From: Richard Bove
Date: Tue, 4 Oct 2011
Subject: Dick Bove’s Notes On Hysteria
The American banking system is not on the verge of failure.
Richard X. Bove
But what can he expect, really? So typical. Read more »
From: Richard Bove
Subject: Regulator role in UBS loss
Did regulators play a role in the UBS loss?
Richard X. Bove
Let’s hear him out. Read more »
We spend a lot of time around here talking about investment bankers/hedge fund managers/CEOs etc, and not really any on analysts. Probably because the former are a lot louder and obnoxious and more or less begging for it (Lloyd Blankfein in particular screams “Look at me!”). Also, and this is not meant to be a criticism, their jobs just seem completely fucking boring. You made “a call”? Great. Call us when Daniel Loeb gives one of his traders what’s known around Third Point as an “Eastern Bloc Crew Cut” just because he didn’t like the look on his face, so we can post about it because it’s kind of funny if you’re into Cold War humor.
Then we listened in on (the last few minutes) of the Merrill call and Mike Mayo was all, “Well, with all due respect—and really, so much of it is due—jackasses, your peers didn’t take a billion dollar writedown.* Think about that the next time you want to rub one out over disclosing your monumental failures, and don’t.” And we were like, come again? What a prick, i.e., awesome individual! And while Mayo, and Ivy Zelman, who, on a homebuilder call last year, asked, “I am wondering which Kool-Aid you’re drinking?” may be ahead of the pack in terms of being punks who outright insult companies on their calls, and that Highbridge analyst who got Jeff Skilling to call him an asshole is sui generis, there are definitely other anals out there who have, in their own, not necessarily as overt way, been making us smile, of late. Meredith Whitney’s downgrade of Citi? Great stuff (the litmus test being, did it get you death threats?). David Trone giving John Mack the proverbial middle finger, and not letting Morgan Stanley’s $4 billion dollar fuckup just slip through the cracks like the analysts at UBS AG had been paid to do? Love it.
What we’re thinking is, this is a whole untapped market of hilarity ripe for the taking by any analyst hungry enough to grab it. Writing a note about JPMorgan’s quarterly earnings? We’re not saying you have to call its bankers ugly, but maybe just downgrade them a little, for kicks, even if it’s uncalled for (which would make it even funnier). If you want, start off fucking with a smaller company and work your way up. And conference calls are probably the best place to make a name for yourself, because of the built-in audience, and you can riff a little more there than you can in writing. But we still suggest you start working on your material now. Maybe we should even do a practice run. Okay, Citi’s just announced it’s quarterly earnings, it’s 10 am and we’re on a call. I’m whoever would be leading the call, Carney’s there too, playing the part of Vikram Pandit, you’re an analyst, and you’ve just been passed the mic. What are you going to say?
Guessing It Right [Breaking Views]
*or at least at the time they hadn’t.
We tend to give analysts a hard time around these parts. There are way too many buy recommendations and the rare sell calls come out too late and too infrequently. Even on the upside it often seems they miss the call, jumping on the bandwagon after the band has already played its best tunes. (That’s our attempt to use the word ‘bandwagon’ in an extended metaphor. We actually have no clue what a bandwagon is.)
But the reaction to CIBC’s Meredith Whitney’s negative report on Citigroup demonstrates one reason analysts are so gun shy when it comes to (uh-oh, more metaphor extension) pulling the trigger and putting a bullet in the head of a widely-held public corporation. After her report helped drive down the firm’s shareprice by 7 percent last week, Whitney was harassed by angry investors, and even received death threats. “Fuck you, dumb analyst. I hope you get hit by a truck,” is how she describes to the New York Post the typical call from irate investors.
But Whitney isn’t backing down. “When a lot of money is at stake, it’s the average investor who reacts most emotionally,” Ms Whitney said. “I suspect that’s the case here. I’m more than capable of defending myself. If I were a shrinking violet, I wouldn’t have made the call.”
We’re naming Whitney our analyst of the month for her Citi call and for her self-defiant poise under fire. The world needs more analysts like Whitney. Shooting the messenger in these things is basically an elaborate suicide pact. It’s like beating up your doctor because he tells you that you’re sick.
Two more reasons we’re crushing on Whitney this morning. First, she had this conversation with Post reporters at the St. Regis. We assume that this means in the King Cole bar, one of three acceptable places midtown. The second, she is married to former pro-wrestler Bradshaw Layfield, a three-hundred pound, six-foot-six giant who was sometimes known as “Deathmask.” So her haters should be glad they were leaving voice-mails rather than confronting her in person.
City $licker Goes To The Matt [New York Post]
From a report that’s poised to win a cornucopia of awards for its breakthroughs in the field of human behavior, scientists—yes, scientists—have determined that “US executives have been able to secure more favorable research ratings for their companies from investment banks by bestowing professional favors on Wall Street analysts.” Time out. Did they just say what we think they just said? Let’s watch the tape again: “US executives have been able to secure more favorable research ratings for their companies from investment banks by bestowing professional favors on Wall Street analysts.” They did, indeed! Hang on. We need a second.
