRULY MASSIVE COMPETITION NOW -
WE ARE DEAD.
I ONLY HOPE I HAVE SAID ENOUGH TO CONVINCE YOU OF THE VERY FINE LINE THAT REALLY DOES EXIST FOR US,
BETWEEN-GREATLY-INCREASED-PROFIT-POTENTIAL-AND-MARKET-STATURE-
AND RELEGATION, WITH INFINITELY LOWER INCOME AND REPUTATION.
I FOR ONE WOULD FIND THE LATTER VERY DIFFICULT TO LIVE WITH.
THE-SITUATION-IS-THAT-DRAMATIC.
I BELIEVE WE ARE AT THE POINT WHERE WE COULD, ALMOST HAVE
EVERYTHING
OR,
WE COULD RUN THE RISK OF ENDING UP WITH VIRTUALLY NOTHING.
I DO NOT WISH HOWEVER TO IMPLY THAT SUPPORT IS NOT NOW FORTHCOMING IN A MORE MEANINGFUL WAY
I SIMPLY WISH YOU TO UNDERSTAND, IN AS PLAIN A LANGUAGE AS POSSIBLE, THAT WE ARE UNDER VERY REAL THREAT OF LOSING OUR PROMINENT POSITION.
FROM THE FIGURES I QUOTED EARLIER I THINK IT IS EVIDENT THAT WE SIMPLY CANNOT AFFORD THIS TO HAPPEN.
I WOULD HATE TO FINISH ON SUCH A SOLEMN NOTE, HAVING PERHAPS CONVEYED THE IMPRESSION OF A BESEIGNED MACBETH STANDING ON THE CASTLE BATTLEMENTS WITH THE FOREST OF DUNSINANE MOVING RELENTLESSLY FORWARD TO ENGULF OUR LONDON OPERATION.
BOB, HARRY AND I WILL BE HERE NEXT YEAR
I MAY NOT BE ASKED TO SPEAK OF COURSE
BUT HAVE NO DOUBT THAT I WILL BE HERE. WE MAY EVEN HAVE ANOTHER VERY SUCCESSFUL YEAR TO REPORT.
OUR “WEEK IN EUROBONDS” SHOWS THAT WE SIMPLY FIND IT IMPOSSIBLE TO TAKE LIFE, AND INDEED OURSELVES, SERIOUSLY ALL THE TIME.
WHAT DULL PEOPLE WE ALL WOULD BECOME IF WE DID!
WHEN I EVENTUALLY FIND MYSELF SITTING AT THAT GREAT EUROBOND DEALING DESK IN THE SKY - AND AM ASKED WHAT I WANT TO DO IN MY AFTER-LIFE, WHAT WILL BE MY REPLY,
“PLEASE MAY I BE AN INVESTMENT BANKER AGAIN”?
I WONDER.
I THINK I MIGHT JUST PREFER TO BE THE SOLE PROPRIETOR OF THE FOLIES BERGERE OR THE CRAZY HORSE SALOON OR MADAME CLAUDES OR THE MIRANDA CLUB IN LONDON,
BUT IF ALL THOSE POSITIONS HAVE ALREADY BEEN RESERVED BY THE PARTNERS OF GOLDMAN SACHS,
I-MIGHT-JUST-OPT-FOR-MY-JOB
ALL-OVER-AGAIN.
IN ALL EVENTS, GIVEN THE COOPERATION WE NEED, I AM SURE THAT WE IN LONDON WILL CONTINUE IN 1977 TO MAKE YET ANOTHER VERY SIGNIFICANT CONTRIBUTION TO THIS COMPANY.