Confessions of a Wall Street Analyst (13 page)

“You won’t believe this, Dan,” she blurted. “Jack called me at a quarter to four and told me this was going to happen.”

How could he have known? Had he heard a rumor or been tipped off by someone within one of the companies? Or had Salomon’s bankers put the deal together and brought Jack over the Wall, as Ed and I had been with AT&T and McCaw? It turned out Salomon was, in fact, the banker advising ALC. If what she’d said was true, Jack might have been an insider and leaked material inside information before the deal broke. In legal terms, that could make her a “tippee” and him a “tipper.” She could easily have bought or sold the stocks based on advance knowledge—the clear definition of insider trading. The obvious move would have been to buy ALC shares and sell whatever Frontier shares she held in her fund, since the acquirer’s stock often falls upon announcement of an acquisition. Indeed, the next day, Frontier’s shares fell 13 percent and ALC’s rose 9 percent, shifting aggregate market values by a total of $3 billion. I was so shocked—and furious—that I was speechless for a few seconds.

“You’re kidding me,” I shouted.

“I’m serious, Dan,” she responded. “It makes me really uncomfortable.”

“Why would he do that? What did you do with the information?”

“Nothing,” she whispered. “I know I can’t use stuff like that.”

I hung up the phone and just sat there for a second. How could Jack so blatantly disregard the law? Why would he take such a crazy risk? Anybody who was willing to leak inside information was not going to last long in this business.

What I thought about most, however, was how unfair a game this was. This guy was my rival; how was I supposed to compete with someone who was trying to win favor from clients by passing on inside information? The leak hurt my institutional clients, too, not to mention individual investors, who weren’t privy to this kind of information.

Or maybe it hadn’t been a leak. Maybe she misunderstood what was said in the earlier phone call. Maybe he had called after the market had closed. I really hoped so.

Afternoon Tryst

For now, Jack’s added edge wasn’t hurting my career. Sometime in May 1995, Connie, my executive assistant, walked into my office with a worried look on her face.

“John Mack is on the line for you,” she said.

Connie knew that Mack was the head of Morgan Stanley, and she’d been an executive assistant long enough to know that if the head of another firm called, something big was definitely up. I had promised Connie when I hired her two years earlier that I planned to work for ten more years and that she’d be with me until the end. She probably didn’t believe me, but we had shaken on it.

“Hi, Dan,” John said in his North Carolina drawl, sounding as casual as if we’d spoken the day before for 60 minutes, not two years earlier for only six. “I’d like to have dinner with you. How’s next Monday evening?” It was becoming pretty prestigious to be an analyst all of a sudden, and to have the head of a rival firm call was still a very, very big deal. I knew it was a recruiting call—there was no possible alternative explanation—and wondered what had happened at Morgan. Was Stephanie Comfort a flop? Was Ed Greenberg behind this? And how did they get Mack to make such a call, one I’m sure he saw as a level of groveling that was beneath him?

“Sure, John,” I said. “How can I say no to an invitation from John Mack? But I want you to know I am very happy here at Merrill and am not seeking a change at all.” (It was the ritual language used by all targets of a headhunting. Plus, it was true).

“That’s fine, Dan,” John responded. “Let’s just get together and we’ll worry about the rest later. You live in Westchester, right? Meet me Monday evening at seven at the Cobble Creek Café in Purchase.”

I have a terrible habit of smirking when something good is happening, and Connie knew this, so she came in and hung around for a few minutes to see if she could detect any odd facial expressions. She knew that I wasn’t going to put anything on the calendar, but if I did schedule any secret meetings over the next few weeks, she would know: either I’d arrive late to the office (which I never did unless I had an appointment that she always knew about), leave early (which I rarely did except to get to one of the kids’ softball or basketball games), or go out for lunch (I always ate at my desk except for client or company meetings).

John and I arrived at Cobble Creek Café at the same time and walked in together. It’s a nice place with decent food and a countrified setting. And on a Monday night it was pretty quiet and the bar area was empty, so John asked the owner, whom I surmised he knew from numerous other meetings like this one, if we could have the bar area to ourselves with the door closed off from the main dining room.

