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- No BS. Just Bullish.
No BS. Just Bullish.
Block Trades Explained | Comp Season
The Wall Street Skinny
December 05, 2024
This Week on The Floor
We’re closing out the year in style.
Our flagship self-paced Investment Banking & Private Equity Essentials course is fully up and running to help you land your summer internship AND full time job. Want to add value on the desk day one? You’ll be months ahead of your peers and breeze through new hire training.
This month, we have tons of great content coming down the pipeline too. From an interview with an ex-Blackhawk helicopter pilot-turned-Investment Banker, to a bunch of Kristen & Jen exclusive conversations, LinkedIn lives, and more masterclasses, we’re excited to share it all with you!
What happened with the Citi block trade gone wrong?
Tips for navigating compensation
Office hours announced
Sign up for one-on-ones with us
Markets Recap / Deal News
Interviewing this week? Here’s some content for your conversation.
On Tuesday, Citi’s equities team reportedly suffered up to $50mm of losses on an equity block trade 😱.
So, what is a block trade in the first place?
Block trades are large clips of a security — equities or a fixed income product — that are either too large in size and/or don’t otherwise meet the requirements to trade on an exchange.
They involve taking RISK.
Block trades are privately negotiated between risk takers (read: market makers at Investment bank) and investors (read: the parties who want to buy and sell those securities).
In the fixed income world, a huge portion of the cash & derivative products traded in institutional sales & trading are traded through block trades and involve taking risk.
In the equities world, they are rarer.
A block trade happens OFF of an exchange and involves taking RISK.
On Tuesday, apparently Citi secured “an order to sell shares in logistics real estate giant Goodman Group worth almost $2bn on behalf of China Investment Corporation.” (Source: AFR)
They agreed to buy the shares at a small discount of 1.4%, feeling confident they could solicit sufficient interest from fund managers and other buyers to offload that risk at a profit.
But buyers failed to materialize. By Wednesday, Citi sold about half of its shares at a 4.5% discount, locking in a $27mm loss.
Per the AFR article, Citi was still running risk on the remaining half, expecting to lose some $50mm or more total on the trade.
So what went wrong?
The golden rule of Wall Street: buy low, sell high.
In order for a block trade to be profitable, a market maker needs to obey the first rule of trading: buy low, sell high.
The discounted price at which Citi took down the shares from CIC was simply insufficient to draw enough investor demand. They overestimated buyers’ appetite at that level.
And because Citi can’t hold $2bn worth of shares on its books indefinitely, they need to liquidate that position into the market at a loss.
There is a GREAT illustration of this exact concept in our Industry companion podcast this week, where we analyze the equity block trade in S2E2 of the HBO Max hit show Industry.
Getting Paid: Know Your Worth
Compensation across Wall Street typically gets decided in December, and announced between December and March.
Here at The Wall Street Skinny, we think having a simple framework for navigating compensation is critical to ensuring you get paid as much as possible.
Our signature four-step compensation framework is as follows:
Step 1: Pre-hire negotiations.
At the entry level, pay is typically standardized across the street, but there is still some variation. Make sure your employer is taking into account advanced degrees you may have. Kristen was able to negotiate a $10k raise for herself as an incoming analyst because she had a Masters degree.
Know what the pay brackets are across the industry for your role at a firm like the one you’re joining.
And know how quickly you’ll be eligible to move up to a higher pay bracket at the earliest. Make sure you explore any sign-on and/or relocation bonuses.
Step 2: Year-round managing of expectations.
This is the most important step to getting paid — and the most overlooked.
YOU schedule regular meetings — whether formal or informal — with your direct manager and anyone who has control over how much you get paid and how quickly you get promoted.
Use those meetings to ask specific questions about your performance, ways to contribute more, their expectations, and your overall path.
Step 3: Comp Day.
If you think you negotiate your compensation the day your manager calls you into an office to tell you your number, you’re doing it wrong.
If you’ve done step 2 correctly, there should be no surprises by the time comp day rolls around. Your number is already set in stone, and there’s no room for negotiation at this point.
Handle this conversation graciously. Ask pointed questions if you have them, compose yourself whether you’re happy or disappointed, and don’t go shouting your numbers from the rooftops.
Step 4: Talk about Money.
Once things have settled and the check has cleared, it’s okay to have proactive conversations with headhunters, conversations with peers, and conversations with people in similar seats at other firms. Suss out what market rates are for different roles.
Talking about compensation is a delicate balancing act, but an important step to ensuring you’re getting paid fair value.
Sometimes, jumping to another role is the best way to unlock your full compensation potential. And thus the cycle repeats itself!
Office Hours Announced!
If you signed up for the office hours add-on along with our flagship course, please save the following dates:
Friday, December 6th at 12pm EST
Friday, December 13th at 12pm EST
Friday, December 20th at 12pm EST
Be sure to fill out the survey on your email and join live to make sure we answer YOUR questions!!
Book a one-on-one session with us!
We love seeing you all on our group masterclasses, but understand that you may have individual questions you want answered. If you’re looking for:
Individualized career guidance
Resume review
In-depth interview prep personalized to you
Help with technical concepts
and more…
You can book a one-on-one (or rather, one-on-two, since you get both of us!) session with us via the Intro platform here!