This morning I made fun of newbie investment banker Eric Cantor a little bit, pointing out that you don't hear a lot of people praising his negotiating abilities or financial-modelling skills. But I was not nearly as harsh as Dennis Kelleher of anti-bank lobbying group Better Markets, who had this to say to New York Magazine about the Moelis & Co. rookie:
Let’s look at Cantor’s résumé. Let’s look at all his investment-banking experience. Let’s look at his capital-markets experience. He has none. He has no experience or skills that would qualify him to be even an intern at a fifth-tier firm in the financial industry. I mean, come on!
You could quibble -- apparently he "worked for his family's real-estate development firm before going to Congress," which on my old desk would probably be a strike against him, but which might qualify him to intern somewhere -- but, sure, he doesn't exactly have the traditional background that allows you to go into investment banking at below the vice chairman level.1 On the other hand, he has exactly the right background to be an investment bank vice chairman, insofar as he is (1) a famous politician and (2) currently unemployed, and those are the only qualifications.
Kelleher has a lot more to say about Cantor's new job at Moelis, under the headline "What Eric Cantor Is Really Going to Do on Wall Street." It is ... strange:
Wall Street is after what it’s always buying in Washington: access, influence, and unfair advantage. And Cantor is a big catch for anybody who wants access. ... He and the rest of the influence peddlers at the highest level of government work the shadows and do indirectly what the law prohibits them from doing directly.
OK, but so what does that unfair advantage look like for Moelis?
They’re going to be fighting everything from tax policy on carried interest, to derivatives, to capital rules, to making sure the [Commodity Futures Trading Commission] is never properly funded, to making sure that the biggest deregulation bill since the repeal of Glass-Steagall, the mislabeled 'Jobs Act,' is put in place.
Hmm, yes, fine but at Moelis, a mergers-and-acquisitions boutique that makes "substantially all of [its] revenues from advisory engagements," not carried interest, and that does "not invest in derivative instruments or, generally, borrow through issuing debt"?
The so-called smaller firms -- however you want to refer to them -- most of their issues overlap with the big Wall Street firms: carried interest; derivatives; making sure the Wall Street cops aren’t funded, whether the CFTC or the [Securities and Exchange Commission]; deregulation; and non-regulation to the furthest extent possible.
But again doesn't the fact that Moelis is not regulated by the CFTC and doesn't really have to worry about capital regulation (since it doesn't borrow money) and doesn't trade derivatives make it a little weird to think that it hired Cantor to lobby to defund the CFTC and de-regulate derivatives?
Obviously it is tempting to think of Wall Street as a monolith whose only aim is to free itself from pesky regulations. But: It's not. Here's how Moelis & Co. actually describes its business opportunity:
We will seek to continue to take advantage of growth opportunities arising from the ongoing dislocation at large financial conglomerates. These firms face increasing regulation and the pressure of managing large disparate business divisions, leading to confidentiality challenges, higher operating costs, compensation limitations and increased capital constraints, all of which we believe adversely affect their ability to serve clients and compete for talented professionals. As these firms continue to struggle with these issues, we see tremendous opportunities to enhance our industry coverage, expand our geographic reach and add new advisory expertise.
Moelis is pro-regulation! Regulation is bad for big conflicted capital-constrained universal banks! That creates an opportunity for small unconflicted non-capital-intensive boutique banks! Like Moelis! The idea that Moelis is hiring Cantor to get access to Washington so it can push to defund the SEC is completely implausible.2
So why hire him? Here's what Moelis says:
In his new role, Mr. Cantor will provide strategic counsel to the Firm’s corporate and institutional clients on key issues. He will play a leading role in client development and advise clients on strategic matters.
He's being hired as a senior banker. Senior bankers are hired to bring in clients. Yes, Eric Cantor is probably bad at Excel. Lots of senior bankers are bad at Excel. Excel is not a core skill for senior bankers. The core skill for senior bankers is having people pick up the phone when you call them. There's a famous list of commandments for senior Goldman Sachs bankers that pretty much sums up the business. The most cringeworthy, yet also most self-aware, commandment is No. 8:
Important people like to deal with other important people. Are you one?
