investment banking

View from Korea: No deal with Lehman Brothers

Jim Kim — Tue, 26 Aug 2008 14:21:45 -0400

The stock market really reacted when news filtered out that the state-run Korea Development Bank was interested in buying a large chunk of Lehman Brothers. In the end, it turned out to be a lot of wishful thinking. The deal isn't going to happen, if we can believe the reports out of Seoul. Government regulators have essentially said that they want to add investment banking expertise to their Korea Development Bank, which is going to be privatized, but they also are wary of exposing taxpayers to the financial crisis. This is hardly an optimistic sign. To most people, it indicates that there will be no deal with a big foreign liquidity source, despite what we assume are the best efforts of Richard Fuld and others. Meanwhile, the clock ticks.

For more:
- here's an article from Business Week Online

Credit crunch to lead to more outsourcing

Jim Kim — Wed, 13 Aug 2008 17:49:47 -0400

We've been talking for years about how more financial services firms are outsourcing more knowledge-oriented work abroad. Junior level research and analysis started getting offshored a few years ago. The New York Times notes that the trickle has now become a flood. Top outsourcing firms in India are seeing a healthy bump in business, apparently. The paper notes Morgan Stanley has about 500 people in India doing research and statistical analysis. About 100 of Goldman Sachs' 3,000 employees in Bangalore work on research. JPMorgan has 200 analysts in Mumbai working for its investment banking operations. Another 125 analysts in Mumbai support the bank's global research division. Citigroup has no fewer than 22,000 employees in India, a few hundred of which work on research. So what does this mean for kids aspiring to junior level analysis jobs? By one estimate, 40 percent of research-related jobs on Wall Street will be sent abroad.

For more:
- here's the article

Third-quarter earnings to be weak?

Jim Kim — Wed, 13 Aug 2008 17:48:51 -0400

The two firms that arguably fared the best though the credit crunch--Goldman Sachs and JPMorgan Chase--might run into a bit of turbulence in this quarter. Some big name analysts have been slashing their Goldman Sachs estimates, as we've noted. Richard Bove says it's time to sell. JPMorgan Chase disclosed it has already taken a $1.5 billion hit on its mortgage assets since July, due to "substantially deteriorated" trading conditions. Portfolio worries that the effect on other firms not nearly as well poised to weather the continuing storm will be even worse. My guess is that writeoffs will be worse than previously expected. One thing to keep an eye on is non-subprime assets. Alt-A assets may be poised to stagger, and commercial mortgage-backed securities may wobble a bit, as well. On top of that, there may be a lot less in offsetting profits from core business lines, like investment banking. You can feel the third-quarter earnings jitters rising already.

For more:
- here's the Portfolio article

Hedge fund launches getting harder even for big names?

Jim Kim — Wed, 06 Aug 2008 13:49:58 -0400

We've noted that while the hedge fund industry is thriving, the barriers to entry seem to be rising. Launches are down, and the myth that just anyone can start one has evaporated. We're now seeing some big names--names that can command assets--struggle to launch. Dow Kim certainly qualifies as a big fish. But the former co-head of trading and investment banking at Merrill Lynch has nixed plans for Diamond Lake Investment Group after investors pulled about $1 billion in commitments. Kim may have been tainted a bit, fairly or not, by his role in powering Merrill Lynch to the top of the CDO tables, notes Breakingviews. This is yet another sign that despite the hedge fund industry's strength, the market has changed a bit, with investors gaining the upper hand. They wanted various assurance on risk and other issues.

For more:
- here's the Breakingviews article

Recombining stock research and banking a good idea?

Jim Kim — Wed, 06 Aug 2008 13:49:15 -0400

You can bet Eliot Spitzer is not taking this well: Citigroup is mulling a move that would fold its once-maligned equity research unit into the institutional securities business. Recall that six years ago, in a high-profile victory for Spitzer, a so-called "global settlement" forced banks to separate the two and ended the practice of using analysts as tools of bankers. This may seem shocking. But the fact is that investment banking still pays for the research, the Financial Times notes. Citi execs tell the paper that rules separating the two functions will prevent any conflicts of interest. Which makes sense. But not all have great trust in Citi right now. It was just accused of destroying evidence in an auction rate security probe by the state of New York. Meanwhile, Mass. regulators accused Merrill Lynch execs of muzzling an analyst who was bearish on auction rate securities.

