Credit Crunch

Man in the storm: Vikram Pandit

Jim Kim — Mon, 24 Nov 2008 07:44:40 -0500

All eyes on Wall Street are on Vikram Pandit right now, and that has got to be uncomfortable--especially considering he has traditionally avoided the spotlight, he eschews the flashy Wall Street culture and he analyzes best when he's alone with spreadsheets, according to a Financial Times profile. The debate about whether he is the right man for the job has been raging for a while. Many have suggested that his low-key leadership style has been an obstacle, but the truth is that his tenure will come down to a strategy beyond cost cutting and asset write downs. There just has to be something else, and so far it has not been communicated to the market. When Pandit left Morgan Stanley, having been passed over for the top job, he left with little fanfare, no parties and no farewells. His departure from Citi, if it comes to that, will be more noisy. The board has, so far, given no indication that it will replace Pandit.

For more:
- here's the profile

Citigroup watches peers soar

Jim Kim — Fri, 31 Oct 2008 11:38:35 -0400

You have to wonder what Citi CEO Vikram Pandit has up his sleeve. I mean he has to have something in mind. Right? He can't just sit back and watch the likes of JPMorgan Chase, Bank of America and even Wells Fargo zoom past it. Sadly, that may be exactly what happens. Pandit's tenure may well be defined by his inability to push the bank to a new plane in the credit crunch.

We'll long recall how Wells Fargo snatched Wachovia away from Citi with a bravado move that left it reeling. Unfortunately, the once-largest bank still has a lot of clean-up to do. The TARP funds allow it to pad its capital cushion a bit--solvency isn't an issue--but there will be more write-downs to come. In any case, clean up isn't a strategy. Will we see some big acquisitions? Some massive asset sales? Is it too late to renew talks of a break up? The world awaits.

For more:
- here's some background from Financial Week

Hits keep coming for Legg Mason

Jim Kim — Thu, 30 Oct 2008 15:03:43 -0400

The credit crunch has been cruel to more than a few money managers. Bill Miller, the head of the Legg Mason Value Trust fund, is at the top of the list. He never gave up on financial stocks, even as they continued to crater. The old value mantras just plain let him down. He kept loading up on agency stocks as they fell--and fell. And that has now forced the fund to pare staff. Bloomberg reports that as many as 50 of 147 employees may be shown the door. Miller's main fund is down about 50 percent this year, and investors have fled. That isn't horrible considering that the market is down about 40 percent. And other funds are certainly hurting. Fidelity may lay of 400. Janus is also slashing. The Bloomberg article says Miller is reviewing his investment style. "Reviewing"? If he doesn't tinker, something's wrong.

For more:
- here's the Bloomberg article
- here's a Boston Globe article on Fidelity

What should banks do with TARP funds?

Jim Kim — Tue, 28 Oct 2008 19:00:37 -0400

All along, Treasury officials have been stressing that banks receiving TARP funds should be lending it. How else will the funds ease the credit crunch? Now, even the White House is telling TARP bank not to hoard the dough, but to lend it. The government, it should be noted, does not have any voting rights attached to their preferred shares. Loaning out the funds willy nilly may not be a good idea. Nearly 20 banks in the second round got $35 billion each. They are being asked to lend it in a really bad environment. How awful it would be if loaned TARP funds ended up in default. That certainly would be bad for taxpayers. Hoarding the capital, at least until good lending opportunities arise, makes a receivership less likely. And using the capital to make an acquisition has been blessed by the government in at least one case, PNC. My suspicion is we'll see more regional banks take over less healthy local banks. It would be hard to argue with that right now.

For more:
- here's an AP article

William Ackman not giving up on Target

Jim Kim — Tue, 28 Oct 2008 12:44:25 -0400

Activist investor William Ackman has a lot on the line with his investment in Target. The head of Pershing Square Capital Management was once one of the brightest activist hedge fund stars, but the credit crunch has not been kind to him. Pershing Square IV, launched early last year with $2 billion, was designed to go after a single firm. It bought up a 10 percent stake and a whole lot of calls on Target. But the stock moved against Ackman in a huge way. He's way underwater on the calls and the first batch expires in 6 months, according to Forbes; so, he's a man in hurry right now. He'll present a Target turnaround plan this week in New York in a desperate bid to revive his fund.

