Former Treasury Secretary Henry Paulson gives the ultimate insider’s view on the steps taken to prevent the global credit crisis from bringing down the financial system 1 1/2 years ago. And in his book on the subject, he apparently tells of the liquidity problems facing one of the bluest of the blue chip corporations in the U.S. – General Electric. According to an article in yesterday’s Washington Post, GE CEO Jeffrey Immelt on at least four occasions spoke with Paulson about the problems GE was having accessing the credit markets. The Post, excerpting from the book, said Immelt came to Paulson’s office the day Lehman Brothers filed for bankruptcy and told the Treasury secretary the company was having a hard time borrowing money in the commercial paper market for more than a day. In other words, investors would only loan GE money overnight and barely any longer. The Post notes that a day earlier, GE had set a letter to investors telling them it was having no problems accessing capital markets. The concerns over GE had to do with its GE Capital unit and its heavy exposure to the commercial real estate market as well as its mounds of debt. GE has denied misleading investors.
Commercial Mortgages, Credit Crisis, Credit Markets / No Comments
Banks, Compensation, Corporate Governance, Executive Compensation, Investment Banking, United States, Wall Street, Washington / No Comments
We’ll know we have entered a new era in compensation for top bankers when a board of directors actually exercises a “clawback” provision of the newly minted and less generous bonuses being proffered on Wall Street.
The headlines, of course, are about the dollar value of the bonuses now being handed out for work in 2009. Most noted and notable was Friday’s news that Golman Sachs Chairman and Chief Executive Lloyd Blankfein ‘only’ got a $9 million bonus, all in stock and no sale allowed for five years.
Beneath the news headlines is another reality. Yet more power is is being given to boards in their greater ability to pull back stock awarded in bonus packages if after the fact any tarnish is found on the results that supported the bonus payments.
These emboldened clawback provisions apply not just to Goldman executives but at other financial services companies, too. Indeed, the lack of certainty built into these stock-based bonuses (themselves a better way to tie executives to the firms’ long-term interests than cash) have spurred a new term, “shares at risk.” They earn that sobriquet because “the shares could be clawed back or lost if something goes awry at the firm,” recently wrote The Wall Street Journal.
How ironic that corporate boards of directors, accused of broadly being asleep at the switch during the accounting scandals of the late 1990s and the over-the-top risk-taking that led to the credit crunch, keep increasing heir power in the reformist wakes of every scandal.
Now they are getting more strings to attach to stock-based bonuses after widely being accused of letting top executive compensation, on Wall Street and Main Street, get out of control.
So the skeptic in me wants to see a board actually use such clawback power in coming years, when justified, of course, to see if it is going to be different this time.
Meanwhile, the debate about whether a bonus of $9 million was ‘enough’ for Blankfein after the sterling year enjoyed by Goldman will continue.
No doubt the heat and glare of the public and politicians about post-meltdown bonuses at commercial and investment banks helped rein in Blankfein’s 2009 compensation, along with the pay of other top people at Goldman. The New York firm has been dead center in the populist loathing.
Another question is whether the new sensibility about pay will last if and when the spotlight shifts elsewhere.
As for Blankfein, it’s worth keeping in mind that he was paid more than $68 million in cash and stock in 2007 and The New York Times reported his total compensation since 2000 comes in above $181 million, though not all has been cashed out.
Motor wunderkind Wolfgang Bernhard is back at Daimler – yet another recycled auto exec back in a top job at a company he once worked for. Paul Ingrassia’s new book, Crash Course, details how the insularity of the Detroit auto makers contributed to their downfall as complacent chiefs and enabling boards shut their eyes to reality. The European auto industry is no different, as the demise of DaimlerChrysler – orchestrated by clubby continentals – demonstrated. Bernhard did some fine work at Volkswagen – and, back in the day, at Chrysler – but not enough, judging by the fact that Chrysler landed in bankruptcy and is now the least likely of the Detroit Three to survive. Daimler itself is headed by another retread – albeit a very smart one named Dieter Zetsche. But as savvy as he is, Zetsche presided over Chrysler’s downhill slide only to ascend to the top Daimler spot after Juergen Schrempp (aka the architect of the Chrysler takeover) was pushed out. What’s heartening is that Ford and General Motors are now headed by non-automotive outsiders. Under former Boeing exec Alan Mulally, Ford’s showing terrific progress. It will be interesting to see how GM fares under former AT&T boss Ed Whitacre.
“Domino’s Pizza crust to me is like cardboard.”
I’m not quoting a friend or family member – I’m quoting a Domino’s Pizza commercial, in which Domino’s focus group participants denigrate everything about the taste of the chain’s signature product. To trumpet a revamping of its pizza recipe in December, Domino’s put out commercials in which its marketing and product executives listen with dismay to withering criticism: for example, Marketing Director Karen Kaiser saying, “Whoa, this one’s really bad – ‘worst excuse for pizza I’ve ever had.’” Others: “The sauce tastes like ketchup”; “totally void of flavor’; “boring, artificial imitation of what pizza can be.”
