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The Predators' Ball: The Inside Story of Drexel Burnham and the Rise of the Junk Bond Raiders (Paperback)
by Connie Bruck
| Category:
Junk bond trading, Wall Street, Scandal, Stock market |
| Market price: ¥ 168.00
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¥ 158.00
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 Good for Gifts |
| MSL Pointer Review:
An outstanding coverage of the age of the junk bond raiders (in the go-go 80s) and a classic look at the inside of Milken's world. |
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Author: Connie Bruck
Publisher: Penguin USA
Pub. in: June, 1989
ISBN: 0140120904
Pages: 400
Measurements: 7.8 x 5.1 x 0.7 inches
Origin of product: USA
Order code: BA00094
Other information: Updated edition
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- Awards & Credential -
National Bestseller in North America. |
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- MSL Picks -
The Predator’s Ball follows the rise of the junk bond market, from Michael Milken's ambitions in the 1970s through Drexel Burnham's dominance of the market under Milken's leadership in the 1980s, including Drexel's controversial financing of high-profile hostile takeovers, to the beginning of legal trouble for Drexel in 1986. Author Connie Bruck interviewed hundreds of people over a 2-year period, including Drexel employees and Drexel clients, to learn what went on inside "the Department", Drexel's mythic Beverly Hills junk bond offices. Bruck becomes increasingly critical of Michael Milken's tactics as the book progresses, but it is worth noting that she did not set out to write an expos . Bruck approached the project with sympathies "more toward Milken and his band of renegades than toward the corporate establishment they were attacking", but years of peering inside the Department changed her mind. Regardless of where your sympathies lie, there is a lot of admirable research and fascinating detail in The Predators’ Ball.
The story of the junk bond market is the story of Michael Milken's single-minded rise to power. Milken WAS the market, as they say. Accordingly, most of "The Predator's Ball" is dedicated to Milken's ambition to fund a new generation of businesses with high-yield low-rated bonds ("junk bonds"), his creation of a department at Drexel that embodied his unique views of productivity and capitalism, and the ways and means to Drexel's utter domination of the junk bond market in the 1980s. Milken's larger than life presence is nearly absent, however, from the book's three longest chapters, which detail successful hostile raids financed by Drexel: Nelson Peltz and Peter May's buyout of National Can, Carl Icahn takes TWA, and Ron Perelman's acquisition of Revlon. These chapters are something of a digression in the Milken story, as he was not front and center in the drama, but they provide blow-by-blow accounts of exactly how these leveraged buyouts worked and insight into the realities of LBOs. Michael Milken created a market for junk bonds where there was almost none, sought 100% market share for Drexel, and used that market to change the face of corporate America. He did it by astutely and commendably flouting convention, but did he flout ethics and law as well? Judge for yourself.
(From quoting an American reviewer)
Target readers:
Investment bankers, investment consultants, MBAs, finance majors, and anyone else who is interested in M & A, investment banking, Wall Street, corporate scandal, risk management and financial markets.
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Connie Bruck has been a staff writer at The New Yorker since 1989; she frequently writes about business and politics. In 1996, her profile of Newt Gingrich won the National Magazine Award for reporting, her second. Bruck is the author of Master of the Game and The Predators' Ball. She lives in Los Angeles.
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From Publisher
During the 1980s, Michael Milken at Drexel Burnham Lambert was the Billionaire Junk Bond King. He invented such things as "the highly confident letter" (I'm highly confident that I can raise the money you need to buy company X) and "the blind pool" (Here's a billion dollars: let us help you buy a company), and he financed the biggest corporate raiders-men like Carl Icahn and Ronald Perelman. And then, on September 7, 1988, things changed... The Securities and Exchange Commission (SEC) charged Milken and Drexel Burnham Lambert with insider trading and stock fraud. Waiting in the wings was the U.S. District Attorney, who wanted to file criminal and racketeering charges. What motivated Milken in his drive for power and money? Did Drexel Burnham Lambert condone the breaking of laws? The Predator's Ball dramatically captures American business history in the making, uncovering the philosophy of greed that has dominated Wall Street in the 1980s.
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The Miner’s Headlamp
At 5:30 AM each weekday in the early 1970s, a bus pulled up to a stop in Cherry Hill, New Jersey, and a young man lugging a bag that bulged with papers mounted its steps. He was making the two-hour commute to New York City, where he worked at the investment banking firm of Drexel Firestone. The train would have provided a more comfortable and faster ride; but in those very seasons, it also offered more opportunity to meet other Wall Street acquaintances. They would want to engage in the kind of idle small talk that communters share to pass the time. The thought must have been intolerable. He did not wish to be rude, but he wanted no interruption.
