Hamilton’s New York City Program participants wrapped up the semester with visits to the New York Federal Reserve and the Bank of New York Mellon on Nov. 30. The students began their day with a visit to the Fed. for an informal discussion on the Eurozone crisis.
The bankers discussed topics such as the outlook for Greece and the rest of Europe, and what steps could possibly be taken to rectify the situation currently facing the country. They provided insight into both the problems facing the banking sector as well as Europe’s sovereigns. The bankers seemed to think that a “voluntary” participation by private investors in sovereign bonds would be necessary for several of the more troubled countries to meet their deficit targets. For some, the future looks fairly bleak. In an upside case, Fed models approximate Greece’s budget deficit to be 120 percent of GDP by 2020, with 90 percent of private investors willing to take a 50 percent haircut on Greek debt. Not even the Fed has reasoned out how to incentivize investors to eat such a substantial loss on their investments. For now, the Fed admits these numbers seem fairly optimistic.
Following their discussion, the students traveled five stories and 50 ft. below street level to get a glimpse of the famous gold vault. The vault holds some $360 billion in gold reserves, second only to Fort Knox in the United States. Sovereigns as well as institutions can opt to have their wealth stored here in the form of 28-lb gold bars, each worth approximately $600k. The vault is closed by a 60-ton rotating steel door, which when closed creates a water and air-tight seal. Each cage boasts two pad-locks as well as a combination lock, requiring the presence of three individuals when opening one of the cages. Transactions in gold take place the old fashioned way, by physically moving the requisite amount of gold bars from one cage to the next. Workers in the vault must wear magnesium shoe guards to protect their feet from dropped bars. Stronger than steel, each pair costs more than $500.
Though the group’s guide would not disclose exactly how many law-enforcement officers patrol the building each day, she did say that more than 90 percent are certified expert marksmen. After the visit, it became fairly obvious why nations around the world store their gold with the Fed. In the vault, Federal Reserve employees allowed each student to try holding a gold bar, and as this correspondent will attest, those bars feel much heavier than just 28 lbs. The employees working in the vault half-jokingly noted that the sheer mass of the bars themselves acted as a very simple yet very effective security measure.
The group then ventured over to 80 Broadway to the Bank of New York Mellon building for lunch with some Hamilton alumni who work there. ‘Woody’ Kerr ’79 and David Nichols ’77 held an informal discussion about their time at Hamilton, their career paths thereafter and what led them to the Bank of New York.
Formerly the head of Europe’s operations, Kerr came back to New York as a CAO of Global Operations and Technology, overseeing various aspects of the bank’s broader business model. While he acknowledged that the financial industry has changed much since he began his career with the bank, he sees technology as the lynchpin of the financial sector. The largest banking custodian in the U.S., the Bank of New York’s sophisticated technology platform allows it to act as the clearing house for nearly 80 percent of the daily brokerage transactions which take place in the United States. Both Kerr and. Nichols emphasized the importance of leveraging the communication skills they learned while at Hamilton to obtain their respective success in their professional careers.
After lunch the group took a tour of the bank’s museum, which prominently featured Alexander Hamilton, who founded the bank in 1784. With a capitalization of $500,000, the Bank of New York was the first corporate stock to be traded on the New York Stock Exchange. Hamilton even wrote the very first bond note to the U.S. government, Bond No. 1 for $200,000 so George Washington could feed his troops. To this day, the government has not repaid the note, which sits on display in the company museum.
Nichols then led the group down to the heart of the financial district, to witness the excitement of a trading floor. He serves as the head of Foreign Exchange (FX) strategy at the bank, and allowed the students to walk around and scope out exactly what a trader may do on a daily basis. Unlike stocks, the global currency market does not trade on any exchange and never closes. The Bank of New York begins its pre-market operations around 4 a.m. on Monday in Pittsburgh, in the time between the Asia markets closing and the European markets opening. With offices in the U.S., London and in Asia, the Bank of New York is able to handle currency trades 24 hrs a day, one of the largest such operations in the world.
The tour concluded with the head of Global Trading and the head of FX Research speaking to the group about their respective careers, and the outlook for not only for the financial industry, but also the world in this time of crisis. The students voiced their own opinions and asked probing questions of the guest speakers, eager for their insight into what could possibly alleviate what seems to be ever worsening circumstances.
As the group left, the trading floor erupted in a raucous cheer. The bank’s global head of trading, who had just been speaking with the students, announced his retirement from Bank of New York after 38 years. Coming full circle, the group helped celebrate the end of an extremely successful career just as they push to begin one of their own.