Delta, noun, a change in a variable. Usage note: Once you’re out of math class or off the derivatives desk, don’t use this word unless you’re either talking about Greek life, eg, “I heard the pledges were forced to drink cow urine at Delta Tau Delta” or alluvial deposits at the mouth of a river, eg, “It was the number of Sazeracs I drank at the Carousel Bar not New Orleans’ location in the cloven-footed Mississippi Delta that caused my blackout and delirium tremens.” Unfortunately, pompous financial types often use this one when discussing a difference of almost any sort. Examples range from the sordid, “The massage parlor charged me ten dollars more this go-round. I can’t account for the delta,” to the mundane, “Gross margin dropped dramatically because of mark-downs. It was a delta of more than 200 basis points year-over-year.”
According to Iva Cocke, Professor of Rhetoric & Communications at Northern Southwestern Indiana Normal School and Business Institute, who has written extensively on Wall Street patois, the reason why financiers have adopted an abhorrent term like “delta” is somewhat complicated. Says Professor Cocke:
There are actually two things at work here. There’s the more general reason for the idiotic way that most finance types speak. And then there’s the more specific reason why i-bankers and research analysts have a pathetic habit of borrowing trading floor terms and putting their own obnoxious spin on them. Remember, these two groups have proactively hoodwinked their friends and families into thinking that their Wall Street jobs are not only remunerative, but also interesting and even rewarding. But when it’s the middle of the night and they’re fudging numbers in a desperate attempt to make a merger pitch accretive or they’re once again updating the quarterly numbers on 25 companies, most of these individuals, deep down, are self-aware enough to admit to themselves that it’s all a load of bunk. So they grin and bear it because the money almost justifies the hours and the ennui. They sadly resign themselves to the fact that the quarterly numbers simply won’t stop coming; the pitches don’t end. On top of which, if they were to quit they’d have no idea what to do. Many of them have worked their entire lives to get to that time and place where there’s almost no one else in the building because it’s such a disgraceful hour. It’s they and the cleaning crew and some guy down on the trading floor passed out drunk. So what do they do? They invent the glamorous trappings of the job, including a new language full of pithy nonsense expressions like burn rate, EBITDA, due dilly, dry powder, and actionable item. They aspire to be mysterious, cool, and so unintelligible that friends and family just nod and accept them as superior beings. It’s actually a sanity preservation construct. So, as you see, unlike some hedgies, who’ve coined a lot of their gobbledygook to astonish and bamboozle unsuspecting investors, these particular spreadsheet jockeys invented most of their financial fuzzwords in order to feel better about themselves. But if you’re stupid enough to believe that EBITDA is a good proxy for cash flow, then they’re happy to let you believe it.
Expressions borrowed from the trading floor, like “delta,” have an added layer of complexity. It doesn’t take too long for the bankers and research analysts to figure out that salesmen and traders work way better hours.. When the trading floor people are heading to the bar to meet customers at 6 pm, a lot of i-bankers and research people are heading to conference room B for lukewarm pizza before footslogging back to their desks for more work on a 140-page bank book that looks just like the last one and no one will ever read. In addition, the money on the trading floor can be just as good. To add insult to injury, when the bankers and analysts visit the trading floor, they see a roomful of people who appear to be having a great time. The salesmen, with their tasseled loafers up on the desk, all look tan, tall, and in command. They seem to do nothing but yuk it up on the phone all day. And the traders- well, if the salesmen seem pretty cool to the bankers, then the traders look like Joe Namath circa 1969. They seem to rule the trading floor, screaming and hollering at everyone while having an absolute blast. Even the trading floor arguments look fun to the bankers, who are meanwhile nearly bored to death, sleep shortchanged, but travel-point rich. It doesn’t take too long for your typical banker or analyst to admit to himself, “I should have been a trader.” So they add the vocabulary of the trading floor to their made-up lingo. And if you’re going to be bitter and work shit hours, you might as well have everyone think you’re a genius, so they take some of their trader-talk from the most complicated area on the floor, the derivatives desk, where “delta” has a real meaning: the ratio of the change in price of an option to the change in price of the underlying asset. Of course, the wannabes use it to mean a change of just about any type at all.
So if you’re just starting out in the rarefied world of investment banking and your boss asks you about the delta in sales revenue from last quarter to this one, you can be pretty sure of one thing: He’d rather be a bond trader.