Credit Markets, Financial Markets, Greece, Investing, United States, Wall Street / No Comments
You can talk about the January predictor (so goes the first month, so goes the U.S. stock market for the year, maybe) or the Super Bowl predictor (a circumstantial sometimes accurate parallel between who wins a football game and the direction of the U.S. stockmarket).
One fact is clear: volatility is back.
It’s not just evident in U.S. equities markets, but in stocks and bonds around the world. There are flighst back to safety because ofte sovereign debt worries about Greece, Spain, Ireland and Portugal.
(I find the derisive acronym being bandied about for these four nations, PIGS, particularly distasteful. It’s noted only once here just to register that distaste.)
There are worries about the growth prospects in the U.S. and the sustainability of a nascent recovery.
After a period of market stability and optimism and we-avoided-a- catastophe sanguinity, the action Thursday and today reminds us all too much of the wild swings that hit us so hard in the fall of 2008 and lasted into the spring of 2009.
Today in U.S. stocks was one to remember. After Thursday’s 2.6% drop in the Dow Jones Industrial Average, the venerable 30-stock index is down modestly at this writing. It hovers just below 10,000. Earlier today it was below 9,900, cracking technical support levels as it dropped.
There is still some minutes of trading left in the week, so who knows how it will wind up.
As the dollar strengthened, oil has taken a terrific tumble. After falling 5% just on Thursday, the price of a barrel of crude oil fell another 2.7% today, finishing at about $71.20.
As a former colleague would say in the face of this sort of market action: fasten your seat belts.
His name was Jim Murphy and he penned the popular “Mark to Market” column for us. Jim had a special connection with his readers, as you can see from the many heart-felt comments below.
Trading In Toyota's Stock In NY Today
U.S. Transportation Secretary Ray LaHood had some pretty shocking advice for Toyota car owners today – if you owned one of the cars subject to its recall because of accelerating issues, don’t drive the cars. Want to guess when he made that statement in Congressional testimony? Just look at the chart above.
He later back peddled. “What I said in there was obviously a misstatement,” LaHood said outside of the hearing room. “My advice is if you have one of these vehicles, if you are in doubt, take it to the dealership today.”
Basically, the trading community looked at the initial statement as a serious condemnation coming from the U.S. government. Which is why government officials have to chose their words very carefully. Toyota hasn’t done a very good job communicating with the public about these recalls. We don’t need others involved to do the same.
Spain’s unemployment rate is as dismal as the government’s budget woes, and 2010 is basically a write-off in terms of economic and business growth. But enthusiasm for football (aka soccer) is going strong – judging from the crowd of cameramen and autograph seekers outside our Madrid hotel. As we are staying at a decidedly mid-price inn, the small mob is hardly anticipating the arrival of a world-class team of multimillionaire jocks. Nope, stuck in rush-hour traffic is Racing Club de Santander. Financial journalists that we are, we assume the club is named after the big Spanish bank before being told they’re actually from the town of Santander (which actually does have a connection to the bank, we were later told.) The center of attention is the lovely Sergio Canales, around whom cameras and fans cluster. I’m there, too – a scrum surrounding a smiling, golden-haired teenager in a track suit. I’m sure someone will enlighten me about his kicking and running prowess. But back to reality: how will Spain revive its economy? A business associate rants about the intransigence of Spanish labor unions in assisting companies adapt to modern technology. Will things have to get worse before Spain’s unions agree to partner with employers to pave a feasible road to a more prosperous future? It happened in the U.S., when a bankrupt auto industry led the United Auto Workers to accept lower pay and benefits. Spain may be next.
I’m simple minded guy. So, one of the many things I don’t understand is this – if you call something a “hedge,” what that’s supposed to mean is that you locked in some value today and have protected yourself against future losses (and potentially missed out on future gains) on the value of some underlying asset.
Which brings us to MetLife. The big insurer said today that its net investment losses in the fourth quarter were $557 million. About $527 million of those losses were connected to derivatives.
Outside of derivatives, the investment portfolio itself was down 82%. “Strong performance from corporate joint ventures and hedge funds was offset by negative returns from real estate funds.” More evidence that pain from real estate investments will continue into the year.
It will be interesting to hear how transparently the company speaks about the derivative losses and the real estate portfolio – what the exposure is, what are the investments, etc.
Conference call Wednesday morning. We shall see.
When you see the botton line numbers at Gannett, you can’t help but think at first that maybe, just maybe, the newspaper industry has struck bottom and is starting to turn around. The company, publisher of USA Today and other papers, says it earned 56 cents a share in the most recent quarter compared to a loss of $20.65 a share a year ago. But when you drill down, you see revenues declined 14% to $1.5 billion from $1.7 billion. A big chunk of the declines came from advertising, which fell 18% year-over-year. And the hardest hit part of advertising was one that traditionally as the steadiest – classified ad sales were down 22%.
So, once again a company was able to manage its numbers by cutting costs, not because it grew its business. Those of us who practice this craft know its a business that costs a lot to produce the kinds of products we all do. We know the value is there. Hopefully, it doesn’t take a calamity in the news business for the public to understand that value, too.