For more:
- here's the Forbes article

Big war on for Thundering Herd

Jim Kim — Sun, 26 Oct 2008 19:22:40 -0400

We've noted as of late that the cachet of being a wirehouse broker has really faded. The credit crunch, and resulting turmoil in the industry, has prompted many wirehouse guys to ponder their futures. At Merrill Lynch, most people assume it's open season. Brokers are no doubt fielding calls from headhunters, friends and the likes of Morgan Stanley. But Bank of America is not going to let the Merrill Lynch brand name crumble without a fight. Bloomberg reports that CEO Ken Lewis has authorized big bonuses to retain the top talent. For the biggest producers, the bonus could equal the annual revenue they bring in over seven years. We'll see how that alters the dynamic. The urge to leave may be even stronger.

For more:
- here's the Bloomberg article

Another credit crunch victim: analysts' credibility

Jim Kim — Fri, 24 Oct 2008 13:22:53 -0400

A poster on Seeking Alpha takes analysts to task for what he considers really awful performances as of late. There's a been a lot of talk about how inaccurate analysts have been in their forecasts. The post notes that for the second quarter, Wall Street analysts accurately predicted earnings just 6.7 percent of the time. That was the worst showing in 16 years. Merrill Lynch's highly rated Guy Moszkowski was singled out for shifting his stance on Lehman Brothers four times between June 2 and June 11. But these are extraordinary times, especially in financial services, so perhaps we can cut the analysts a break. There were a few who were accurate in some cases, notably Richard Bove and Meredith Whitney. Financial services has always been a tricky industry, in part because the proprietary component was always something of a wild card. As the commercial banking model takes hold, will analysts' performances get better?

For more:
- here's the post

Greenspan's reputation suffers in crunch

Jim Kim — Fri, 24 Oct 2008 07:44:27 -0400

Alan Greenspan was once considered a central banker nonpareil, a man feared and respected. But that reputation is long gone. His legacy is getting trashed, and once-whispered reservations are breaking into the open. At a Congressional hearing this week, he admitted he was "partially" at fault for the credit bubble now popping. His light-regulation only philosophy, in the eyes of some, led directly to the mess we're now in. Sure, the economy kept humming along, but we're now seeing the costs. The questioning, reports the New York Times, was "one of the harshest grillings of his life." Greenspan sounded contrite, but the damage to his reputation mounts. CNN already made him No. 6 on its list if Culprits of the Collapse.

For more:
- here's the New York Times article

Synthetic CDSs starting to creak?

Jim Kim — Thu, 23 Oct 2008 13:08:06 -0400

People aren't sure what to make of the synthetic credit default swaps market. The media has been rife with stories suggesting that the market is creaking and may be the next leg down in the credit crunch. Some think it is inevitable that the same pain felt in CDOs that invested in subprimes will be felt by their counterparts that invested in CDSs.

No doubt, some banks have been really hurt. Susquehanna Bancshares has written off $17.5 million for such CDOs. This is not a market-breaking loss, but the issue is whether larger losses are to come. National Australia Bank has purchased some hedges to the tune of $60 million a year in cash. Do we need to fear another massive meltdown? There's a lot of nervousness as people anticipate credit rating downgrades, but when you stop and think about it, only seven entities have gone into default. Granted, Lehman CDSs were widely traded, but the majority of financial firms, which underlie the most CDSs, are safe from insolvency now. But at a time like this, that doesn't count for as much as we'd like.

For more:
- here's an article

Big execs face forced sales

Jim Kim — Wed, 22 Oct 2008 11:28:47 -0400

Kirk Kerkorian, whose Tracinda recently sold of a large chunk of its Ford holdings, is hardly alone. Business Week notes that the credit crunch has forced lots of billionaires and big-name executives to pare their stock holding, sometimes dramatically, at the worst possible time. Sumner Redstone, of Viacom and CBS, John Malone, of Liberty Cable, and Aubrey McClendon of Chesapeake Energy are all on the list. Peter Nicholas and John Abee, co-founders of Boston Scientific, recently made news for selling off nearly $300 million in stock, fallout from the Lehman mess. It many cases, the sales have been the result of margin calls. And a lot of the selling has been of shares of the exec's companies, which certainly doesn't inspire investor confidence. Many may be lamenting owning so much of a single stock, though a lot had no choice.

For more:
- here's the article