Honest Bankers - A story of how honesty cost one trader his job.

With the current climate surrounding the investment banking culture in the wake of the Barclay’s Libor scandal, it is interesting to read about the story of Steve Clark taken from his interview with Jack Schwager in the Hedge Fund Market wizards. 

Clark is a highly successful hedge fund manager, running the Omni Global fund which during the period since inception in 2001 has returned almost 20% per annum, with a maximum peak to trough drawdown of just 7% and not a single losing year. However during the 90s he tells a story of how he was forced out of a major investment bank purely for being honest. 

The excerpt from the interview goes as follows:

‘Nomura ended badly for me because there was a change in management. The new guy in charge wasn’t straight. He had a convertible book, and all he was doing was buying illiquid convertible bonds and every month pushing the price up. He was the market because he owned most of these issues. So all he had to do was buy a few hundred bonds every month to push the price up.

At one point a trader from another department came to me for guidance because he was being asked to mismark the book.

Because I had a reputation for being straight. I told him to mark the book correctly, and I would deal with it. I went to the senior management and said they couldn’t put pressure on this guy to mismark his book. He was a lowly trader. If it ever came out, it would ruin his career. I told them they had to leave the book marked correctly. I thought it was a cogent argument.  

A week later, I was asked to leave because I was not a team player.’

For the record, after refusing to resign they fired Clark. As a consequence he sued them. This cost him £350,000 in legal expenses and kept him out the market for 3 years. – Eventually he won, his case, thanks to the secret recordings he had made in meetings with Nomura, which showed in court that they were lying, even though he had given them transcripts of the case. 

In the current climate it is good to know there are still some decent honest people left in finance. – Actually as it happens there are many such decent honest people still left in finance and banking despite the current buffering it is receiving in the wake of the Barclays Libor scandal. - In the early 1990s I worked closely with the Libor setting team on the Money Market desk at Credit Suisse (Now the ALM desk), even back then it was not uncommon to hear someone ask for a Libor to be slightly nudged up or down a little (It is worth pointing out that the Libor fixing system did allow a little latitude for wiggle room), but the Libor setters at Credit Suisse were impeachable and would not be moved. – I am glad to say that many of them still remain there to this day.