Deal Journal says Joe Torre, in an attempt to illustrate the fact that there’s no natural candidate for the job of running a company that “has proven itself so complex as to be ungovernable.” Okay, but Torre actually already has a new gig with the Dodgers, so he’s unavailable. But we like the idea of coming up with someone for Citi CEO who’s so completely inappropriate for the position, whose nomination is so totally insane that it might actually work. The only one we’ve got so far is Hitler, which right off the bat would be fun because the C board is really into grave digging. Additionally, that place could benefit from a little Weekend at Bernie’s humor. Finally, it’s common knowledge that when you have (the corpse of) a genocidal maniac in charge, other banks know not to fuck with you. Surely you can do better (though I think ours should at least be considered). The best submission will get the job.
Why Not Joe Torre for the Citigroup Job? [Deal Journal]
Citigroup
Citigroup board members are said to have plans to gather for an “emergency” meeting this weekend. Up until recently, not one member knew what a joke their bank had become, and if the chairman of the board hadn’t accidentally been forwarded a widely circulated email insulting Citi that originated from an analyst at Deutsche Bank, they would’ve been none the wiser. Though no one can say for certain what will be discussed, there are obviously many, many things to choose from, including but certainly not limited to: C losing almost a quarter of its market value since it was announced third quarter earnings had dropped 57%, further writedowns, getting to the bottom of Prince Alaweed’s indefatigable obsession with their CEO, and, of course, the beheading of Chuck Prince.
Citi to Hold Emergency Board Meeting [WSJ]
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chuck prince
JP Morgan Celebrates Beating (Paid-Off) Analysts’ Expectations, Profits of Unworthy Adversary
By Bess Levin(Just kidding about that whole bribing o’ analysts thing but with everyone—including Can’t Do Anything Right Citigroup—“beating” analysts’ “expectations,” doesn’t seem so crazy, does it? You’d be surprised how far a free dinner at the Hawaiian Tropic Zone will get you with an analyst at UBS AG. Lloyd Blankfein knows what we’re talking about.) Anyway, JP Morgan’s third-quarter net income rose 2.3 percent to $3.4 billion (97 cents/share), up from last year’s $3.3 billion (92 cents/share). Analysts had previously forecast earnings at 90 cents a share. This was exciting, because it made the $1.64 billion in write-downs on leveraged loans and collateralized debt obligations (which caused investment banking profits to fall 70 percent to $296 million) not seem as bad. With the exception of Goldman, JP Morgan handily won the Q3 pissing contest, with Merrill Lynch expecting to lose tons of money in the quarter on account of $5.5 billion in write-downs, and Citigroup’s triumph over analysts’ expectations earlier this week, which saw the behemoth posting a 57 percent decline on fixed-income losses. Though, to curb JPM’s enthusiasm only slightly, one might note that Citigroup has been on the receiving end of a golden shower, and pretty much drowning in it, for some time now. Still, unworthy an adversary as the C might be, it’s nice to see Jamie Dimon wiping the floor with the firm that pushed him out the door instead of naming him CEO, as Deal Journal notes this morning. Also, Meg McMullen, chief of New England Research & Management called Jamie Dimon “a smart cookie,” and, to be honest for a sec? We kind of dig the soccer mom-ness of it all. Like she’s the antidote to our golden shower or something.
JPMorgan Third-Quarter Profit Rises, Beats Estimates [Bloomberg]
Dimon to Chuck Prince: Watch and Learn [Deal Journal]
JPMorgan Profit Rises, Despite Writedowns [CNBC]
Here’s are a bunch of things that Chuck Prince has done since he became CEO of Citigroup that could be characterized as “dumb” (many courtesy of Duff McDonald who, unlike Prince Alwaleed, is keeping count. It is by no means comprehensive). :
- He’s said some stuff that makes him sound like he has no idea what he’s talking about. (“In July, Prince injudiciously announced that Citi would continue “dancing” to the music of the buyout boom until it stopped. Less than a month later, the roof was falling in on the dance hall.”)
- He’s exhibited little-to-no follow-through (In 2005, Prince sent out a lot of emails about how the bank should “maintain positive operating leverage” but didn’t actually get around to doing it ‘til 2007).
- He got rid of the guy keeping Maria Bartiromo’s ass in his direct line of vision.
- He more or less encouraged a lot of talent, including former co-chief Bob Willumstad and Marge Magner, head of the company’s consumer-banking unit, to give JP Morgan a chance.
- Old Lane
- He fired trading chief Thomas Maheras, who people seemed to have actually liked (how else can you explain the visible tears and “You suck, Prince! Bring Tom back” chants on Friday?)