For more:
- here's the Financial Times article

Now hear this: Morgan Stanley is hiring

Jim Kim — Thu, 31 Jul 2008 13:09:14 -0400

People tend to assume that getting hired on Wall Street right now is all but impossible--with all the layoffs. For John Mack, CEO of Morgan Stanley, that spells opportunity. The Financial Times reports Morgan Stanley is looking to hire top executives and upgrade its status in key markets, like derivatives, risk management and prop trading. In particular, it would like to add expertise in the Middle East and Asia. It has already snapped up a few former Bear Stearns employees. Morgan Stanley has saved $1 billion by cutting about 10 percent of its employees, mainly in investment banking, fixed income and research. Those savings are being redeployed.

For more:
- here's the FT article

Is Wall Street credibility an issue?

Jim Kim — Mon, 21 Jul 2008 13:28:33 -0400

Breakingviews notes that a lot of CEOs should "now help themselves to generous portions of the sanguine words they have uttered over the last few months." Lehman Brothers' Dick Fuld, JPMorgan Chase's Jamie Dimon, Goldman Sachs' Lloyd Blankfein and Morgan Stanley's John Mack all publicly suggested that the worst was over. But that hasn't turned out to be the case. Perhaps the optimistic words were justified at the moment, but as of now, such pronouncements have been proved premature. Here's another example. In late 2007, Bank of America CEO Ken Lewis uttered a memorable phrase: "I've had all the fun I can stand in investment banking." He wanted to scale back dramatically. As of late, however, the bank has been staffing up, as investment banking revenues have soared to near-record levels. Circumstances can change, people understand that. They've also learned to appropriately discount CEO pronouncements. Trust, but verify.

For more:
- here's the Breakingviews article

Related Article:
Can Wall Street firms be believed?

Bank of America: Another upside surprise

Jim Kim — Mon, 21 Jul 2008 08:18:50 -0400

Bank of America joined Wells Fargo, Citigroup and a handful of other bank that reported better than expected earnings for the second quarter. It posted a gain of 72 cents per share against expectations of about 50 cents per share. Of key interest, the bank announced the Countrywide deal will start adding to the bottom line this year and that cost savings will be higher than anticipated. Credit quality, however, continued to weaken. The bank took $3.62 billion in charges, and boosted its reserves against bad credits of $2.21 billion. Most of this was real estate related. Interestingly, investment banking income was the second highest ever. Remember when CEO Ken Lewis quipped he had all the fun he could handle in investment banking and all but vowed to exit the business? Good thing he didn't.

For more:
- here's the press release

Goldman Sachs turns bearish on Citi

Jim Kim — Thu, 26 Jun 2008 14:34:45 -0400

There has been a lot of talk recently that the worst of the credit crisis is over. When it comes to Citigroup, some would beg to differ. William Tanona, respected financial services analyst at Goldman Sachs, has lowered his call on many banks to neutral, but designated Citigroup as an outright sell. The Financial Times jokes that Goldman has it in for its competitors. But there is a strong case to be made for what the analyst calls "multiple headwinds in both its retail banking and investment banking businesses over the next couple of quarters." He estimates Citigroup will take an additional $8.9 billion in net writedowns for the second quarter, mainly due to CDOs and hedges via bond insurers. Most of the $12.5 billion in capital that it has raised will be taken up by dividends, leaving its capital position even worse off than before.

For more:
- here's the Financial Times item

Where will all those bankers land?

Jim Kim — Tue, 24 Jun 2008 21:42:54 -0400

The paring down of investment banking jobs at Citigroup and Goldman Sachs made headlines this week, and other banks are following suit. This begs the question: Where will all these bankers land? The stars likely will land at private equity funds. As for the others? TheDeal.com reports that some could be snapped up by internal investment banking teams at various companies. There is one view that companies want to do more of their own investment banking. Still, despite a few eye-catching hires, it does not appear that there are enough jobs to go around at client companies. Some might try to catch a financial job at a smaller company, and a few have even made the leap into the academic world. But we have to face facts: some will be at the end of their careers. They will survive--and may even thrive. Perhaps they are the lucky ones.

For more:
- here's the article