Sense on Cents

Citigroup’s Earnings: More Fuzzy Math

Posted by Larry Doyle on April 18th, 2009 9:21 AM |

In reviewing bank earnings this week, I truly get the sense with a number of institutions that they determine just how much they want or need to outperform analyst expectations and then they figure out how to “manage” the books in order to get there.

This “managed earnings” process can be played for an extended period, but ultimately the earnings – or more importantly “hidden losses” – come out in the wash.

Citigroup played this game yesterday. The NY Times reports, After Year of Losses, Citigroup Finds a Profit. I give the Times credit; they did not report that Citigroup generated a profit, but that they found it. Where did they find it? The Times offers:

Like several other banks that reported surprisingly strong results this week, Citigroup used some creative accounting, all of it legal, to bolster its bottom line at a pivotal moment.

Citi utilized creative accounting supported by the pressure applied by Congress on the FASB. Where is the pressure applied by the SEC and FINRA on behalf of investors? Isn’t it only fair that somebody speaks up for investors? Is the SEC and FINRA in bed with Congress to “play the game?” Let’s move on.

The top rated banking analyst on the street chimes in: Read the rest »

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Sign of the Times

Posted by Larry Doyle on April 17th, 2009 3:14 PM |

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Who’s Minding the Store?

Posted by Larry Doyle on April 17th, 2009 10:48 AM |

Despite the fact that the Auction Rate Securities market totally froze in February 2008, Citigroup is accused of fraudulently marketing and selling the product even in August 2008. Bloomberg reports, Citigroup Accused of Selling Disguised Auction Bonds.

Just as you never find only one mouse or roach, to think this is the only incident of Citigroup selling disguised Auction Rate Securities would be amazingly naive. If Citigroup were engaged in this fraud in August 2008, I would also bet that other banks were doing it as well.

Regrettably, people in desperate straits do desperate things. Similarly, firms desperately in need of cash will also do desperate things. How many other investors purchased disguised bonds? Or, I should say, were sold disguised bonds?

How is it that a situation like this occurs? Internal cops, compliance and sales management, are asleep at the wheel. External cops, our friends at FINRA, are also asleep at the wheel. Who headed FINRA at that point? Our current SEC head, Mary Schapiro. Read the rest »

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“White House Ties to Wall Street Doom Bank Rescue”

Posted by Larry Doyle on April 17th, 2009 6:37 AM |

None other than Nobel Prize winner Joseph Stiglitz of Columbia University provided a direct shot across Washington’s and Wall Street’s bow today. As I read Bloomberg’s Stiglitz Says White House Ties to Wall Street Doom Bank Rescue, the little voice in my head kept repeating, ” he’s right” or “I agree.” I am reluctant to copy and paste entire articles, but this one is so important that I feel compelled and will add commentary or links as warranted.

The Obama administration’s plan to fix the U.S. banking system is destined to fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.

“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.”

The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street.

Seems as if Stiglitz would agree with How Wall Street Bought Washington.

“We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.

The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.” Read the rest »

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Join us NOW for Sense on Cents Central Station

Posted by Larry Doyle on April 16th, 2009 8:20 PM |

central-station-promo-3-bold ***UPDATE: The Live Chat event has ended, but you can scroll through the topics we discussed by clicking on the “Replay” icon on the chat window at the end of this post.***

Join us right now for a few hours of written Q/A and live chat with your resident host, Larry Doyle. We can address a wide range of issues, including: transparency and quality of earnings, Goldman’s initiative to pay back TARP, the April 15th Tea Parties, market performance this week, month, and year to date, developments overseas, the outlook for our financial regulatory structure, issues of personal finance, career planning, or anything else on your mind.

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Mary Schapiro Meet Stump Merrill

Posted by Larry Doyle on April 16th, 2009 4:30 PM |

President Obama was elected primarily on one theme: change. Many private and public sectors need change, but perhaps none more than our banking and regulatory oversight. Barack said as much in late February:

Obama leveled a broad indictment of the industry, saying the current financial crisis occurred when “Wall Street wrongly presumed the markets would continuously rise and traded in complex financial products without fully evaluating their risks.” But he also blamed government regulators for not adequately protecting consumers.

Obama further offered:

“strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors, and ultimately to keep those financial institutions strong.”

To this point, who could not agree with Barack’s assessment and designs. However, if we go back to mid-January, why did he select the head of the Wall Street self-regulatory organization, FINRA, to oversee the SEC? FINRA has been widely critiqued for being soft on overseeing the very institutions at the heart of our current economic disaster.

Again today, we hear about FINRA’s incompetence in a Bloomberg report on the investigation of Stanford Financial. Bloomberg reports: Read the rest »

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Sense on Cents Central Station

Posted by Larry Doyle on April 16th, 2009 3:15 PM |

Join me this evening beginning at 8:30 p.m. ET for Sense on Cents Central Station. This endeavor is a few hours of written Q/A and live chat with your resident host, Larry Doyle. I like to utilize the theme of a ride on the rails, so please allow me to elaborate.

With so many cross currents at play in the markets, economy, and world of global finance, where can one go to develop a framework of understanding, enjoy the company of friends, and make sense of the madness? Welcome to Sense on Cents Central Station. Our ride departs at 8:30 p.m. with an expected return at 10:30 p.m. (I’m hoping this time frame allows our West Coast friends to join in). While we traverse the curves along our track, we can address a wide range of issues, including: transparency and quality of earnings, Goldman’s initiative to pay back TARP, the April 15th Tea Parties, market performance this week, month, and year to date, developments overseas, the outlook for our financial regulatory structure, issues of personal finance, career planning, or anything else on your mind.