I was pretty sure that I wasn’t going to leave Merrill. I was still ranked
number three by
I.I.
and to win the
I.I.
sweepstakes, I reasoned, I needed the huge client base and public exposure that Merrill’s combined institutional and retail distribution systems offered. But I had learned that it was always best to listen—especially when John Mack was talking.

The first impression I’d had of Mack was that he was a laid-back, southern gentleman. This was anything but true. His accent was somehow soothing, but on this night, Mack was all business, skipping the small talk about the kids and the families. He apologized for whatever had gone wrong back in 1993 and said he and the entire telecom banking team wanted me to come back. He assured me that things were different now that he had handpicked the new global head of research, Mayree Clark, a woman from Oklahoma who had done terrific things in Morgan Stanley’s real estate division. He also told me he was very focused on Jeff Williams, Morgan Stanley’s head telecom banker, since John was not satisfied with his group’s production and wanted it fixed.

The funny thing was that Jeff and Mayree were married, creating a very delicate situation. Mayree would be my boss, but her husband was the main telecom banker. Would I have independence, or would Mayree pressure me to come to bullish conclusions on companies Jeff was cultivating as investment banking clients?

I kept these thoughts to myself, figuring that there was no reason to give John the sense that I was a negative or high-maintenance guy. But we were pretty much out of things to talk about. I didn’t golf at the time, which was John’s passion, and John didn’t seem to care about pro football, let alone the angst-ridden history of my team, the Buffalo Bills. The conversation slowly sputtered to a halt, but not before John asked me to have breakfast two days later with Mayree and a guy named Neil, who headed Morgan’s equity sales and trading department.

The breakfast was set for the Mark Hotel, a small, exclusive place on the Upper East Side that was a lot more Morgan Stanley than Merrill in style. To my surprise, John Mack showed up at the breakfast as well, I guess to underscore the meeting’s importance. I couldn’t imagine that the head of a firm as large, complex, and global as Morgan Stanley was spending this much time recruiting one individual for the research department that actually lost money year in and year out. But he was.

Mayree, an all-business type known for being a tough cost-cutter, was quite nice and enthusiastic. Neil was a bit gruff and more focused on his watch than on our conversation. But that’s what all traders and salespeople
are like, especially early in the morning before the markets open. Traders and salespeople abhorred breakfast meetings because they took them away from their desks and phones during the peak productivity part of the work-day. Neil had been ordered to be here, of course. He probably didn’t know much about the telecom industry. He probably also had no use for research analysts except that analysts made the noises—upgrades, downgrades, earnings estimate changes, strategic commentary—that his salespeople and traders used to generate stock trades. Mayree described the changes she was making in the research department and Neil highlighted some recent successful IPOs that Morgan Stanley had underwritten. They seemed to be out to impress John more than me, but I was flattered anyway.

Before the breakfast ended, Mayree suggested a meeting with Jeff, her husband. She said she would get a suite at the Righa Royal Hotel at Fifty-fourth and Seventh for 3:00
PM
the next Monday, and leave the key at the front desk under her name. It’s hard to explain how strange it was walking into a hotel lobby at three in the afternoon, going to the reservation desk, and asking for a key left by a Ms. Clark. I’m sure the lady at the front desk thought this was an afternoon tryst. I guess it was, in a way: I was considering cheating on Merrill with my old flame, Morgan, after all.

Jeff was waiting in the suite, and he basically parroted John’s line. Then Jeff left and Mayree showed up. She was ready to talk turkey. She offered me a three-year guaranteed deal at a total pay package substantially above what I was making at Merrill, including stock options and bonus. I was amazed. These numbers were mind-boggling. Even Morgan Stanley, the firm with “Mack the Knife” at the helm that was so resistant to paying analysts well two years earlier, had finally joined the stampede to hire the best analysts in the hope of landing big investment-banking and underwriting fees.

I managed to keep the telltale smirk under control and asked Mayree if I could think about it for a week or so while Paula and I took the girls on a quick trip to Pennsylvania’s Amish country. She agreed, but also asked me to meet with Joe Perella, who had joined Morgan as chairman of investment banking, before I left. Joe was a legendary 1980s mergers-and-acquisitions banker who, with Bruce Wasserstein, had built First Boston into an M&A powerhouse. They then bolted to start their own firm, Wasserstein Perella, known to Wall Streeters as
Wasserella.
I couldn’t resist; I had heard his name a zillion times over the years and knew he was supposed to be the most persuasive salesman on the Street.

