The King of Wall Street: Larry Fink
Posted by Larry Doyle on June 17, 2009 11:17 AM |
With the downfall of Wall Street over the last two years, we have seen some giants within the industry summarily dismissed and, in certain cases, demonized. Who knows what the future holds for Dick Fuld, Jimmy Cayne, John Thain, and Angelo Mozilo.
With their demise, who now reigns over the Wall Street kingdom? Many would debate that either Lloyd Blankfein of Goldman Sachs or Jamie Dimon of JP Morgan Chase is the “king of the court.” Well, Lloyd and Jamie certainly wield significant power and influence on Wall Street, but there is no doubt that the King of Wall Street is the CEO of BlackRock, Larry Fink.
Who is Larry Fink? What is BlackRock? How did he ascend to the throne?
I consider myself fortunate to have worked for Larry for the first 5 years of my career at First Boston. I learned the business under his watch. He was more than fair with me and I owe him a debt of gratitude for giving me an opportunity.
Larry came to Wall Street in the late ’70s and is largely credited, along with Lew Ranieri of Salomon Bros., for developing the mortgage-backed securities sector. First Boston and Salomon dominated the MBS sector of the market in the ’80s with a combined 70%-75% market share. I certainly did not fully appreciate it at the time, but my 7 years at First Boston were a fabulous education.
During my last two years at First Boston, I did not work for Larry. He moved on to join Blackstone, a new private equity venture. BlackRock was a part of Blackstone and subsequently spun off.
BlackRock was initially a shop that primarily marketed mutual funds. Over the last 21 years, BlackRock has experienced tremendous growth, both organically and via acquisitions. Just the other day, BlackRock purchased Barclays Global Investors for $13 billion. With BGI in the fold, BlackRock will have approximately $2.8 trillion in assets under management.
BlackRock typically gets the first call from Washington when workout situations arise. They were engaged to assess and manage the risks upon the demise of Bear Stearns and AIG.
BlackRock is recognized as the preeminent risk manager on Wall Street. In fact, one of BlackRock’s most profitable units is a risk management division known as BlackRock Solutions. How uncanny that BlackRock has flourished based upon its risk management capabilities. Why? Under Larry’s watch at First Boston in the mid to late ’80s, risk management within our MBS business was almost non-existent.
I would never air dirty laundry nor talk out of school, but Larry himself has referenced this time period as being a tremendous education for him along with a sore spot. Let me expound.
First Boston neither had a real-time nor robust risk management platform in place during the mid-’80s. Risk management was effectively a manager, at times Larry, but often a separate trading manager, inquiring what positions we had and where our risk stood. That said, risks could change on a dime and First Boston had no systems in place to capture it.
In 1986-87, interest rates plummeted and the U.S. economy experienced an enormous wave of mortgage refinancings. That phenomena wrecked havoc on the MBS market. To make a long story short, we had a trading book on our desk that was effectively “short the market” much more than the individual trader or trading management appreciated. The department took a $100+ million loss. At this point in time, $100+ million may not seem overly significant (it is), but in the mid ’80s that was HUGE money. Larry took a big hit as it occurred in his department and on his watch.
Over the course of the next year, First Boston hired a quant and attempted to implement a risk management process. With all due respect to that individual, the risk reports generated by him ended up in the garbage very soon after they were distributed. Traders knew the risk assessments were theoretical, but nowhere close to being practical. What happened?
In 1988, another trader on our desk had serious losses and questionable trades in his book and the department – still under Larry’s watch – took a mid 8-figure hit.
In very short order, Larry was no longer running the department and joined Blackstone. The rest as they say is history.
What is the cornerstone of the BlackRock franchise? Real time,dynamic, and robust risk management systems.
Larry is now the King of Wall Street.
Not that he needs it, but I wish him well and thank him for giving me an opportunity and an education in risk management, intended or not.