Opinion

Ben Walsh

Citi’s bold new compensation plan replaces one adjective with three bullet points

Ben Walsh
Feb 25, 2013 21:39 UTC

The last time Citigroup tried to pay its CEO, shareholders freaked out, albeit in a ceremonial way. This time around, Citi has made some changes to the way it pays its CEO. Antony Currie thinks the “broad structure [of the plan] looks good”. The problem is that structure is basically a compilation of cosmetic changes that won’t do much to prevent the exact kind of decisions that got shareholders so enraged last year. Despite that, they’re probably probably just enough to discourage the intense criticism the bank faced last year.

Here’s Nathaniel Popper and Jessica Silver-Greenberg’s succinct characterization of the new status quo:

[Citigroup] announced on Thursday that part of the $11.5 million in compensation awarded to the new chief executive, Michael L. Corbat, would be closely tied to performance.

Is this an indication that Citi’s new “hands on” chairman is responding to shareholders? Citi’s regulatory filing addresses two big aspects of any comp plan — how much you get paid and how you get paid. On the question of the overall sum, Citi’s previous plan was remarkable in its honesty:

Look at how the committee decided in 2011: its only metric was its own discretion. That’s potentially the canonical example of why disclosure and transparency aren’t synonymous — we know technically how the committee decided, but the actual considerations involved in the decision-making process are opaque.

from Felix Salmon:

Counterparties: All loans are risky loans

Ben Walsh
Feb 20, 2013 23:27 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

What if boring banking is actually dangerous? James Surowiecki, citing research by Christian Laux and Christian Leuz, argues that it wasn’t high finance that pushed banks to fail during the financial crisis. Instead, banks simply “lent themselves right into insolvency”. Anat Admati and Martin Hellwig make the case in their book, “The Banker’s New Clothes”, that traditional lending can be just as risky as more as complex trading strategies -- it also didn’t help that banks borrowed excessively. Their solution: banks should fund themselves with more equity and less debt.

Tom Braithwaite thinks that’s already happened and that the desire to increase return on equity, which is well below its pre-crisis peak, will make banks safer. “They are channelled away from [riskier activities] because Basel III puts tough ‘risk weights’ on riskier businesses... safer businesses such as advisory work or retail brokerage are being preferred because they are ‘capital light’”. That placid view, however, is countered by the role that reducing risk-weighted assets seems to have had in spurring JP Morgan’s London Whale debacle.

The key to unlocking shareholder value: Mayonnaise tweets

Ben Walsh
Feb 15, 2013 14:07 UTC

Attempts to explain why markets move are generally pretty silly, as proven by qualitative case studies. Just look at this master class from CNBC, which spends five minutes offering a dozen different explanations for why the market might be doing what the market is doing. All twelve reasons could be right, or they could be wrong, or the truth might lie somewhere in any one of the millions of permutations of those dozen explanations.

That of course is why people believe these explanation, because they’re stories. For instance, here’s an amusing theory: Groupon stock rises because the petulant CEO tweeted his displeasure about the way mayonnaise is dispensed at sandwich stores. It exists — George Anders has written it at Fortune. First, here’s the rundown of Mason’s comments:

Mason deplores some sandwich shops’ habits of putting mayonnaise on their lunchtime creations, regardless of whether customers want mayo or not. Mayonnaise by default “makes no sense,” Mason asserts. It would be much better if sandwich shops let customers decide for themselves whether to put mayo on their bread. Abstainers would enjoy a mayo-free meal; indulgers would savor their spread on less soggy bread.

An economic minister, a banker, and a hedge fund manager walk into a meeting

Ben Walsh
Feb 13, 2013 18:14 UTC

The first sentence of this Bloomberg story about Russia’s latest investor charm offensive could be real conspiracy fodder, if it weren’t in fact so mundane: “Goldman Sachs has been hired by the Russian government to burnish the nation’s image overseas and attract more institutional investors”. Goldman Sachs makes millions convincing community banks to buy mortgage securities backed by Black Sea housing projects! Or something else that a Matt Taibbi column auto-generator would spit out.

What’s actually going on is pretty simple, and not that unusual, even if it is buried almost halfway through the story. Goldman Sachs has an agreement with Russia “similar to a corporate broking arrangement”, which are very common. The services provided here are pretty nondescript — setting up meetings with investors, handling the logistics of getting executives or government ministers from city to city, providing a modicum of input on what should and shouldn’t be said.