- $6.5 billion of pre-tax losses and writedowns.
You’d think such faux-pas would be cause for Prince’s termination, but it’s the two things he’s done since taking over for Weill that could and should be characterized as “genius” that are keeping him in the employed state he’s become accustomed to:
- Lowering the bar: Prince has so far lowered everyone’s expectations of Citigroup that analysts are constantly given the opportunity to say, “You know what? They actually didn’t fuck shit up quite as badly as we were expecting. You really surprised us, Citi. Pizza for everyone.” On today’s “earnings” announcement: “Their revenues actually weren’t as bad as we were expecting,” Jeffrey Harte, an analyst at Sandler O’Neill & Partners LP said. “The trading and some of the banking businesses held up better than we thought.” Prior to announcing next quarter’s earnings, Chuckie will start a whisper campaign that the ‘group has gone bankrupt and been forced into downsizing measures ranging from “no paper clips” to “TP that makes sandpaper look good.”
And Prince has so brilliantly managed people’s expectations at what he himself is capable of that he’s no longer held to actually carrying out things that would be “good” (don’t even say “profitable,” nobody’s ready to hear that) for the bank (which presumes he ever was, as one conspiracy theory about the Prince-driven train wreck is that it was Sandy Weill’s elaborate plan to create a bank that would inevitably fail upon his departure, just so he could feel “needed”). On today’s announcement of third-quarter earnings falling 57 percent? “Prince is doing the right things strategically. It’s become more of an execution problem lately.”
- A harem of fanboys: first, there’s Bob Rubin, who’s paid $17 million a year to play (what sounds like a pretty kinky) game of “corporate and diplomatic glad-handing…of the highest order” and occasionally offer suggestions, which are either bad ones that Chuck is following blindly, or good ones that Prince sees no room for in Citi’s “strategic vision” of failure. They have each other’s backs, because they both know what it’s like to be paid millions to do jack shit. Then there’s the board in general, which just this morning was said to be “comfortable” with the recent managerial changes at the company and feels that its “strategic plan is working.” Of course, it was Prince who was speaking on the board’s behalf, but it’s entirely possible that its members have deluded themselves into thinking such ridiculous things (if there’s one thing we know at DealBreaker it’s that Stockholm syndrome is very, very real). Finally, it’s virtually impossible to forget Prince’s #1 advocate, and Citi’s largest shareholder, Prince Alwaleed, whose seemingly limitless support for the CEO has undoubtedly seen this conversation to pass: “Did you burn the place down today?” “Nope.” “Great work! If I could promote you above chief executive, I would. Here’s a virgin for your troubles.”
Basically, someone should give this guy the MacArthur award. But how much longer can the charade last? Some people are saying Rubin’s (and therefore, maybe, Chuck’s) days are numbered, and James Cramer’s “sources” tell him that Prince will be fired by the end of the week. So purely basing our answer on what we know about the voices inside Uncle Jim’s head, we’re going to go with–and this is just sort of a reflex thing–never.
Game Plan: Earnings Bonanza! [CNBC]
The Hanger-on [NYM]
Citigroup turmoil turns spotlight on Rubin [Reuters]
Citigroup Net Falls 57 Percent on Fixed-Income Losses [Bloomberg]
The market for LBO loans has opened up since the catastrophe of August. By offering the loans to investors at a discount, and eating the loss, the banks that committed to make them have begun to clear them off their books But, as the Wall Street Journal’s Henny Sender reports today, the amount of loans that have been sold—about $30 billion—are “a drop in the bucket” compared to the total of $310 billion of LBO loans still waiting to be placed. And that’s just from North American deals. Nearly a third of that is set to come into the market in the next thirty days, according to the Journal.
This data may shed new light on the reported plan of KKR to buy LBO loans from Citi, including LBO loans that went to finance KKR deals, and Citi’s reported plan to lend money to KKR to buy those loans. After speaking to several loan syndication professionals, we have come up with what looks like the logic of this deal.
The banks are worried that while there has been some investor appetite for LBO loans, there may not be enough to absorb the total amount they plan to bring to market. A flood of new loans selling into lowered demand could put pressure on the banks to make even steeper discounts, creating even larger losses at a time when the banks are attempting to put the legacy of credit market losses behind them. The alternative—keeping the loans on the books and hoping for better days ahead—is no better for banks trying to show shareholders that they cleaned the debt mess off their books.
Enter KKR. Without public shareholders and armed with lock-up agreements from investors, it can take a longer view of the debt market. Although a lot of debt is currently scheduled to come to market in the coming weeks and months, there may be a drought of those loans just over the horizon. The slowdown of leveraged-buyout deals this summer means that there will, eventually, be fewer loans coming to market. And this drought could hit just when investor appetite for debt is recovering. At that point, KKR would be in a great position to sell the loans at prices above the discounted price at which they bought them from Citi.
