"Exile on Wall Street: One Analyst's Fight to Save the Big Banks from Themselves," John Wiley & Son's, Inc. 2012
I had the pleasure of meeting Mike Mayo at the CFA Institute's 65th Annual Conference held in Chicago, IL, May 6 through 9, 2012. This year's conference celebrated the 50th anniversary of the CFA charter, the brainchild of storied value manager and mentor of Warren Buffett, Benjamin Graham. It is fitting, then, that the convocation should host Mike amongst its many distinguished speakers. Himself a charter holder practicing on the sell side, Mayo approaches his métier with honesty and conviction, increasingly and unfortunately rare traits amongst the analyst community often branded as sycophants in the service of their employers rather than their clients. As he reiterated several times during his presentation entitled "The Proper Role of Wall Street in the Economy," he does what he learned in the CFA charter program, namely, offers an objective appraisal of the industry within his remit - the U.S. banking sector - based upon rigorous and extensive fundamental research. Attendees at his talk made use of new polling technology whereby audience members are asked a question and respond with an alpha or numeric answer on a handheld electronic device slightly smaller than a BlackBerry smartphone. The tabulated results - expressed in percentages - fuel further discussion and questions. Mike determined quickly that trust in lending institutions is at a nadir. He also noted, unsurprisingly, that few analysts issue sell recommendations. Mike Mayo is part of this select coterie whose fearless conviction often earns it the opprobrium of the companies that they cover and sometimes the pink slip.
It is this 'courage under fire' that forms the tenor of Exile on Wall Street, a succinct, but highly accessible read about how the author pursued his passion, starting his working career at IBM and then the Federal Reserve as a bank analyst while completing an MBA at night and then the CFA charter. Mike told me that he wanted the book to appeal to a broad readership. The writing style is crisp and I found the narrative compelling. Practitioner and layperson alike will find the book enjoyable and hard to put down. It runs 208 pages, yet encapsulates a career that has followed the meandering path of the banking sector in the United States over the past 20 years and whose main character's research on the banks has numbered tens of thousands of pages. The process is often arduous, for, behind the end result are hours of analysis and discussions with management, the latter often hard won as the reticence and at times evasive conduct of those more senior in the corporate hierarchy can be difficult to penetrate.
Mayo's message is that an understanding of financial history has become increasingly important. GMO's asset allocation specialist James Montier, who opened the Annual Conference with a discussion on his view of the roots of the financial crisis, made this very point, arguing that history should form a part of the CFA curriculum. At the time of this writing, JPMorgan's (NYSE:JPM) CEO Jamie Dimon is making plain that a recently announced $2 billion loss resulting from a poorly constructed derivatives trade was an egregious mistake born of sloppy work. Plus, memories are short, all the more reason to teach history and read Mike's book.
Exile on Wall Street is not only compelling in its prose, but also in the honesty of its message. Mayo makes plain his humble origins, lack of Wall Street pedigree, old school work ethic, critical apprenticeship at the Fed, breaking through the high barriers to entry on the Street and the rough-and-tumble career advances that he made on the sell side. The latter experience includes admitting one's mistakes, something he does in the book and did at the Annual Conference when discussing his buy recommendation on Lehman Brothers. Mike's book is as relevant to the general practitioner for its ethics content as is his parsing of bank financial statements to the student and practitioner of financial accounting and valuation. One could make a compelling case for inclusion of select passages as case studies in the CFA Institute's Code of Ethics and Standards of Professional Conduct.
Though the book focuses on U.S. banks, the lessons that it imparts are relevant to investment management professionals of any discipline. Investment management has been, is and continues to be a dynamic process.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.