Public Brokerage Firms Are Casinos, claims Solomon

Many Wall Street old timers get teary-eyed thinking about the old days, when the partnership model dominated Wall Street. It certainly was a different era:

The private partnerships that once dominated Wall Street guarded their capital, used less leverage and limited their risk to trading blocks of stock for clients and shares of companies in mergers, said Roy Smith, a finance professor at New York University’s Stern School of Business and a former partner at Goldman Sachs Group Inc. Since raising money from the public, many of the biggest firms have abandoned that caution. Bloomberg

Are the sovereign wealth firms fools for injecting capital into the banks and brokers?

``Shareholders share in the downside and not necessarily in the upside, that’s the whole story,’’ said John Gutfreund, 78, who ran Salomon Brothers in the 1980s when it was renowned for the size of its trading bets. ``It’s OPM: Other People’s Money.’’

Partnerships are not completely dead on Wall Street; William Blair is a notable exception to the rule. Although they have debated going public or selling the company at different junctures, they have gone it alone, choosing to add resources to their asset management capabilities and hire selectively to expand their equity capital market operations. The firm has not been caught in the maelstrom, and apparently does not employ rogue traders like the bigger banks and brokers.

Hopefully the next time the partners considering selling out they will realize how good they have it. For long-time employees, attaining partnership in a stable organization might be preferable to the quick fix that public companies can offer.

When times get tough the public brokers cannot even deliver the cash compensation promised, and scores of 30-year old professionals are learning that their word is not their bond.

Wall Street Shareholders Suffer Losses Partners Never Imagined
Bloomberg

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