|
|
Click
to subscribe to Article Alerts via Email!
Thoughts and Comments
Thoughts on Mavericks
By Kevin Hoffberg, Posted 5/12/2008
Winners & Losers for the Week
By Bankstocks.com, Posted 5/9/2008
The OCC: an Agency Out of Control
By Thomas K. Brown, Posted 4/22/2008
More Articles
|
Quick Takes
bankstocks.com's Daily WebLog
JINGLE MYTH: From The New York Times, word that mortgage borrowers
who owe more on their loans than their homes are worth
may not be walking away from their properties en masse, after all:
The blogosphere is full of
tales of homeowners who supposedly are choosing to mail
the house keys to their lenders rather than keep their
depreciating homes. And yet “jingle mail,” the term
for those tinkling packages of keys, appears to be far
rarer than many seem to think.
Freddie Mac, the big
government-sponsored mortgage company, estimates that
just 0.14 percent of the defaulted mortgages in its
portfolio involved properties that were abandoned by
borrowers. Fannie Mae, another mortgage company,
puts the figure in the single digits. [Emph. added]
Hmmm. This does not square with the picture apparently lodged in the mind of the
conventional wisdom of a housing market in the midst of an extended,
catastrophic collapse. Somebody please tell
Gretchen Morgenson! For its part, the Los Angeles Times says the
supposed wave of jingle mail being sent to mortgage servicers is an
"urban myth." In Orange County, Calif., meanwhile, a local real estate
consultant says "We're seeing the low-end [foreclosed properties] just fly out
the door" when they're listed, the
Orange County Register reports. Odd. I thought this housing slump was
going to be worse than the one
that occurred during the Depression. . . .
9:41:34 AM
"THIS IS LIKELY TO BE ONE OF OUR LAST REPORTS ON AXP EVER . . .": Bear
Stearns' research department
begins its long
goodbye. . .
4:13:34 PM
Gene Marcial of Business Week somehow
wants us to believe that if you'd followed his 7 Commandments of Stock
Investing last summer during the first round of the credit crackup, you'd
have known to buy Goldman Sachs at $164 in August, in time for its 40% runup
over the ensuing six weeks. Really? By the looks of some of Marcial's
commandments--''Concentrate on major big-cap stocks;" "Buy panics"--you'd have
been just as likely to choose Citigroup or Countrywide instead. Whoops!
P.S. I say any book that tells you to start your stock search with the
Dow 30 is inherently suspect. P.P.S. The commandment about always keeping
20%-30% of your portfolio in cash isn't exactly a confidence-builder, either. .
. .
3:00:49 PM
posted 5/12/2008 by Vernon Hill
WOE IS WACHOVIA: The bad news out of
Wachovia over the past few weeks has been astonishing. First, the company paid
$144 million in fines for failing to stop telemarketers from opening accounts at
the bank and bilking its customers of over $100 million. Then the company took a
$1 billion writedown on lease transactions it did earlier this decade. Soon
after that, it restated its first-quarter loss upwards by 80% because of
bigger-than-expected writedowns related to its bank-owned life insurance.
All this has gone on, of course, as the company
wrestles with the mortgage-related problems it bought for itself at the very top
of the market with its acquisition of Golden West Financial. There have been
multiple, sizable capital raises and a drastic dividend cut. To say the least,
shareholders have not benefitted.
Here you see what happens when a company strays
from its core competence. For years, Wachovia has been known for providing the
best customer service of the big banks. If the company can be said to have an
enduring competitive strength, that’s it. So why did it let itself get
distracted by doing a big deal? Why was it messing with BOLI in the first place?
How did it let itself turn a blind eye to obvious fraudsters?
It’s true, of course, that many banks have been
punished as a result of the down cycle in mortgage credit and credit generally.
What makes Wachovia stand out in contrast, though, is that the bulk of its
injuries appear to be self-inflicted.
1:07:33 PM
OH, THE JOYS OF DEAL INTEGRATION: TD Commerce Bank
can't use the Commerce name in five counties in Massachusetts, including
metro Boston, because it would infringe on a local bank's trademark, a judge
rules.
12:14:26 PM
At
Decision Quality,
Kevin Hoffberg provides terrific notes on the formal presentations made at this
weeks "Mavericks in Banking" conference. For Kevin's notes on Tom Brown's
presentation,
click here. For his notes on Tom's Q&A with Bill Taylor,
click here. For his notes on Tom's Q&A with Dick Kovacevich,
click here. And for his notes on Tom's Q&A with Prosper.com's Chris
Larsen,
click here.
12:00:00 AM
NEWS FLASH! NOT ALL LOCAL HOUSING MARKETS IN TANK!: In Houston,
new-home construction is lately lagging new-home sales. P.S. Okay, fine,
$120 oil has something to do with it, but you have to start somewhere. . .