Our ride is most productive with as many people participating as possible. Please bring not only your questions, but also your views. Invite friends, neighbors, and colleagues along for the ride as well. Together we can collectively navigate the economic landscape.

I look forward to chatting with you beginning at 8:30 p.m. All Aboard!!

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The Scarlet Letter

Posted by Larry Doyle on April 16th, 2009 12:44 PM |

Competitive people by their very nature like to win. There is nothing wrong with that. In fact, our country was built upon risk taking entrepreneurs who blazed trails and opened markets in the pursuit of profit.

Clearly, we have experienced enormous abuses in many parts of our economy over the last decade. The fact that rating agencies and regulatory authorities have been negligent – if not complicit – in the process has only added to the turmoil. In my opinion, our legislators have been as much a part of the problem as the solution.

For many of those who have either mismanaged their business or abused business ethics along the way, the government has stepped in with billions in support. Our markets have suffered as a result.

Against this backdrop, the major rub in the world of finance is distinguishing between the strong banks and the weak banks. Well, Jamie Dimon issued as aggressive an assessment as I have ever seen on this specific topic. In a Bloomberg report on JP Morgan’s earnings,

Chief Executive Officer Jamie Dimon, who today reported first-quarter profit that beat analysts’ expectations, said his firm could repay U.S. government rescue funds “tomorrow.”

Dimon, called money received through the Troubled Asset Relief Program “a scarlet letter.”

Read the rest »

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Company News: The Good, the Bad, and the Ugly

Posted by Larry Doyle on April 16th, 2009 8:04 AM |

We have had a stream of earnings results from banks this week. The earnings from Wells Fargo, Goldman Sachs, and JP Morgan have all surprised to the upside. Interestingly, though, the degree of transparency and “quality” of earnings has been decidedly different with each of these institutions.

JP Morgan just released earnings this morning. Earnings per share came in at .40 versus an expectation of .32. The quick snapsot of the numbers reveals broad based positive results across retail banking, equity trading, and fixed income trading. JPM significantly increased loan loss reserves and CEO Jamie Dimon cautioned that the bank may have to further increase reserves given the challenging economic environment. The bank also took significant markdowns in private equity investments.

The lifeblood for any bank is the deposit base, the ultimate source of relative cheap funds. JPM’s deposit base has grown 62% year over year with the acquisition of Washington Mutual.

Dimon and JPM distinguish themselves as the true leader in U.S. banking.

Goldman’s earnings gamed the calendar as they did not make an apples to apples comaprison versus a year ago. What does that mean? Goldman changed its reporting calendar from a December-November reporting period to January-December reporting. In doing so, Goldman did not fully highlight the disastrous numbers in December 2008. While Goldman’s franchise and risk management are superb, the headline report was not totally forthcoming.

Let’s revisit the Wells Fargo report. Many analysts initially questioned the lack of transparency and overall quality of earnings reported by Wells. Jonathan Weil of Bloomberg again stands out by the depth of his analysis. He reports Wells Fargo Profit Looks Too Good To Be True. Weil highlights 4 gimmicks: Read the rest »

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Let’s Meet Chris Lowney

Posted by Larry Doyle on April 15th, 2009 7:08 PM |

I am thrilled to have Chris Lowney join me this Sunday evening on NoQuarter Radio’s Sense on Cents with Larry Doyle. I learned about Chris from my daughter who heard him speak at her college. My daughter had the good fortune of receiving a complimentary copy of Chris’ book, Heroic Leadership.

Upon reading Chris’ bio, I knew I had to have him on Sense on Cents. Chris possesses qualities we need not only in our private enterprises, but truly throughout our society.

Chris Lowney, formerly a Jesuit, was named a Managing Director of J.P. Morgan & Co. while still in his thirties and held senior positions in New York, Tokyo, Singapore and London until leaving the firm in 2001. He served successively on Morgan’s Asia-Pacific, Europe, and Investment Banking Management Committees, accumulating extensive multinational experience at a company regularly ranked one of “America’s Most Admired Companies” by Fortune magazine.

Prior to joining J.P. Morgan, Lowney was a Jesuit seminarian for seven years. He is a summa cum laude graduate of Fordham University, where he also received his M.A. and was elected to Phi Beta Kappa. He is holder of honorary Doctoral degrees from St Louis University, Marymount Manhattan University, and from the University of Great Falls.

His first book, Heroic Leadership: Best Practices from a 450-Year-Old Company that Changed the World was the #1 ranked bestseller of the CBPA (Catholic Book Publishers Association) and was named a finalist for a 2003 Book of the Year Award from ForeWord magazine. It has been translated into ten languages.

In writing Heroic Leadership, Lowney displays how the Jesuits eschewed a “flashy” leadership style in favor of a holistic approach focusing on four unique values: self-awareness, ingenuity, love and heroism. Lowney explores the four principles in detail, illustrating each with anecdotes from Jesuit history. He examines the Jesuit success formula of attacking real-world opportunities with real-world leadership strategies, showing how their formula can be used today to practice effective, whole-person leadership.

“Entertaining and well researched, Heroic Leadership is a must-read for any business leader, and an inspirational read for anybody who wants to be a better human being.”
— Walter Gubert, Chairman Investment Bank, JP Morgan

I look forward to my conversation with Chris Lowney this coming Sunday evening on NQR’s Sense on Cents with Larry Doyle.

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