Commentaries

Calling Geithner

Good work by the AP in getting a copy of Treasury Secretary’s Tim Geithner’s phone log, which shows that he was quite busy during the first-half of the year speaking to Wall Street bankers. These stories are fun reads and I recently did one based on FDIC Chairwoman Sheila Bair’s datebook.

To me, the most interesting thing to come out of the Geithner call list is the revelation that he spoke several times with both Citigroup Chairman Dick Parsons and Citi CEO Vikram Pandit. Now, given the dicey situation Citi is in, that’s not surprising. But compare this to Bair’s dealings with Citi–in which she all but kept Pandit at arms length this summer.

Bair’s datebook reveals that she dealt exclusively this summer with Parsons or other Citi board members. There’s no indication that Bair had any private talks with Pandit.  

This notably different treatment of Pandit is further proof of the icy relationship that exists between Bair and Pandit. And this is why it may be too early for Pandit to believe his job is secure–even if an outside consultant hired by Citi reportedly gave him high-marks as a manager.

Now watch banks slither round the bonus curbs

Marcus Agius, the immensely wise chairman of Barclays, told a Spectator conference this week that his board paid “as little as we can get away with” to the hotshots under his command, but that to get the best, he had to pay the going rate.

Asked from the floor whether the (reported) 500 million dollars paid to Dick Fuld before the collapse of Lehman Brothers meant that he was the best, Agius could only mumble that he didn’t know Mr Fuld.

A few hours later, Barclays unveiled its latest answer to the popular demand that something be done to curb the grotesque rewards of the gilded few in banking. It is shuffling $12.3 billion of its grottiest assets, and the department in charge of them, off into a Cayman Island company which is barely credible as a stand-alone business.

The deal was greeted with almost universal criticism, but that will hardly worry Stephen King and Michael Keeley, its architects. As the announcement made clear, the “management fees and distributions to the partners” (at 7 percent) would be the priority payments. Any cash flow left over goes to service Barclays’ $12.6 billion loan (at US Libor plus 2.75 percent, or about 3 percent currently) and if things go wrong, the Barclays shareholders are back on the hook.

However, unless Keeley & Co have made a terrible blunder, their salaries, management fees and bonuses should run into eight figures. Oh, and it’s unlikely that they will find themselves paying very much income tax at Britain’s new top rate of 50 percent.

But since they are no longer Barclays employees, their rewards are nothing to do with the bank.

Across the pond, Barclays’ competitor Citigroup has clearly been watching. Its chief executive Vikram Pandit is terribly embarrassed about the $100 million paycheque which may be headed towards Andrew Hall, who runs the bank’s oil trading unit.

The final straw with Citi

 ”We have and will continue to exit several forms of proprietary risk-taking. Where we continue to take principal risk, we will only do so when we have proven teams and a clear source of advantage.” – Citigroup CEO Vikram Pandit on January 16, 2009.      Don’t be fooled by Vikram Pandit’s playing the part of a prudent banker.

Instead of scaling back risky hedge fund-style trading, Citi is doing just the opposite. And that raises big questions about why the federal government continues to bail out this basket case of a bank, and why Pandit is allowed to remain at Citi’s helm.

Here’s the scoop on this latest bailout outrage: Citi is planning to commit at least an additional $1 billion in capital to a team of stock-focused proprietary traders, say people with knowledge of these strategies — a move seemingly at odds with Pandit’s earlier vow. 

These traders buy, sell and short a wide variety of stocks, including telecom, technology, healthcare and consumer financials. And the profits and losses on those trades all go straight to Citi’s bottom line. 

In all, I’m told that this team of nearly three dozen prop traders and analysts at Citigroup Principal Strategies will get to play with some $2 billion of house money. 

That’s roughly the same sum of Citi capital the group had under its belt before Lehman Brothers melted down last September. Citi sharply scaled back the operation soon afterward. 

By the end of 2008, the Citi Principal Strategies trading group’s committed capital had dwindled to under $800 million. But that was when Citi was fighting for its very survival. Now it appears Pandit has no qualms about ramping up the bank’s prop trading group after getting $350 billion in capital infusions and asset guarantees from U.S. taxpayers.