I hope Moelis asked Cantor that at his interview. He is!
The list never mentions Excel. In fact financial skills get very short shrift generally. The very last commandment, a virtual afterthought, says, "If you get the business, it's up to you to see that it's well-handled." Obviously a senior banker isn't actually going to handle the business, but he should be aware in a general way that it is being handled by someone -- a vice president -- who knows what he's doing. Cantor's not going to Moelis to negotiate mergers. He'll have people to do that.
So that's the main thing. Cantor is there as a show of importance. Important people like to deal with other important people, and every important person Moelis hires makes it more likely that other important people will deal with them. Important people with important piles of money to be spent on important advisory fees.3 It's a simple business, but it's the business they've chosen.
Beyond the importance peddling, is there influence peddling? Ehh sure probably. "Hire us for your merger because our vice chairman is important" is a perfectly reasonable sales pitch. "Hire us for your merger because our vice chairman knows a lot of people in Washington and can probably get you through antitrust approval" is ... also a good pitch, no?4 That's probably some part of what "advise clients on strategic matters" means.
But Cantor is not a symptom of the revolving door between Wall Street and Washington, or an example of Wall Street firms hiring politicians to make regulatory life easier for themselves. Regulatory life is already pretty easy for Moelis. If Cantor were really planning to use his influence in Washington to help Wall Street firms fight regulation, he'd have gone to a Wall Street firm with an interest in fighting regulation.
One other thing. I wrote a while back about the regulatory revolving door, and specifically about how the naive view of the revolving door -- that regulators go easy on companies so they can get cushy jobs later -- is both empirically and theoretically suspect. The cynical analysis would be that the revolving door encourages regulators to be tougher. For one thing, toughness is a much admired character trait. For another thing, complicated regulations make regulatory knowledge more valuable. Also, just: If you have a tough regulator, you should hire him so he'll stop regulating toughly; if you have a laid-back regulator, you should hope he stays in office as your regulator. In addition to being intuitively appealing, this cynical view has empirical support, in the form of a New York Fed study of banking regulators.
A very loose and non-scientific categorization of recent revolving-door candidates would be:
- Tim Geithner: easy on Wall Street, joined a small private equity firm.
- Sheila Bair: tough on Wall Street, joined the board of an international bank.
- Bart Chilton: tough on Wall Street, became a high-frequency trading lobbyist.
- Eric Cantor: easy on Wall Street, joined an investment-banking boutique.
The tough-talking regulators now work for companies subject to heavy and intricate regulation, where their reputation for toughness and understanding of complex regulatory regimes will come in handy. The Geithners and Cantors of the world, who are viewed as more pro-Wall Street, work for smaller companies in bits of the industry that are not so worried about regulation. If you believe the cynical view of the revolving door, it seems to be working as you'd expect.
That New York Magazine article initially said that Cantor was hired "as a vice-president," and that would be amazing. Nothing would make me happier than a 51-year-old former House majority leader coming into a boutique investment bank as a VP. "Look, Eric, do a good job supervising the analysts on this pitchbook and one day maybe you'll have some clients of your own." But, no, he's a vice chairman and managing director.
2 To be fair, Kelleher seems to know this, or that's how I read this Twitter exchange anyway.
3 Or for that matter important people who want to work there. Investment banks are primarily in the business of soliciting clients, but they're secondarily in the business of soliciting investment bankers to come work for them. "Come work for us and you'll get to hang out with Eric Cantor" maybe has ... some appeal?
4 I mean, he's probably not gonna help much with antitrust approval per se, but companies have lots of political issues, and if he ends up doing some pseudo-lobbying for investment banking clients I will not be shocked.
To contact the writer of this article: Matt Levine at firstname.lastname@example.org.
To contact the editor responsible for this article: Zara Kessler at email@example.com.