The success of the unit and its unusual mandate stuns Ronald Colombo, a law professor at Hofstra University and former counsel to Morgan Stanley. “The theatrics are horrible,” he says. “It’s impossible to imagine. You’re being bailed out with one hand, and you’re pouring money into the very same assets that precipitated the bailout with the other.”
The performance of Tsesarsky’s team is notable not only for its size but also because of new rules that sought to limit the risks that banks could take. Deep in the 2010 Dodd-Frank Act, Section 619 forbids banks from engaging in proprietary trading, the practice of making bets with their own money. Known as the Volcker Rule for the former Federal Reserve chairman who championed it, the law sought to curb Wall Street’s speculative ways. It can be difficult to determine if a trade is for a client or the bank’s own account, so lawmakers zeroed in on banks’ inventory and the length of time securities are held. As a result, the rule stipulates that firms are exempt if they can prove that trades don’t “exceed the reasonably expected near-term demands of clients, customers, or counterparties.”
With illiquid positions such as those in the CDO market, that can be a blurry line, and companies have more opportunity to interpret the rule in their favor, according to Charles Whitehead, a Cornell University law professor. While Citigroup says the inventory buildup meets client demand, other banks may have shied away for fear of violating the letter or spirit of the rule, Whitehead says.
“All of our activities comply with every applicable regulation, including the Volcker Rule,” says Danielle Romero-Apsilos, a spokeswoman. “Citi has been successful in our securitized-markets and structured-credit businesses because we have stood with clients in all market environments.”
“He came here with nothing. You have very little room for error when you have nothing.”
For Tsesarsky, it was just the latest winning trade. As a teenager in Ukraine, he escaped with his mother, grandmother, and sister to the U.S. with $90, according to a 1999 profile in the Jewish Week, which interviewed him after he won the Young Leadership Award from the Wall Street division of the UJA-Federation of New York. Growing up Jewish in the former Soviet Union, he risked arrest to read Leon Uris’s novel Exodus, about the founding of Israel. He became a “Zionist in hiding,” he said.
That upbringing informed his career on Wall Street, where Tsesarsky is known for his skill analyzing complicated trades, says David Finkelstein, a former colleague and a senior executive at real estate investment trust Annaly Capital Management. “He came here with nothing,” Finkelstein says. “You have very little room for error when you have nothing.”
During high school in Colorado and college at the Colorado School of Mines, Tsesarsky delivered pizzas, ushered at a movie theater, and worked at Kentucky Fried Chicken. After earning an MBA from the University of California at Los Angeles, he headed east.
It was 1986—exciting times on Wall Street. Salomon, where Tsesarsky had won a spot in the training class, was pioneering new ways to package home loans into bonds. A year earlier, CEO John Gutfreund was crowned the “King of Wall Street.” In 1989, Michael Lewis’s Liar’s Poker would be published, further cementing the company’s reputation as a home for swashbuckling bond traders. After surviving the arduous program, Tsesarsky earned an assignment trading mortgage bonds.
It was the first time he’d prove adept at navigating the politics of Wall Street. While the typical mortgage trader was loud and obnoxious—eating marathons were common, Lewis wrote—Tsesarsky stood out for keeping kosher. In other ways, he fit right in. He was disciplined, fearless, and always looking for an edge, says Steven Beck, a former Salomon colleague. Before the widespread use of modeling software, Tsesarsky kept a manually updated list of hundreds of bond prices from the prior night’s close, Beck says. Competitors avoided big trades until Tsesarsky was on vacation, although he followed the market closely even when traveling. Tsesarsky once called a junior trader from the top of a Colorado ski slope to place a trade, according to Beck. “Mark was obsessed,” he says. “He wanted to win badly, he had a knack for winning, and he was determined to be the best trader on the Street.”