Every once in a while I almost write “I don’t envy big bank CEOs,” and then I consider my own finances and the mood passes. But it does seem hard, no? The job is basically that you run around all day looking at horrible messes – even in good times, there are some horrible messes somewhere, and what is a CEO for if not to look at them and make decisive noises? – and then you get on earnings calls, or go on CNBC, or sign 10Ks under penalty of perjury, and say “everything is great.” I mean: you can say that some things aren’t great, if it’s really obvious that they’re not. If you lost money, GAAPwise, go ahead and say that; everyone already knows. But for the most part, you are in the business of inspiring enough confidence in people that they continue to fund you, and if you don’t persuade them that, on a forward-looking basis, things will be pretty good, then they won’t be.

Also, when you’re not in the business of convincing people to fund you, you’re in the business of convincing people to buy what you’re selling and sell what you’re buying, which further constrains you from saying “what we’re selling is dogshit.”1

Anyway I found a certain poignancy in Citi’s correspondence with the SEC over Morgan Stanley Smith Barney, which was released on Friday. Citi and Morgan Stanley had a joint venture in MSSB, and MS valued it at around $9bn, and Citi valued it at around $22bn, and at most one of them was right and, while the answer turned out to be “neither,” it was much closer to MS than C. Citi was quite wrong, and since this was eventually resolved by a willing seller (Citi) selling to a willing buyer (MS) at a valuation of $13.5bn, Citi had to admit its wrongness in the form of a $4.7 billion write-down, and the stock did this: Read more »

You can question some of the life choices that Tom Hayes, a/k/a Trader A, UBS’s Libor-manipulating-est Libor manipulator, has made, but this seems to me inarguable:

Citigroup executives wooed him in June 2009 at a swanky bar in Tokyo. As they showered him with praise, say people who were there, Mr. Hayes rarely spoke, instead letting his girlfriend, a lawyer, answer questions.

Shady traders: date lawyers! And let them do all the talking for you.

That detail is from this amazing Wall Street Journal article about Hayes. When we last discussed Hayes and his totally open and casual requests to people he’d just met to manipulate Libor for him, I asked “is this: (1) all of these people did not fully realize that they weren’t supposed to be doing what they were doing, (2) UBS’s culture was one of complete lawlessness and fuck-around-ery, or (3) both of those things are true and reinforce each other?,” and per the Journal the answer is fascinatingly (3).

I’ve occasionally said that Hayes made a career of Libor manipulating but that’s not entirely right. He started at RBS and, per the Journal‘s account,1 spent his time there mainly being smart and dressing “like a college student — with washed out jeans, a polo shirt and sometimes a threadbare sweater” rather than IMing people to ask them to fix Libor. (That, at RBS, seems to have come later.) Then he moved to UBS: Read more »

Back in October when Mike Corbat was dragged from bed in the middle of the night to take over the top job at Citigroup after Vikram Pandit’s ouster, he did a hastily assembled damage-control conference call while still wearing his footie pajamas. On this call CLSA analyst Mike Mayo surprised Corbat by asking him a softball interview question, namely: tell me how you want your tenure as CEO to be measured in five years. Corbat’s response – and here I’m quoting from memory – was “Wait, I’m the CEO? Crap. Let me get back to you on that.”

Corbat may have forgotten that promise, but Mayo did not, and he asked the question again yesterday – on Corbat’s first earnings call as Citi CEO – and got in reply maybe the single best sentence a bank CEO has ever said:1

Mike Mayo – CLSA
And then for Mike, I asked this question when you first got the CEO job. If in five years from now you were to look back at your performance, what would you want to see to show that you were successful?

Mike Corbat – CEO
I think probably going back to your first line of questioning, we’ve got to get to a point where we stop destroying our shareholders’ capital. I would say that would certainly be at the top of the list, that we run a smart and efficient business that’s good at its allocation of its resources around its customer and client segments, that it’s continued to have the ability to lead in a company those clients around the world, that it served the social purpose. There’s several things in there.

This seems a little unfair! Read more »

Citi today fired Mark Mahaney, its internet analyst, and was fined by Massachusetts securities regulators, for sending dumb emails to reporters. The Massachusetts consent order is here. Mahaney’s main misconduct1 is that on April 30 of this year a French reporter asked him about Google’s YouTube business:

  • Do you think that YouTube has been above your Total Net Revenue estimate 2011 ($876M)
  • Do you think that YouTube will be above your Total Net Revenue estimate 2012 ($1119m)
  • Do you think that they are largely profitable?

And Mahaney replied “Yes Yes Yes.” This was problematic because:

The information that [Mahaney] gave to the French Reporter had not been previously published. [He] had published a research report on Google, Inc. on March 21, 2012 and did not publish another research report until his interview with “All Things Digital” on June 21, 2012.

