If a bond was rated triple A by a rating agency, institutions bought them based on that rating—not on the salesman’s pitch about the company. But to convince an investor to buy a bind with a C rating you had to tell the company’s story.
Mike would kill to have everybody know it as a high-yield bond, but it’s too late.
Milken was replacing covenants (which an insurance company would have exacted in a private placement) with liquidity.
All the establishment firms were slow coming into this business because they wanted to protect their franchise with the blue-chip companies. Drexel had no franchise to protect.
After Milken and Caywood had dinner, Milken boarded a plane for Los Angeles at eleven o’clock Houston time. Caywood estimated that Milken would have arrived home in the San Fernando Valley about four hours later. “When I got to work the next morning —it was 5am California time—Mike had already called. The man is a machine”
He has the issuers. He had the buyers. He had the most trading capital of any firm. He had the know-how. Hebhand the best incentive system for his people. He had the history of data—he knew the companies, he knew their trading prices, probably their daily trading priced going back at least to 1971.
Traders typically had a principal mentality (often using the firm’s capital to take positions), whereas investment bankers tended to have an agent mentality (facilitating transactions on behalf of a client, who was in turn the principal)
Drexel became a pioneer in what Wall Street would by the mideighties loftily call merchant baking, which simply meant that a firm was using its own capital to finance deals
Mike does better in hard times than good. He goes hundreds of millions long. I remember I called him one day and said ‘how are you doing?’ ‘wonderful,’ he said. ‘Down eleven million today, after sixteen million yesterday. I’m stuck for a hundred eighty million in all.’ he was cheerful
In 1983, Drexel employed 5500 people. Mullen’s group was 130.
As though to underline this desire for structural egalitarianism, Milken had no office. Meetings were generally open to all who were interested. People were encouraged to perform numerous functions.
4 or 4:30am to 8pm was their day
Mike talked to people on the phone from 5:15am to 2pm roughly.
“I have good hearing, and over the years it developed that I can hear most conversations in the department. I might overhear someone doing a trade that I don’t think is a good idea and might scream at them before they’ve completed that trade, or try to provide directions.”
Icahn picked a niche (options), started a newsletter, and built a strong client base of options sellers.
I don’t like giving up equity. I’ve learned over the years, a dollar bill is a better partner than a partner.
Negotiating is probably the thing Icahn does best in life. He brings to it his considerable talents as a poker player, bluffing masterfully so his opponents never know whether he is going to play or fold. He sketches so many options, and so many variations on those options, that his adversaries often feel they are lost in a maze. The positions he takes are in such flux that for his adversary to try to challenge or attack them is, as one recalls, like “wrestling with a ghost.” He is also “so paranoid, always looking over his shoulder and behind every door, constantly thinking everyone is screwing him.”
By the end of 1986, Drexel’s after-tax earnings were estimated at $545.5M, making it the most profitable banking firm in America
None of the investment banks had Mullen’s ability to tap into his network and raise billions overnight. None could enlist his buyers to give them a bridge loan.
They didn’t have his distribution system, they couldn’t place the large amount of junk. They also needed more time to place the junk they could.
^^ this is basically what good VCs do. They are able to fill rounds fast and fill future rounds as well.
A central tenet at Drexel was that it was not capital but people that were the scarce resource
One of the driving forces of Mullen’s machine, after all, was over funding: he would raise more than a company needed and the company would invest the surplus in junk.
The lack of over funding and reinvestment in VC, along with longer term returns are the big difference
Mike is the only person in the securities business today who can do it all. He is a master trader, salesman, deal structurer, credit analyst, merger tactician, securities venturer. And he does these things at the level of the best guy in each of these categories. You look at the difficulty firms have in putting all these together —and here you have one man embodying them all these attributes
In 1979, Milken testified that in 1979, he had about two hundred phone conversations on a routine day.
In 1982, he testified he had about 500 phone conversations per day
In the gap between perspective and reality, there is money to be made