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HomeWill Cantwell-McCain Reinstate Glass-Steagall?
Posted by Larry Doyle on December 18th, 2009 11:18 AM |
Might we turn the clock back in an attempt to make our way forward? How so?
Pressure is certainly building in America to curtail, if not derail, the excessive risks embedded in our largest banks. How may these risks be unwound? Reinstating the Glass-Steagall Act, which separated commercial and investment banking activities. If this Act were to be reinstated, that would be the end of the mega-banks (Citi, JP Morgan, Bank of America, Wells Fargo) as we know them.
Who has been harping on this? Former Fed Chair Paul Volcker. Although Wall Street and Washington turn a deaf ear to Volcker, America listens to him intently.
In September, I wrote “Volcker Launches Bombshell on Wall Street and Washington” which highlighted Volcker’s call to reinstate Glass-Steagall. That story resonated far and wide. Now we learn from the American Banker that Senators Maria Cantwell (D-WA) and John McCain (R-AZ) have introduced legislation which would once again separate commercial and investment banking activities. (more…)
Citi Wants Its Cake and to Eat It, Too
Posted by Larry Doyle on April 29th, 2009 7:15 PM |
Hasn’t the public had enough of excessive compensation and abusive bonus practices for employees of organizations saved by Uncle Sam? Why and how is it that Citi Seeks Approval to Pay Out Bonuses.
Vikram Pandit, the CEO of Citigroup, and every other executive at Citi needs to know that as wards of the state, you earn a government wage. While Vikram and team may decry the dissolution of their franchise, they need to wake up and smell the coffee. There would be no franchise at Citi without the taxpayer having injected tens of billions of dollars.
Citi employees took the risk in choosing to work at the firm just as any employee takes company risk in any firm. If any Citi employee wants to leave, my advice is “don’t let the door hit you on the way out.” Citi management may believe it is critical to the franchise to retain these employees in order to generate earnings and repay the government. My response is that with a Fed Funds rate at 0% and lending rates of between 5-20%, Citi will generate earnings without the risks embedded in proprietary trading.
If Citi can sell a division intact to generate income, why aren’t they already pursuing it? The WSJ offers further color:
Citigroup is trying to get U.S. approval for special bonuses for many of its employees. In a meeting earlier this month with Treasury Secretary Timothy Geithner, Citigroup CEO Vikram Pandit made the case for the stock-based bonuses. Executives are describing the bonuses as “retention” awards to perk up demoralized employees who the company worries are vulnerable to poaching by rival firms, people familiar with the matter said.
A person familiar with Mr. Geithner’s thinking said the Treasury hadn’t made a decision on whether to allow the bonuses. It is unclear how much Citigroup would pay out in bonuses if the government approved the move. A Citigroup spokesman declined to comment on details of the proposed compensation plans.
Citigroup’s request comes after Congress, the public and the president blasted pay practices on Wall Street. Bonuses at American International Group Inc. and Merrill Lynch & Co. ignited political infernos in Washington.
Citigroup has already gotten its own share of criticism for excessive spending, thanks in part to its aborted plans earlier this year to buy a new corporate jet. The company has received $50 billion in taxpayer aid, and the U.S. government is protecting Citigroup against most losses on $301 billion of its assets. The Treasury is poised next month to become Citigroup’s largest shareholder, owning as much as 36% of its common stock.
Why is this issue even being aired? Why hasn’t Turbo-Tim told Vikram and team, the answer is “NO.” Two letters, “N” and “O”. Which one of those don’t they understand?
LD
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: (more…)
Mum’s the Word
Posted by Larry Doyle on April 10th, 2009 12:40 PM |
The movie Goodfellas provides a wealth of material for comparative analysis of the markets. The “insider activity,” the “fooling around,” “the payoffs,” and “the gambling” all make for great drama on the screen. Truth be told, one does not have to look all that hard to find striking similarities to certain activities in the world of Wall Street, and for that matter, Washington.
One of my favorite scenes in the movie occurs after the boys make the big heist. Immediately, the word is put out to keep your mouths shut and no indications of newfound wealth.
Back to reality. In terms of “putting the fix” into the world of our major money center banks, isn’t the relaxation of the mark-to- market the “newfound wealth”? Isn’t the “keep your mouths shut” the equivalent of the Treasury telling the banks not to comment on results of the Bank Stress Test? Speaking of the Bank Stress Tests, Bloomberg reports:
The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.
The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month.
Clearly the Fed and Treasury are trying to keep their “boys” quiet and lay low while the real regulators of the market, that being honest investors, are walking the beat.
If any of the boys talk, then the leaders of the family won’t be able to coordinate the stories and hoodwink the public.
Whatever happened to, “as long as you tell the truth, you don’t have to worry about having a bad memory”?
It seems we are operating much more in the realm of, “well, I can tell you but . . . ”
The Goodfellas: Henry Hill, Jimmy Conway, Paul Cicero, and Tommy DeVito
Henry . . . Jimmy . . . Paulie . . . Tommy . . .
Please let me know who in our government and world of finance are most appropriate to play each of these individuals? Let’s have some fun.
Send in the Clown
Posted by Larry Doyle on March 26th, 2009 5:15 AM |
In the process of a business transaction, have you ever encountered the sudden appearance of another interested buyer? Where does this other mysterious buyer suddenly come from? How is it that the new buyer appears at the most inopportune time? If you thought you were the primary buyer, do you feel as if your bid is being shopped? In business, this appearance of a supposed late buyer is known as “send in the clown!”
This part of the circus act is played out on Wall Street all the time. As we enter into the largest liquidation sale in the history of Wall Street, the big fellow with the red nose, floppy feet, baggy pants, and squeaky voice has just shown up, in the form of Citigroup and Bank of America’s bank portfolios. (more…)
Will Banks Truly Sell These Toxic Assets?
Posted by Larry Doyle on March 23rd, 2009 5:25 PM |
A quick summary of the plans proposed by Tim Geithner. Everything looks great on the surface and markets rally in anticipation, but VERY FEW transactions have occurred.
Let’s go over a few points:
1. Government provides cheap loans for investors to buy toxic assets . . . DONE.
2. Government provides backstop for investors to be somewhat protected against losses . . . DONE.
3. Investors express desire to purchase assets . . . DONE.
4. Banks express desire to sell assets to unclog balance sheets . . . DONE. (more…)