3:20:24 PM
VINTAGE
KOVACEVICH: Around here, we tend to dismiss the diversification as
"diworseification"--incremental investment in area where one has no
particular competitive advantage, solely as a protection against ignorance or
bad luck. This morning at the BAI
Mavericks conference, Dick Kovacevich gave as smart a defense of
diversification as you're likely to hear. The only way to avoid getting
swept up and going overboard on a given product path (such as, ahem, subprime
mortgage lending, say), "is to be well-diversified so you have plenty of
paths." Otherwise "you all go over a cliff holding hands, singing
'Kumbaya.'" Yes. That sort of thing has been in the papers lately. Other
highlights from the Q&A:
>
Why investment banking is the one product area Wells Fargo has not diversified
into: "investment banking is star-based while our culture is team-based;
investment banking is transaction-based, while we're relationship-based."
>
On making deals work: "You don't do a $30 billion deal to generate a
one-time, $1 billion cost save. It's too risky and not worth the effort. Never
do a deal unless the prospective revenue growth rate of the combined
companies will be greater than the growth rates of the two companies
alone."
>
On running a bank during downturns: "It's wonderful. The more pestilence
and famine, and I just lick my chops."
The
quotes above are from my scribbled notes, by the way, and are my best effort at
reconstructing what he said verbatim. Kevin Hoffberg, who's one heck of a
real-time typist, has more complete notes from the conversation here.
12:00:00 AM
MAVERICK
THINKING: I'm in Palo Alto at the BAI's inaugural "Mavericks
in Banking" conference (hosted by Tom, by the way). Pretty good so far!
During last night's kickoff, Tom had a Q&A with Bill Taylor, author
of Mavericks at Work (which bankstocks.com would have rated the
best business book of`2006 year even if we had not gotten a positive
mention). They touched on a number of key topics I expect to be fleshed out
today and tomorrow: what are the characteristics of a true business maverick,
how do managers get bad news to flow up, how to identify talent,
that sort of thing.
Key
highlights so far:
>
Taylor says he interviews a lot more wannabe mavericks than actual mavericks
in the course of his research. The question he asks CEOs that goes a long way in
helping him identify the real deal: "Why would great people want to work at
your organization?" If the CEO can't answer that, clearly and convincingly,
he's likely an impostor.
>
It's more important to do one thing better than any of your competitors,
rather than do lots of things really well, Taylor says. If you're best-in-class
in just one thing, you can have a real competitive advantage. But without
that, you're likely just going out of business in slow motion.
>
Southwest Airlines sure has some novel interviewing techniques. In one, a
group of ten or so interviewees for flight attendant is each asked to provide
the group with his or her "philosophy of life." But during each talk,
interviewers watch the audience not the speaker, for signs of empathy,
understanding, and other traits that make for good flight attendants.
>
How do recognize great talent? Increasingly, pedigree--schools, prior employers,
and so on--don't count for as much as they once did. Successful maverick types
care as much about who you are and what makes you tick.
This
morning kicks off with a Q&A with Dick Kovacevich, followed by
discussion. More to come. . .
12:00:00 AM
WINDY:
BofA's Liam McGee tells the A.P. that the final
morphing of the LaSalle brand into Bank of America in Chicago today is
"just another tangible sign that [BofA] is a very significant part of
the Chicago business community." Liam, there's only one problem. The
LaSalle having its signage changed today is a shadow of the LaSalle that BofA
agreed to buy last April. LaSalle was Chicago's premier middle-market
lending franchise, don't forget. But since the BofA deal was announced, over
100 LaSalle bankers have
moved on to competitor PrivateBancorp., including LaSalle's ex-CEO,
Larry Richman (who's become CEO of Private as part of the deal) as well as most
of LaSalle's top management. Private has hired so many LaSalle people it's had
to move to new,
bigger headquarters. Outside
Chicago, meanwhile, the story's the same: LaSalle's office in Minneapolis has
gone from
20 employees to six; in Milwaukee, 30
to three.
I'm going to go out on a limb and predict that this deal might remembered as
one of the dumbest on BofA's long list of dumb deals. The company is so big
by now that the effect won't likely show up in BofA's earnings per share
(especially compared to the effect of ballooning loan losses at BofA). But it is
one more sign of just how poorly Ken Lewis deploys capital. Then again, Lewis
learned from the master
dilutor, himself. . . .
12:00:00 AM
IT'S FRIDAY, TIME TO LOOK ON BRIGHT SIDE!: Bullish nugget 1: The
Bank of England says
British banks may have overstated their subprime losses, since the
banks have had to mark their assets to a market that's highly illiquid. "It's
quite conceivable that in a year's time these prices will have risen, in
which case banks will be marking to market and showing significant profits
again." says Mervyn King. . . .Bullish nugget 2: Banks' inventory of
unsold leveraged loans, which came to $250 billion at one point last year and
were $157 billion in March,
are down to just $91 billion, reports CreditSights. At this rate, soon banks
will be supplying capital again rather than raising it. . . .
11:32:56 AM
TALES FROM THE BUBBLE: No matter how lax you think things got during
the subprime lending boom, it turns out they were even laxer.
