M-P

Nationalizing the U.S. Banking Sector: There's No Choice

The real issue here, as others have pointed out, is that we really don't want to feel the pain if market forces prevail. The banks made some highly risky decisions and are now paying the price. With reward comes risk - look at the bonuses the executives made from 2004-2007. Tens of millions for making risky, correlated bets on opaque debt instruments and "insurance" products.

Look at the GDP with and without Mortgage Equity Withdrawls from 2004-2007. If we didn't have MEW's, we were growing at 1%. We were living an inflated lie that was a concoction of low rates, negative savings, and materialism. There's only so much you can do about a bad hangover.

Compensation Caps Will Drive Away Talent? To Where?

For those who think the "talent" will go elsewhere, please define talent for me - if "talent" can't perform, what is it ... good luck going to other parts of the world - managing the cross-region regs, the legal diffs, the work councils - they'll be back to the States. Easy to think there are no friction costs - that's a fallacy. Again, I'm all for paying for "Alpha" performance vis-a-vis the industry/market.

The Danger in Financial Stocks in 2009

This is a good summary. It's hard to disagree with points made. Many of the banks will have challenges in maintaining their revenue streams - more charge offs on CC's, less mortgages/loans being done, and overall margin-rich fee revenue down - along with asset write-downs/offs. All of us have to question to ability of the banks to understand their own risk (e.g., level 2 and 3 assets). I'm not sure they do understand their book - their underwriting standards across assets are in question. Time will tell if the big banks can exploit the synergies with recent acquisitions. The next year is likely to be bumpy and who knows how the government intervention will turn out. Lots of uncertainty - more cash sitting on the sidelines.

Year-End Buyouts: Big Challenges for the Big Banks

It's interesting how Lewis has often blamed his failings on anything but himself and his actions, which I've written about in previous posts. I'd like to see a more "mature" management style and personal ownership. I'm still amazed at how many emails and letters I get from BAC that demonstrate how siloed their customer database is and how fractured their marketing efforts are. I'll be very interested to see if Lewis can exploit his assets and up-sell and cross-sell the BAC customer base, which has grown significantly. We all own BAC at this point and I would like to see them be successful, but I don't want to see the taxpayer throw good money after bad. The too big to fail model is a little scary and puts all of us at some risk.

Tough Times for Card Companies - Barron's

If I recollect from another SA piece, BAC and JPM had over 20% of their revenue come from the CC business, which is definitely material. The revenue streams of many of the banks is in jeopardy in the near to medium term. CC fees are almost pure margin and the charge-offs have been manageable ... I don't see job growth increasing at a fast rate even with a job works program, which will take some time to spool up. Also, the wage delta between the jobs lost and new jobs is likely to be significant - add-in the a higher savings rate and deleveraging and consumer spending should be down by $500B to $1T, if not more. All said, without strong jobs and wage growth, I see the CC issue only becoming worse and bank earnings under serious pressure.

Banking's Ins and Outs: $188 Billion from Bailout, $1.6 Billion to Execs

I believe in capitalism and the implied pay for performance contract, but I have trouble with the bank execs receiving this kind of $ when they are being subsidized by the taxpayer because they took undue risk. Why don't we look at a clawback provision whereby we take back $ that was ill-gotten via reckless leverage and risk. Unfortunately, the seeds of failure were planted a number of years ago and we are now cleaning up the mess. Why do we reward malfeasance? Why do we subsidize recklessness? Why do we pay for incompetence?

Three Financial Stocks Worth Holding

You can't just look at straight book value ... need to look at tangible book and discount it accordingly. BAC is potentially a good value under 10, depending on how you discount their book - there is still some opacity in their numbers. I do think Wells and JPM will turn out to be strong - both still have issues, but with C and BAC looking more risky, I think there will be - has been - a flight to quality. Nothing new there.

Why Can't Bank Executives See in the Mirror?

This piece is spot-on ... it's not like Todd is bashing all banks or financial services. Wells and JPM did not take the risks that BAC and C did ... not taking responsibility for poor DD or risk management is a classic external locus of control - thinking of BAC and C, who are confusing cause and effect ... the reason they are short seller magnets is because of their lack of transparency, risk exposure, and poor acquisitions. They caused the attraction, not the other way around. Mature executives take responsibility for their actions - they don't blame others.

The Biggest Money Grab in History

This is a good piece. I think John hits some of major issues - too much of X and too little buyers ... will take some time to find the equilibrium. With unemployement likely to go up (finserve alone), I don't see a happy picture for the next 9-12 months. The other point that hit home was the '03 to '05 "bull" market, which was built on unsustainable risk and, at times, malfeasance. The real tradgedy is that the US comes off as a big hypocrit. Our bailout plan is not what we tell other countries to do when they have a financial crisis, etc. I always struggle with people who can't take their own advice. Add-in that Paulson and Co. have been spinning a fairy tale over the last year - it's all contained and getting better - and the credibility of the key players is dubious at best.

When It Rains, It Pours

You have to love the Fishman story ... it's emblematic of the whole rotting corpse. The average business professional makes $3-4M in a lifetime (salary, bonus, etc.). I'm all for pay-for-performance, but pay for malfeasance and non-performance is wrong. The bailout vs. workbout goes against everything we teach our children and what firms try to instill in their employees. Own up to your responsibilities and take some accountability for your actions. The bailout mindset is like a virus that eats away at personal responsibility and blows-up the whole risk-reward profile that finance is based on. The moral hazard is ripe and smells bad. Too much leverage + too many exotic derivative instruments + too much living beyond one's means = a poor outcome.