For a company or country, the value is pretty clear. They get to meet with investors, which they were probably going to do anyway. With a bank involved, the head of investor relations has an easier job: he gets someone else to blame when a meeting with a mildly unsavory hedge-fund that is probably short the company’s stock gets onto the day’s schedule.

from Felix Salmon:

Counterparties: A minimal vision at Barclays

Ben Walsh
Feb 12, 2013 23:26 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

At the recently revamped house of Barclays, the inspiration for the full-year earnings announcement was minimalism: 3,700 fewer employees, $2.6 billion in cut costs, and promises to reduce the size of what the Guardian called its “industrial scale” tax avoidance business. There was, however, an inevitable hangover from the the prior regime: a $1.6 billion loss in fiscal-year 2012. That came thanks to the $1.6 billion set aside to compensate clients for mis-selling derivatives and loan insurance.

Extolling the virtues of virtue appears to be key to the new identity. New CEO Anthony Jenkins described the results of a strategic review, which was sparked by Barclays role in the Libor-fixing scandal. Business units, Jenkins said, will be evaluated, in part, on “their strategic attractiveness, including their impact on Barclays reputation”.

from Felix Salmon:

Counterparties: The devil’s in the emails

Ben Walsh
Feb 6, 2013 22:49 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

There’s a certain inevitability to RBS’s $612 million Libor-rigging settlement and the Justice Department’s civil charges against S&P for faulty ratings. Like at Barclays, Goldman Sachs, Standard Chartered, and UBS, RBS and S&P’s scandals come complete with how-could-they-put-that-in-writing electronic communications.

RBS’s contributions to this now-venerable tradition come courtesy of the CFTC and FSA, and are wrapped up nicely by Dealbook and FT Alphaville. One trader asked that the rate set be at a certain level by writing to the submitter that “if u did that i would come over there and make love to you”. Another said  “its just amazing how libor fixing can make you that much money”. Believing that the US dollar Libor was being watched by the Fed, a Yen trader said “dun think anyone cares the JPY Libor”. Scattered throughout is the requisite amount of trading floor profanity, along with a decent number of emoticons.

from Felix Salmon:

Counterparties: Not all that bursts is a bubble

Ben Walsh
Feb 5, 2013 22:53 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

If you aren’t terrified about the coming bond bubble, you should be, according to those who have taken it upon themselves to play interest-rate Paul Revere. Finance heavyweights like Lloyd Blankfein, Gary Cohn, Bill Gross, and Jeff Gundlach have each voiced their concern. Fitch has chimed in too.

There’s nothing particularly new about these warnings. Businessweek’s Roben Farzad charts the “many cautionary, even alarmist, headlines” that have appeared over the last six months. Quartz’s Matt Phillips says that we are now in the fifth year of headlines warning of a spike in rates.

from Felix Salmon:

Counterparties: The non-industrious military complex

Ben Walsh
Jan 30, 2013 22:09 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

America’s economy defied expectations and shrank 0.1% in the fourth quarter -- analysts expected 1.1% growth. And it’s all the military’s fault. Or at least, the fault of declining defense spending.

Brad Plumer runs through just how significant the fall off was:

Government defense expenditures plunged by a staggering 22.2% between October and December... The Pentagon spent significantly less on just about everything except military pay. Had the Pentagon not cut back on spending, the economy would have grown at a weak but positive 1.27% pace.

from Felix Salmon:

Counterparties: Not so golden, still delicious

Ben Walsh
Jan 28, 2013 19:30 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

Apple’s stock is down 23% in the last six months. Last week’s earnings report caused an overnight drop in shares from $514 to $461. Earnings growth is decreasing. Investor Jeff Gundlach thinks it’s a “broken company” where innovation has been reduced to “just changing the size of... products”. Fast Company explains “Why Apple is losing its aura” while the WSJ asks “Has Apple Lost its cool to Samsung?”

Not so fast. Legendary VC Michael Moritz, who first bought Apple equity in 1978, has stepped into the doomsaying to decry the lack of “any sense of perspective”. Quarterly revenues, he notes, grew 18%, and topped $50 billion for the first time. And while Apple does face stiff competition, it’s only because it is so successful:

from The Great Debate:

Lance Armstrong is world-class – at capturing regulators

Ben Walsh
Jan 24, 2013 15:11 UTC

Lance Armstrong’s world-class abilities – as an athlete, manipulator, liar, and bi-pedal pharmacological wonder – are well-documented. What shouldn’t be overlooked, though, is that Armstrong also excelled at capturing his regulators, the same way banks and other industries capture theirs. His undetected doping fueled success, and Armstrong deployed that success better than anyone in the sport as a tool to continue doping.

At his peak, Armstrong was the biggest star in cycling, and a bigger star than any cyclist before him. He needed cycling, but cycling officials and race organizers, not to mention sponsors and manufacturers, needed him too. Here’s his former teammate Frankie Andreu:

He owned the cycling industry. Whatever he said, happened. He had a ton of money and money can buy a lot of things that other people can't get. He knew who did what, because he was the ringleader.

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