Veteran Wall Street analyst Brad Hintz circulated an insightful farewell memo on Friday announcing his last day at Sanford Bernstein.
Hintz discusses the changes and current controversies surrounding the financial industry.
And he’s someone who definitely knows the ins-and-outs.
Hintz had a long and diverse career on Wall Street. At Sanford Bernstein he was the vice president and was the “go-to analyst” for comment on the big banks.
Before that, he spent three years as the CFO at Lehman Brothers. He got out before the financial crash, and went on to spend 10 years at Morgan Stanley as a managing director and treasurer.
Here is his memo:
After thirteen years in equity research, I am retiring from Sanford Bernstein to teach at NYU’s Stern School. As a result, today Bernstein is terminating coverage of the capital markets banks, investment banking boutiques, futures exchanges and e-brokers.
Looking back, capital markets has been a fascinating industry to cover. Wall Street is a kaleidoscope of booms and market collapses, bankruptcies and resurrections, blustering traders and cosmopolitan bankers, heroes and villains. The industry has evolved and shifted, the business models have changed and new players have come and gone. But it is never boring and always challenging. But it is the very uncertainty of the industry’s performance that makes the capital markets stocks so attractive when an economic cycle recovers and so painful during market disruptions.
I have been blessed to have worked at a firm, whose core franchise remains independent research. At Bernstein an equity analyst is free to publish in depth and at times, controversial analyses. And the firm’s research-sales team can clearly deliver an analyst’s message to the markets. It is a remarkable platform for a researcher.
Today, six years after the crisis, the securities business is in a period of transition. The trading businesses of Wall Street are generating returns well below their cost of capital. Even in the middle of an M&A rebound, still-buoyant debt capital markets and an equity underwriting boom, the aggregate ROEs of the banks are lackluster, exacerbated by ever tightening regulatory rules and unconventional monetary policy initiatives on both sides of the Atlantic.
The underlying expectation of investors, is that eventually, the Street’s equity and fixed income market products and services will be repriced to reflect the costs of the new regulation and returns will rebound. But this is far from certain. Are the new rules coming from Washington, London or Basel, just the fine tuning of already established regulatory models or is there a conscious strategy to shift the capital markets business from the universal banks to smaller and presumably less systemically important participants? With the rise investment banking boutiques, electronic trading venues, central clearing entities, inter-broker dealers trading in less liquid assets, hedge funds and new, lighter regulated financial institutions, it appears that the invisible hand of economics is at work. This will play out over the next five years and remains the key investment controversy facing the capital markets sector.
I would like to thank the Bernstein clients for their support and friendship over the last thirteen years. I have fond memories of my time at Bernstein, Lehman Brothers and Morgan Stanley.
Next up, the he will be teaching at NYU’s Stern School.