As soon as he had settled into his seat, being sure to take one with an empty one adjacent, he unloaded a mountain of prospectuses and 10ks (annual securities and Exchange Commission filings) onto the seat next to him. On winter mornings the sky was still pitch black and the light on the bus was too dim for him to be able to read. He wore a leather aviation cap with the earflaps down; he had been bold for years, and although he wore a toupee his head always felt cold on these frosty mornings. Now over his aviation cap he fitted a miner’s headlamp - strapped around the back of his head, with a huge light projecting from his forehead.
Michael Milken was as anomalous at the impeccably white shoe Wall Street firm of Drexel Firestone to which he traveled each day as were the low-rated bonds that he traded there. He came from a middle-class Jewish family. He had no aspirations to climb any social ladder. He was painfully uncomfortable, moreover, in most purely social situations. He was obvious to appearance - not caring what kind of car he drove, or what kind of clothes he wore, or whether his aviation cap and miner’s headlamp made other passengers stare at him. Milken was occupied, at every moment, with his own thoughts, and those thoughts were riveted on the bonds.
Milken had grown up in the well-to-do, largely Jewish enclave of Encino in Los Angeles’ San Fernando Valley. His father, Bernard Milken, was an accountant; from the time he was ten Michael watched at his father’s side as he prepared tax returns. A boyhood friend, Harry Horowitz, recalled that the kinetic quality so marked in Milken in later years was present when he was young. Even as a teenager he slept only three or four hours a night. He was a high school cheerleader. And then as in adult life he eschewed all stimulants - no drugs, alcohol, cigarettes, coffee or carbonated beverages.
He graduated from Birmingham High School in neighboring Van Nuys in 1964 and then attended the University of California at Berkeley, graduating Phi Beta Kappa in 1968. While that campus was roiled with the protests of the militant left, Milken majored in Business Administration, managed a few portfolios for investors and was active in a fraternity, Sigma Alpha Mu.
Milken married his high-school sweetheart, Lori Anne Hackel, and headed east to the Wharton School, the University of Pennsylvania’s business school. Horowitz, visiting him during his first week at Wharton, attended an orientation dinner with him. The two were a little taken aback by Milken’s fellow students, Ivy League graduates dressed in navy blazers and smoking pipes, and they in turn were struck by the two Californians. “They were making fun of us, though in a sort of nice way” Horowitz recalled. “And I remember Mike told me that evening that he was going to be number one in his class” Milken did have straight A’s, but because he was short one paper he did not graduate with his class. He later co-authored a paper with one of his professors and received his M.B.A degree.
Milken had come to the Philadelphia office of what was then called Drexel Harriman Ripley to apply for a summer job he was at Wharton, in 1969. Anthony Buford, Jr., then a director of Drexel, recalled that a professor at Wharton, Robert Hagin, recommended Milken for the job. “Bob told me, This is the most astounding young man I’ve ever taught” Said Buford.
Buford was involved in a corporate-planning effort, analyzing all aspects of the firm. Like many other firms in the late sixties and early seventies, Drexel Harriman Ripley was struggling to weather the crisis of the “paper crunch” in which back-office systems buckled and sometimes collapsed under the burden of trades, and records of stock and money delivered and received were lost. When Milken arrived, Drexel was in the throes of making the transactions in its back office from the clerk with the green eyeshade to computers. Milken, who had spent the previous summer at the accounting firm of Touche Ross, was dispatched to the troubled area.
While he quickly believed he had divined the solution to the problems, his plan was not implemented. Most of the people in the back office from whom Milken tried to garner information had no more than a high-school education but many years’ worth of experience at their jobs. “Mike was like a bull in a China shop” recalled a former Drexel executive. “He was terribly arrogant. And he didn’t have the facility to shroud his ability, couldn’t keep it from being threatening and abrasive. This army of operations people was so far beneath him in intellectual powers that he couldn’t deal with them, he could only beat on them. Soon their attitude was, Go talk to somebody else. So he never was unable to unlock the system.
“Mike’s difficulty, gigantic, was that he simply didn’t have the patience to listen to another point of view” this former executive continued. “He would assume he had conquered the problem and go forward. He was useless in a committee, in any situation that called for a group decision. He only cared about bringing the truth. If Mike hadn’t gone into the securities business, he could have led a religious revival movement.”
Whatever his interpersonal shortcomings, Milken was recognized as so highly-powered intellectually that he was moved on from the back office to do other special projects, as assistant to the firm’s president, Bertram Coleman, and then his successor, James Stratton. He worked at Drexel part time throughout his two years at Wharton.
Perhaps his most significant contribution to the firm was his analysis of its securities-delivery system. Drexel, like many Wall Street firms, used to ship securities from city to city and borrow the price of the securities until they were delivered. That delivery often took as long as five days. Milken realized that delivery should be made overnight, thereby cutting the period of interest payment from five days to one. According to his vice-president of operations, Douglas Clark, that idea saved the firm an estimated $500,000 annually.