At the same time, Citi might be comfortable sitting on newer loans which it can claim it is syndicating on schedule rather than older loans. This is a sleight of hand but one that shows at least a certain kind of agility that Citi may hope will please investors. Citi too could hope to take advantage of a renewed appetite for debt and the coming LBO loan drought, and sell those loans at par, reducing losses that it might have incurred selling into a flooded market now.
We’ve said it before, but we’ll say it again: different time horizons create different profit opportunities. The logic of “if they’re buying, why are you selling” assumes a homogenous market of buyers and sellers, when in fact the market is characterized by heterogeneity. And private equity firms—at least those that don’t feel answerable for stock prices to public shareholders—are often in a position to take advantage of opportunities only available to those with longer time horizons.
Damn it must feel good to be a Kravister.
Debt on Sale: Banks Grease The Leveraged-Loan Machine [Wall Street Journal]
Let’s see if we have this straight. Citigroup wants to sell off some on the leverage loans it committed to before the credit crunch. Many of those loans were made to private equity owned companies for leverage buyouts, including companies that KKR bought. A fund managed by KKR is looking to buy the leveraged loans, which it believes are under-priced in the wake of the credit market turmoil. But everyone knows KKR doesn’t buy anything with cash: it borrows the money. So now, according to the Financial Times, Citigroup might lend money to KKR to buy Citigroup’s loans.
This is very possibly the best story ever. The only way it could get better is if KKR went on to buy the loans used to buy loans from Citigroup. And, of course, Citigroup lent it the money for that. And then, well, you get the point. In the end of our fantasy, Citigroup’s stock get’s hammered by investors skeptical of this snake-eating-its-tail lending scheme. And get bought out by KKR. With loans from….
Insiders report that credit market expert Charles Ponzi has been retained as an adviser to both Citigroup and KKR for the transaction.
Citigroup talks to KKR about leveraged debt [Financial Times]
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chuck prince
Alwaleed, Minaya Stand By Their Men, In Spite of Men’s Colossal Failures
By Bess LevinHere’s a tip for those of you concerned about a fast-approaching expiration date on your job—see if you can put in an application for either CEO of Citigroup or manager of the Mets, two positions in which you can apparently fuck things up beyond anyone’s wildest dreams and still not get fired. Prince Alwaleed bin Talal, C’s largest individual shareholder, said that he totally backs the management of Citi (i.e. Chuck Prince), and that the bank’s 60 percent slump in third-quarter profit, perhaps due in part to a $1.4 billion writedown, was a “mere hiccup,” not unlike the Exxon Valdez oil spill—basically just a blip.
In fact, the only thing that’s been keeping the Saudi prince up at night is the question of across which medium “World’s Greatest CEO” should be printed—a mug or a t-shirt? Mugs are always a safe bet because there’s no question about size (Chuck isn’t really that big though his shoulders are pretty broad), but T’s are just so much more festive! Anyway, details. Alwaleed predicts that the Citi Prince will “normalize” performance in the fourth quarter.
Meanwhile, Mets GM Omar Minaya told reporters yesterday that he “believes” in manager Willie Randolph. Rather than focus on the fact that he blew a seven-game lead with 17 games left in the season with unparalleled rapidity, we should dwell on all the good stuff Randolph’s done in the past three years. There’ll be a sit-down with the Wilpons, sure, but that’s just to smooth (kind of unjustifiably) ruffled feathers and make sure that Willie sticks around for the rest of his two-year, $4.25 million contract. Minaya predicts that Randolph will lead the Mets to victory in next year’s World Series.
If only there were a safe place where these two seemingly unrelated organizations could get together and speak freely of their common love and commitment to keeping horribly inept management in power (and doling out handsome rewards for such impressive failings and pratfalls). Oh, right—Citi Field, the (soon-to-be, in 2009) new home of the New York Mets (thank you for the salt, David Weidner). But don’t write off The Palace of Personal Responsibility, the naming rights for which Citi is coughing up roughly the equivalent of three years’ salary for a certain 88-win team, as simply a place where losers can celebrate their manifold losses just yet. Let’s remember that it’s also the site of Shake Shack II. And we can all agree that it’s easy to let bygones be wretched, disastrous bygones over a double Shack burger.
Citigroup Third-Quarter Profit Slump a `Hiccup,’ Alwaleed Says [Bloomberg]
Mets GM Minaya won’t fire Randolph [Newsday]
Citigroup and the Mets collapse [MarketWatch]
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