Not typically part of being a CPA: Documenting inefficiencies again...

Sorry it has been a while since I have had a chance to write. Had another example last week of the inefficiency from the Wall Street Investment Bank that I work for. The past couple of weeks myself and others on the team have been working on a management fee calculation and the related notices that are sent to the partners in the fund. We calculate this fee by taking a percentage of the unreturned capital in the fund and charge it to the partners semi-annually. We have schedules that we maintain for other purposes that we leverage to make the calculation.

Long story short, the guy we sent it to in New York rejected it because the files were not linked in excel. So in the middle of preparing financial statements, he wants to create a dynamic file that is linked and formatted all pretty. Good idea, but inefficient use of resources. He had a file that did this for him, he was just too lazy to dig into it. Mind you, it is the same file that he had been sent for every previous management fee call that we have prepared for him. So guess what I did for 11 hours on Wednesday? Thats right, prepare this dynamic file that game him the same answer as before. Brilliant!

Not typically part of being a CPA. Documenting inefficiencies...

There are several things about my job that I think are incredibly inefficient. One example happened today and I think its extremely comical when you think about it and also an example of the mentality and inefficiency of some New York/Wall Street/Corporate counterparts I work with. First some background: I work for a firm that was acquired by a Wall Street Investment Bank about 4 or so years ago. We do the accounting for most of their private equity funds. I happen to work on a $2.5 billion Real Estate fund. We have counterparts in New York who interact directly with the deal professionals. We are not permitted to contact them even though their information is what we use to produce the financial statements for the fund. Our counterparts are also not accountants but rather finance people. They review all of our work which doesn't make sense. Why hire a group made up of CPA's to do your accounting if you then shoot holes in all of their opinions and double check all of their work? Don't understand that one and its probably the inefficiency that would need to be corrected in order to fix all the other broken processes we have.

Anyway, today's example is that an analyst in New York wanted me to rename a package of partner commitment schedules that we prepare in excel with a specific name. Mind you that was the sole reason for us to resend these files; change the name on them. In the time it took her to draft the email she could have done exactly what she was wanting to do. Inefficiency at its finest! Not only that, she was extremely vague in exactly how to name each of these files. Mind you there were 8 of them that all had different partnership names and I was supposed to read her mind and know how to name each one! I also have no idea how they store these on their file server and cannot access them. The have to save them off of the email I send in order to have them on there server anyway!

I think I am going to start documenting how stupid and inefficient this business model is that I work in. I am a CPA that answers, but not reports, to an analyst in New York. I tend to think of myself as not an egotistical person, (not everyone would agree with that statement ha!) but come on. This is beneath me and wastes my time. It also wastes the time of people who work for me and wastes the precious time and money of a company that needs both in the worst way right now. The stock dropped another 7% today. Coincidence? I think so...

Tracking my Restricted Shares

Lets take a moment to review the activity since November 30, 2007. This was the day I was granted restricted shares in the firm for my year end bonus. Mind you that was only 5% of my 20% bonus so good for 1% of my annual compensation for 2007. Pretty immaterial in the grand scheme of things, but none the less...

I was granted these shares with a strike price $15 less than the closing price on Nov. 30th. So roughly $47/share. Today the firm projected a $2.8 Billion loss for fiscal 2nd quarter 2008 and the stock closed today at $29.48. This puts my shares roughly $17 underwater. Nice piece of annual compensation huh? They also plan on raising $6 Billion of new capital, further diluting the value of my shares. Very nice!

Anyway, the shares vest at 75% in 3 years and 100% in 5 years so no big deal if you are looking long term. Buying opportunity right?

Those who do not learn from history...

are doomed to repeat it. The Bear Stearns story reminds me a lot of Enron's final days in a way. Both have executives saying everything was OK but seemed oblivious to market conditions and other issues surrounding their firms. Both faced liquidity issues and had lenders seem to lose confidence causing their stock price to have huge drops in short time frames. The government became a big player in the Enron case and seems to be stepping in that direction with the announcement that emergency funding from the Federal Reserve.

If you have never read Conspiracy of Fools I highly recommend it. Kurt Eichenwald's book is the fastest 660 page book I have ever read. The story of the collapse of Enron is similar in several ways to the Bear Stearns story from what I have read in my spare time about the situation.

I can only hope that Bear will be the only investment bank to go down. I happen to be employed indirectly by a similar firm to Bearand there are several rumors of the firm's liquidity issues out in the market. Although not as severe as Bear's situation, I think all investment banks with high exposure to the mortgage crisis will have someone question their liquidity in the next several weeks.