When he left Wharton in 1970, he was hired full time at Drexel, to work in the Wall Street office as the head of research for fixed-income securities; from there he moved into sales and trading. While Milken’s academic record was superb, he lacked all the other requisites - Ivy League school, social standing, physical presence - for acceptance at one of the premier firms on the Street, such as Goldman, Sachs. Drexel, while it was in a state of decline, at least had a major-bracket franchise. Besides, Milken tended always to stick with what was familiar. He had already spent two years working at Drexel; he would stay there.
Drexel prided itself on its lineage. It had been founded in 1838 in Philadelphia by an established portrait painter with financial acumen, named Francis Drexel. In 1871 the firm of Drexel, Morgan and company was opened in New York; These two firms were later consolidated into a single partnership, engaging in both commercial and investment banking, under the name of J.P. Morgan and Company in New York and Drexel and Company in Philadelphia. The two firms epitomized the elite in investment banking, though Drexel was overshadowed - as was every firm and every financier - by the legendary J.P. Morgan, so formidable that he is credited with saving the United States Treasury from collapse in 1895 and averting a Wall Street panic in 1907.
With the passage in 1934 of the Glass-Steagall Act, which mandated the separation of the investment-banking activities from commercial banking, J.P. Morgan and Company and Drexel and Company became entirely separate organizations. The Morgan firm opted for commercial banking and is now known as Morgan Guaranty Trust Company. Drexel stayed in investment banking. In 1966, Drexel merged with Harriman Ripley and Company.
The Philadelphia-based Drexel was strong in money management and in research, while the New York-based Harriman Ripley and Company had blue-chip investment banking clients. It should have been a perfect marriage. But, like so many mergers of investment-banking firms which would occur over the next two decades, this one was fractious. Some key partners of both firms left, taking clients and capital.
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Carey Harris (MSL quote), USA
<2006-12-25 00:00>
This book is NOT the inside story of Drexel Burnham Lambert; it is NOT the inside story of how Milken conducted his professional business or his personal life and it is NOT the inside story on the dangers of junk bonds (or high yield bonds as they are known to professionals) bearing in mind that boiling water scalds the hands of those who can't manage to hold a cup properly. Remeber when you read this book that the notion that Milken was convicted of "insider trading" is fictitious when you consider that the term had not (at the time) even been defined. The most Rudi Giulliani could get on Milken was a charge of running up a stock price by an eighth in the last minutes of trading on a few random days - if that is a bona fide crime Wall Street would be a very quiet place indeed. Of course readers of this book will be none the wiser regarding these and many other facts concerning Michael and his revolutionary ideas regarding finance for companies whose products are household names in the US and throughout the world and who utilised Milken to bring their products to market and ultimately to consumers who benefit from them every day. If you want the facts about Michael, Rudi Giulliani & Ivan Boesky (who incidentally turned states' witness to save himself from being convicted of fraud charges in return for his testimony against Mr. Milken) read "Payback" by Daniel Fischel and "Fall From Grace" by Fenton Bailey.
These two authors share with Connie Bruck an obvious interest in the fate of Michael and others involved in this saga but there unfortunately lies the end to the similarities. Her willingness to point a gun in the direction of an innocent victim and so eagerly pull the trigger suggests that only one of the three felt a little jilted about not being invited to the ball in the first place.
(A negative review. MSL remarks.)
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USA Today (MSL quote), USA
<2006-12-25 00:00>
Wall Street’s reading list starts off with a sizzler: The Predator’s Ball. |
The New York Times, USA
<2006-12-25 00:00>
Connie Bruck traces the rise of this empire with vivid metaphors and with a smooth command of high finance’s terminology. |
A reader (MSL quote), USA
<2006-12-25 00:00>
A national bestseller, The Predators' Ball tells about the rise of Drexel Burham Lambert, a second-rate bank that was completely transformed by the arrival of Michael Milken and his plans with junk bonds. Milken broke ground in changing the way banks thought of junk bonds, those bonds that are so poorly rated that they are a substantially greater risk to investors. The flip side to this is that if you take a risk on a junk bond you also have the possibility of making significantly more money, as the rates are much higher.
Previously, other banks such as Goldman Sachs and Morgan Stanley wouldn't touch junk bonds, as they felt that junk bonds were "below" them. When they saw how much money Drexel Burham Lambert was making, they began to salivate for junk bonds too. Michael Milken pioneered this new change at Drexel Burham and became somewhat of a god-like figure. He made Drexel Burham king of the junk bond market. Milken decided he wanted to move to Southern California, and so he opened a Drexel Burham office there, bringing the best and the brightest in the company along with him. He and his partners would get to work at 4:30 AM and stay till the wee hours of the night. They were richly compensated for their efforts, and many became multi-millionaires in a very short period of time.
This book gives you terrific insight into the world of Drexel Burham at its apex, when it was at the top of the business world. It tells you about Michael Milken, his intense personality and the loyal following he built. It also explains some of the incon- sistencies, conflicts of interest and other problems that brought Drexel Burham to its knees and put Milken in jail.
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