So the next day, I walked into Le Bernadin, Manhattan’s top French
seafood restaurant and a place where people went to be seen. Joe, a lanky, bearded, hyperactive sort, arrived a little late. Clearly something big was going down. He was frenetic, saying he needed to make a phone call. This was in the days when it was still a big deal to use a cell phone in a restaurant, but Joe didn’t care. He pulled a huge clunky one from his equally clunky briefcase and dialed in, walking away for a moment so I wouldn’t hear what he was saying. Then his battery started to run out, so he continued his call from the pay phone in the back by the men’s room.

I had brought my briefcase, so I had plenty to read while waiting (and I also needed the time to decipher the French menu). Joe finally came back and we ordered. But we had barely made it through the pleasantries when he suddenly noticed Edgar Bronfman, Jr., heir and CEO of Seagram’s, and his gorgeous Venezuelan wife sitting a few tables away. Joe bounded across the room to say hi and left me staring into my bouillabaisse.

I didn’t really care that Joe was rude. He was, after all, a big swinging dick on Wall Street and I was actually getting a meal at Le Bernadin and a great view of how an M&A legend operates—they never sit down. We did eventually talk a bit. He was very excited about some of the changes he was trying to make to Morgan’s investment banking department, and he repeated the mantra that telecom was an absolute top priority. Then, just as a throwaway line, he gave me some of the most important and useful advice I’ve ever received.

“Be sure to get really good legal assistance when negotiating your contract, whomever you end up with. If you want, I can give you my lawyer’s number and I’ll ask him to take your call.” Sure, I said. Why not?

Mayree had an offer letter written up and overnighted to our motel in the Amish country. I wasn’t sure what to do. Merrill had been great to me over the past two years. Everything they had promised—staffing levels, bonuses for staff, a top-notch executive assistant, no burden from retail, no banker interference—had come true. I needed to inform them of the offer and give them a chance to respond. It sounds crude and it was. But on Wall Street, everything that can be quantified is.

And these dudes can move at the speed of light when they need to. After a quick trip to London, I immediately informed Andy Melnick, Merrill’s head of domestic research, and Jeff Peek, head of global research, of the Morgan Stanley offer. Within four hours, they had approval to match it and said a new offer letter would be ready the next day. I know this must sound
insane to people who work in companies that make real stuff, people who work for decades without a decent raise. But for an investment bank, a million here or there was a rounding error.

My next call was to Joe Perella’s lawyer. I guess Perella assumed that I would use his lawyer to negotiate with Morgan, but the first thing I wanted the lawyer to do was to look at Merrill’s letter. The lawyer reviewed Merrill’s draft, which was very similar to the agreement I had been operating under at Merrill for the past two years.

“Dan,” he said, “this is not a contract or a guarantee. It basically says they will pay you a certain base and a certain bonus but only if Merrill employs you at bonus time. But you’ll get nothing if Merrill decides, for whatever reason, to fire you. You have no guarantee whatsoever.”

I almost fell out of my chair. I thought I had a sure thing, and here was an expert lawyer telling me I didn’t. Which meant, I realized, turning red, that both offer letters I had—the one from Merrill and the one from Morgan—were not worth the paper they were printed on. I’ve never felt like such a sucker in my life. Were all of us Wall Street employees with multiyear guarantees this stupid or was it just me? Had my Merrill bosses been laughing at my naïveté for the past two years?

I hurriedly asked the lawyer to send me his suggested changes, and I then sent them to Andy, who sent them on to the Merrill lawyers. After a few back-and-forths, all of my requests were granted. Merrill and Andy were suddenly willing to truly guarantee my pay with only one exception: if I broke a securities law or regulation. Now, like many of the chief executives whose stocks I covered, my pay was set, regardless of how well—or how poorly—I performed in the future. It was also set no matter what the investment bankers thought of my research opinions or me.