Two thought experiments. First, Mark Mahaney’s job was to drum up institutional business by producing actionable estimates and opinions about the stocks he covered. One way to do this is to publish research reports. Google, it is fair to say, is an important stock that he covered. He did not publish any research reports on Google for three months this year. What do you think he was doing during that time? Your choices are: Read more »

The Times’s detailed story today on Citi’s deVikrafication is a fun read and adds a lot of information about Mike O’Neill’s coup and its aftermath, but I submit to you that if you found any of it surprising you need to pay more, or probably much less, attention to the conventions of corporate infighting. I pay a medium amount of attention, and the day the news came out I conjectured:

  • the board was planning to fire Pandit for a while but made the final decision after the earnings release,
  • then it fired him, though “fired” = more or less forced his resignation,
  • and this was part of a play for more power by O’Neill, the non-executive chairman,
  • and this would likely demoralize other executives because nice things are nicer than nasty ones and a cushy banking sinecure is nicer than Hobbesian war for P&L and efficiency.1

So that’s pretty much what the Times piece today reveals.2 I would pat myself on the back except, was anyone peddling an alternative explanation?3 Well, Citi, I guess, but come on. The notion that Vikram Pandit left Citi of his own initiative, the day after earnings, with no warning, is so absurd on its face that the fact that Citi and Pandit said that he didn’t doesn’t even qualify as a lie. The call on which O’Neill said “Vikram chose to submit his resignation and the board accepted it. Contrary to speculation, no strategic or regulatory or operating issue precipitated the resignation” so clearly meant “we fired the dude because we didn’t like him” that O’Neill shouted at Mike Mayo “Our statement is clear.”

It was! There is precisely one way to read it! That’s the kind of faint-praise statement you make if you fired someone because you didn’t like him but he wasn’t, like, cooking and eating security guards on company property. The statement where he actually chooses to resign – from an unlimited choice set as opposed to “resign or be fired” – looks very different. It comes on the earnings call, for one thing.

You can manufacture outrage about this in various ways. Henry Blodget and Fox Business think that Citi’s characterization of the ouster was fraudulent and/or is being investigated by the SEC; you can add salt to taste, but Blodget has some points here: Read more »

  • 24 Oct 2012 at 7:33 PM

Good Corporate Governance Apparently Does Some Good

We talked a while back about how “corporate governance” is a thing that exists more or less orthogonal to the thing that is “running your corporation as though you were a group of competent humans,” as evidenced by the fact that Citi’s mangled and perhaps legally problematic semi-firing of Vikram Pandit has been celebrated as a paragon of good governance. I don’t really know what “corporate governance” is, if not that, but much of its semantic space is covered by:

  • do your directors and CEO like each other? – [ ] Yes [ ] No
  • do you have strong takeover defenses? – [ ] Yes [ ] No

Two “No” answers = good governance; two “Yes” answers = sketchy.1

You might if you wanted to attempt to quantify those things – which is more important, and how if at all does the good governance that they reflect translate into things like shareholders making money? I enjoyed this Lucian Bebchuk DealBook post on a paper he wrote about golden parachutes in part because it gets at that a bit. Golden parachutes are a weird takeover-y topic: CEO employment contracts that provide for big payouts upon acquisition look formally like takeover defenses, insofar as they cost an acquirer money, but they’re actually sort of an anti-takeover-defense. They encourage takeovers since they’re a sign to acquirers that the CEO is not going to make things difficult if he gets a bid.

Anyway Bebchuk and his coauthors look at some data and find: Read more »

There’s a thing called “corporate governance” which you might think means like “the practice of running a corporation in a good way instead of a bad way” but you would be wrong. You can tell because the consensus is that Citi has displayed good corporate governance by making a chaotic demoralizing mess of firing Vikram Pandit in disgrace and/or regretfully accepting his voluntary resignation and/or other. Here’s Felix Salmon:

The CEO’s job is to run the bank, to answer to the board, and to get fired if he doesn’t perform. Which is what seems to have happened with Pandit.

Meanwhile, further downtown, the exact opposite is happening. Where Citi’s powerful board acted decisively after yet another set of weak results, Goldman’s powerless board is simply sitting back and watching their bank report a much more solid set of earnings

[W]hile investors care about earnings first and foremost, they also want to know that they’ll ultimately receive those earnings, rather than just seeing them disappear into the pockets of management, or be wasted on silly acquisitions. Governance matters. And on that front, if on few others, Citi can credibly claim to be leagues ahead of Goldman.

I say unto you that one or the other of these statements can be true, but not both:

  • “Governance matters.”
  • “on that front, if on few others, Citi can credibly claim to be leagues ahead of Goldman.”

Read more »