Heard On The Street

Lehman’s Hedges Backfire

Are we in for another round of write-offs from Wall Street? That’s what Susanne Craig argues in the Wall Street Journal’s “Heard On The Street” column today. This time the losses are coming from a rebound in the mortgage markets. Banks that had shorted mortgages to hedge their long exposures are now finding their shorts have become “counter-productive.”
The worst off, Craig writes, is Lehman Brothers, which is looking at write-downs of somewhere between $1.5 billion and $2 billion. That eats up almost half the $4 billon of capital Lehman was forced to raise when rumors spread that the bank might face a crisis. Morgan Stanley is a distant second, with less than half that amount expected.

Trouble Hid in the Hedges
[Wall Street Journal]

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]

Live From Wall Street: Caffeine Up, Markets Down

There is only one Starbucks on Wall Street west of the broad and seldom crossed expanse of Water Street. It’s just about a half a block from the New York Stock Exchange building. Traders in their unmistakable trading jackets and others line up each morning to place their orders, often chatting about their previous evening. Many place orders for five or six cups of varied and sometimes exotic caffeine cocktails, carrying them back to their co-workers on cardboard trays. Even when it comes to coffee there is a division of labor on Wall Street, some assigned to fetch the coffee while others remain at their work stations.
We stopped in this morning for an informal survey. It was more or less an eavesdropping morning. At this hour few seemed eager to talk to strangers, so it was mostly a morning of overhearing the conversations of others. Much of the talk was personal small-talk: greetings, weekend plans, gripes or praise for colleagues, the weather. The market relevant talk seemed mostly about how far the market would drop when the bell rang. It was full of a kind of nervous energy. But then again, a lot of talk in coffee shops has the sound of chemically-fueled
A few traders did pause to speak with us. And there message was very unanimous and clear: volume, volatility and a market about to head down with the opening bell. There is also concern about whether or not “the systems” can hold today, after the massive problems on Tuesday and lighter problems yesterday. Will “the Glitch” return?