About The “Jobs That Require Selling Kinky Financial Products”

“…..Maybe it's an argument to teach the children to learn financial mathematics and avoid gambling on the markets?”

“Or teach them to avoid jobs that require selling kinky financial products, and to listen to people in those jobs with a pinch of salt because they talk rubbish…oh no, does this mean don't listen to mummy & daddy?”

Lest you get the wrong idea, maker of said comments on my blog is in finance himself, and from what I hear is a pretty brainy quant… But then I realized I hadn’t clarified previously, so…

Guilt By Association: A monkey in Penang Botanical Gardens eating something next to a sign that says "Do Not Feed." Did smiling bystander commit offence?

Kings is an IB Sales ie to institutions, not rich guys, and I sourced investment products from IB Sales like him for private bankers (RMs) to sell to rich guys…

Then Kings was on my back for ages to quit and I…. kinda dragged my heels on that one. I love investment products. I love the rush of execution in a moving market. Nerd talk turns me on. That’s how I ended up with Kings (sorry darling).

Other people like music, or Gossip Girls, I get jealous at night when Kings has a pending trade and is heavily fingering one of his two berries. I get misty-eyed watching West Wing. (Seriously. That episode where the president decides to run for a second term despite seemingly insurmountable political odds... So reader beware – this is the kind of fruitcake whose blog about raising her child you are reading. And yes, I am mildly obsessive compulsive. And… some things about Rockstar’s behavior make me think sometimes that he has it too.)

I love dark horses. In derivatives, if the dark horse wins the race, you make far more money than if you went for the obvious winner, the obvious trade. The obvious trade is also the expensive one, the market would have priced in the probability of it doing well, you would therefore “pay” for that success and likelihood of it upfront when you bought it – which means if it then turns out to be a dud you’re just losing money.

We once did an equity product (which eventually went multi-tranche and later became “flow”) that had a kind of “safety” in it at the end of the life of the product. It would be classified as one of the riskiest of equity products, and it was done when everyone expected the Hang Seng to go up and up – right before it went down and down, spiraling into the financial crisis.

“Why don’t we do without the safety, just pay the cost of that safety to the client as enhanced yield?” some of my RMs asked. It cost next to nothing, to put that safety in. Like, 0.5% p.a. out of some 15-18% p.a., depending on pricing period. We didn’t take it out. Even though no one, including the markets, ever thought we would need it. Which was why it was so cheap.

When the crisis hit, that cheap option saved us. Thank God. Thank God we didn’t take it out, because almost 90% of those RMs’ clients who’d done this riskiest class product at the worst of times received not just 100% of their invested principal, they received the entire year’s coupon of 15-18% p.a. too. The absolute worst performer of the remaining 10% or so lost just under 25% if I recall correctly. But this product was in the same class as Accumulators which were wiping entire investments out.

Anyway… I remembered that because this last CNY one of my favorite ex-RMs was travelling and asked if Kings and I needed him to drive us from Seremban to KLIA for our flight home to HK. He’d done a lot of that product and ALL his clients got 100% principal + interest back was why I suddenly remembered… I remember the joy I felt watching the Hang Seng move to trigger the “safety feature” on his final tranche that day…

(I love RMs. Sometimes they say the most hilarious things – one from Taiwan once asked “Are you sure no one in your family messed around, because <indicating my face> those really aren’t pure Chinese features.” Sigh. How I loved my job.)

My point, in response to the comments above, was just that the bad press gets out because people complain, but we often don’t – can’t – talk in detail about success stories. There are private banks that didn’t even do equity accumulators til post-crisis, so they were completely untouched by the carnage. I worked at 2 such banks in my career. And if I saw recognizable names attached to the client account numbers I dealt for, I would look the other way. Scratch that. What famous names? When Compliance starts hunting down a potential breach with the email and conference call equivalent of a 2-by-4, that’s hours and hours of your life you will never get back.

Hours and hours I could have spent with Rockstar. Voluntary amnesia. If that doesn’t work, I’ll try hypnosis.