Okay, we’re going to try and muscle through this. “Unprecedented research” performed on 1,800 equity analysts found that an executive could greatly increase the odds of his company getting a happy face emoticon instead of the one with a foot where the mouth should be, by offering analysts favors ranging from recommending them for a job to agreeing to speak with their clients to blow job y backrub combos. Jesusmaryandjoseph! Keithrichardhahn! Johnfranciscarneythethird!
We’re not finished— analyst receiving two favors were 50% less likely than non-favor receiving colleagues to downgrade a company. We’re not finished—“favor-rending” to analysts in order to reduce the chances of a downgrade in the wake of poor results or a controversial deal is “widespread.” Meaning it happens a lot? In what kind of sick, fucked up, alternate universe was this study conducted?
Are you ready for this biggest kicker of them all? Kurt Schacht, director of the Center for Financial Market Integrity at the CFA Institute, which represents more than 80,000 analysts and fund managers, said that “Activities such as these are in clear breach of our code of conducts and standards…and are unethical.” Someone hand us a Molotov cocktail.
Executives find favours bring better ratings [FT]
Another day, another person with no sense of humor suing Borat. This time it’s Jeffrey Lemerond, former Carlyle employee and, previous to that, JP Morgan analyst. In a June 1 lawsuit, Lemerond takes issue with the fact that he can be seen screaming “go away” at Cohen, and is depicted “fleeing in apparent terror.” In the trailer, Lemerond’s face is pixelated, but not in the film itself. Lemerdond argues that Twentieth Century Fox “unjustly enriched itself through the unauthorized use of his image” and also claims to have suffered “public ridicule, degradation, and humiliation.” For those of you keeping score at home, “public ridicule, degradation, and humilation” as an analyst at the hands of associates and various other senior (to you) level staff at your various BBs = okay. “Public ridicule, degradation, and humilation” by Borat = not okay (though this may not actually hold up in court. Stay tuned).
“Borat” Sued Yet Again [The Smoking Gun]
It’s hard to throw a stone on Wall Street without hitting a senior investment banker who thinks the new kids these days are too much money. Just two weeks ago we saw John Whitehead, who was one of Goldman Sach’s co-heads exactly one billion years ago, griping about that he was “appalled at the salaries” on Wall Street. He had in mind more than just the junior bankers and newly recruited analysts—he even singled-out Goldman Sachs chief Lloyd Blankfein’s paycheck. But you don’t have to press to aim your tossed rocks very well to knock around a few grey-hairs covering the minds of those who think that salaries for associates are getting too high.
Not surprisingly, those on the receiving end of the “appalling” paychecks tend disagree. Fortunately for the youngsters, there are more places to take their finance degrees than ever before—and many of them hold out the promise of even more money to the next generation of would-be tycoons. Many recent graduates of some of the best finance programs look at Wall Street’s traditional investment banks more as finishing schools than as places to spend their careers.
Take “Fred”—the pseudonymous rising third-year featured in Liz Peek’s New York Sun column this morning. Fred is a top analyst at Lehman Brothers. You can tell he’s a top analyst because Fred’s been invited back for a third year at the firm, which means he is getting promoted upwards without going through the trouble of getting an MBA. He describes his work as “mind-numblingly boring.” And he’s leaving for greener—meaning, potentially more exciting and more lucrative—work in private equity.
It isn’t just the potential to make more money that is luring Fred away from Lehman. It’s also the transparency of how his new firm makes compensation decisions. The mysterious machinery of bonus decisions has long been a source of frustration on Wall Street. Exactly who gets what and why is often a mystery, fueling rumors of favoritism and envious speculation. It can even be more irksome for junior employees of Wall Street firms, who are often paid in lock-step with their peers regardless of personal or business group performance.
“The private equity guys tell us what they want and we do it,” Fred tells Peek.
Indeed, contrary to the impressions given by headlines about bonuses and the gripes of retired bankers, these days Wall Street firms pay-out far less of a percentage of revenues to compensate their professionals. Last year, for instance, Goldman Sachs made news by handing out large bonuses but still managed to shrink its compensation costs to the lowest percentage of profits in recent memory. This is good news for shareholders but bad news from the perspective of the bankers who are doing the work generating those profits.
Perhaps even more troubling for traditional Wall Street firms is that they are losing some of their luster. There is widespread feeling that the last generation of tycoons has passed through the doors of the investment banks and that the next generation will arise elsewhere. A decade ago, investment bankers would describe themselves as the “hunters” of the tribe of finance, relegating the lawyers and others to the job “basket weavers.” But these days many Wall Street firms seem to be playing catch-up in a deal market whose biggest headlines are made by hedge funds and private equity firms, often serving in what are considered decidedly secondary roles by providing financing and bridge equity to deals cut by the new class of hunters.
“Whereas in the old days the investment bankers were the creative masterminds behind financial transactions, these days the intellectual baton has passed to the firms that are taking everlarger companies private at an accelerating pace. Investment bankers view themselves as necessary but not very exciting ingredients in the mix,” Peek writes.
Wall Street Adjusts as Top Hires Flee [New York Sun]