Distressed-loan buyer Gus Altazurra, among others, has been
sifting through the rubble:
Altazurra, who has paid as little as 31
cents on the dollar for some loans, said the terms of some mortgages made at the
peak of the boom were hard to believe. One loan he bought from a Texas bank was
to a borrower with a very low credit score -- 484 -- who refinanced and cashed
out 100% of the equity in the property, he said.
Wow.
I didn't know FICO scores even went that low. . .
11:04:22 AM
Here's a
worthwhile profile of Jamie Dimon from Bloomberg Markets. That little piece
of paper he carries around in his shirt pocket is becoming downright
legendary. . .
11:04:22 AM
DUD SCUD: I'd love to read a long, juicy
insider's account of the rise and fall of Zoe Cruz at Morgan Stanley. Joe
Hagan's
7,000-word piece in the new New York isn't it. The poor woman comes
off as two stick figures at once: the Wall Street shrew who eats men for
breakfast, and the helpless victim canned because she's a woman. I somehow think
the actual Cruz is more complex than that, and the details of her
career more nuanced. P.S.: If you like blind quotes, this article's for
you. By my count, Hagan got exactly one (1) person, Stanley Druckenmiller, to
speak on the record. Dogged journalism!
12:45:03 PM
Odd fact: in
Boston so far this year just 41% of selling homeowners have cut their
asking prices, compared to 55% of sellers who cut asking prices in 2007,
according to the local multiple listing service. A sign the market is finally
stabilizing? Nope. Home sales in Boston fell by 32% in March from a year
ago. Given the market is still sluggish and the housing slowdown has become an
accepted fact, you'd think sellers wouldn't be any less reluctant to
reduce their prices now than they were a year ago, right? Possible explanations
for conundrum: a) The year is still young! Wait until we get to
midsummer, when families need to go ahead and relocate in time for the start of
school. Then you'll see them start slashing. b) A greater
percentage of homes for sale this year is foreclosures being sold by banks, who
aren't so nimble (they're banks!) on the pricing side and may still be in
a dream world as to what houses are really worth. I vote for b. . . .
3:13:32 PM
STILL NONSENSICAL: Back in February, you may recall, Fannie Mae and
Freddie Mac
decided (after much browbeating from New York A.G. Andrew Cuomo) to
stop buying mortgages from lenders who use in-house appraisers, in order to
avoid owning loans backed by properties with inflated values. The idea was that
third-party appraisers are somehow more objective. As we
noted at the time, the move made zero sense, since the arms of third-party
appraisers presumably twist as easily as in-house appraisers' do. But don't take
our word for it. Now the Comptroller of the Currency
says it's a dumb idea, too.
12:41:05 PM
Carlyle Group's David Rubenstein: "The most
attractive thing right now is
buying back my own debt."
10:59:49 AM
WE'RE
FROM THE GOVERNMENT--AND WE'RE HERE TO HELP: Regarding
Tom's take on
the OCC's planned regulatory approach as the credit cycle deepens, a banker
in the Southeast (who prefers to remain nameless) chimes in:
As the often repeated saying goes…"The regulators’ role is to go onto the
battlefield after the war is over to bayonet the wounded."
In this case, one might worry they'll bayonet the healthy, as well. . . .
4:16:34 PM
posted 4/22/2008 by Vernon Hill
SIR FRED SLIPS:
Word of RBS's surprise £12 billion capital raise isn't just a disappointing
piece of news for shareholders; it caps a series of decisions by management over
the past twelve months that can only be described as disastrous. Roughly this
time last year, when its stock was trading at 700 pence, RBS and its bidding
partners first considered putting together a bid for ABN Amro. In October, the
consortium finally closed on £47 billion deal; the price was £10 billion above
the next highest bid, and worked out to 20 times earnings. RBS's portion of the
deal was £10 billion in cash. By this time, RBS's stock was down to 550p.
The deal pushed down RBS's capital ratio to 4.25%, well below the 5.50% average
for U.K. banks, and just 25 basis points above the minimum that causes
regulatory bells to go off. Sir Fred Goodwin said that, no, the company need not
raise capital to pay for the deal. It would rebuild its capital via retained
earnings instead.
Then in December (with RBS by now trading in the low 400s) Sir Fred told
investors again that the company would not raise new capital. Its
subprime-related writedown would only be £1 billion, far lower than the hits
that companies like Citigroup and Merrill Lynch took last quarter. He also noted
that the company's operating results were running "well ahead of market
consensus."
In February, Sir Fred raised RBS's dividend, and again reiterated the company
didn't need to raise capital (“Not us! No way! Not now!”)
Never mind! Now the stock is at
358p, and the new capital raise will be much more dilutive to shareholders than
it would have been had the company acted earlier. And, of course, if Sir Fred
had just stayed out of the ABN mess altogether, he wouldn't have to raise nearly
as much as he is. RBS isn't the only bank to take a huge subprime-related hit,
of course. But the moves the company have made has helped take a bad situation
and make it astonishingly worse.
|