I wasn’t the kind of person who sold myself at work, RMs expressing a preference for whether they wanted me to cover them, I felt, would be my constant performance review. (But well which person ever loves something they suck at??) I socialized very little with the RMs whom I served. I just thought if I made them money, served them well, they would like me. No amount of drinks with anyone could make up for it if I lost their money through any measure of incompetence or even simply thru mediocre performance, and anyway I wanted to Rockstar after work. No RM ever begrudged me that, bless them.

It’s possible the not selling myself cost me. I once told one of my bosses the targets were fine, I could make the money fine, just please don’t put me down for any team head meetings (back then famously political) because I don’t want any additional aggro that might follow me home to Rockstar. (In the first year, I also thought it might sour my breastmilk). Bosses rarely begrudged me that, bless them.

But, I’m digressing.

Kings sells investment products because way back when he had a choice of Structurer (ie one of the quants) or Sales, he realized Sales made more money faster – and he had a younger bro and sis to put thru college.

And – I say this because it is something he never will – he has been known to absorb the losses from pricing errors made by competitors, when his clients come to him to fix it. Don’t believe me? The market is small, most know I blog, you can easily ask the right traders if he absorbed losses for his clients when his own P/L could afford it.

Not every trade he did for his clients made Kings money. It’s just not the way he deals, is what I mean by mentioning this. So it’s no surprise he believes his clients should know all their options in the market and still choose to deal with him, he is no true salesman if clients deal with him for lack of knowledge about their options to deal elsewhere.

There are IB Sales, and then there are IB Sales.

(This about Kings also makes him more magnanimous than I. When I was still on the sell side, I got mad at my own bank’s Sales (Kings’ competitors), whom I had counted close enough friends to invite to help out at one of our wedding dinners. They picked the reception table, then cold called some of our wedding guests who were Kings’ clients the next day.

“Must try mah,” was the Bloomberg message they sent to Kings.

He was “Fair ‘nuff”.

I was “That was our wedding!!”)

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About Aileen

I blog about living and raising my son in Hong Kong - where toddlers have entrance interviews, parents keep test score spreadsheets, private school debentures can trade for more than half a million USD. Raising Rockstar's the most important thing I'll ever do. We show our true colors by the choices we make in bringing up our children. My blog is a message to my toddler son, about what the world and his parents are like today - for when he becomes a teenager and knows everything.
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  • HWL

    A fresh graduate relies on a bit of luck to get into investment banking. Suppose the charming young Kings you met at All-Bar-One, who used the same chat-up line and subsequently displayed the same sincerity and persistence in his romantic pursuit, and demonstrated the same dedication to his job. But instead of selling kinky and lucrative financial products, he was selling, say, chicken rice at a hawker store for which he was willing absorb losses for his good clients and which delicious though it was, could never have paid for a domestic maid nor a swanky apartment, nor allowed you to enjoy motherhood as a full-time homemaker. Would you still have fallen for this Kings?

    • Aileen

      Chicken rice, probably not. You missed the part where I said I love products and marekts. In the same way many guys love models or air stewardesses (yes, still shallow, except knowing how tempting IB can be, I give more marks for good guys in IB than in a profession where you are less tempted to be a jerk every day.)

      Your question should have been would I still have fallen for this Kings if IB didn’t make any money in which case the answer would be yes.

      • HWL

        Thanks for correcting me on the right question to ask 😉

        Was there chemistry and romantic attraction very early on?

      • HWL

        If a survey is done among people in the IB profession, asking two questions:

        1) Do you consider yourself a jerk?

        2) Do you think many people in IB are jerks?

        you would get a majority ticking NO to the 1st, and YES to the 2nd. Where is the contradiction?

  • Aileen

    yeahlah… u scared u suddenly have a lot more clients asking you to eat loss for them is it..

    (btw forgot to add, kings covers southeast asia, i covered northasia… we avoided each other as much as we could because it’s just better for the marriage… i considered it part of my job description to be a bit tough on IB Sales since the private bank (and therefore their rich guy clients) paid my salary, not the IB Sales 😀 they take too much profit out of the trade the product we got from them would suffer…)

  • Kingston

    toxic toxic toxic…. very toxic…