Opinion

Felix Salmon

Citi finally sells Phibro

Felix Salmon
Oct 9, 2009 13:36 UTC

It’s been obvious that Citi had to sell Phibro since April, so the first reaction to today’s news is “what took you so long”.

Interestingly, we now, finally, get to see some numbers on just how profitable Phibro has been:

From 1997 until the second quarter of 2009, Phibro averaged approximately $200 million per year in pre-tax earnings, while over the last five years Phibro’s earnings averaged $371 million per year. Phibro has been profitable each fiscal year since 1997, attaining profitability in 80 percent of all quarters.

If Andrew Hall was really in line for a $100 million bonus this year, that’s an enormous chunk of Phibro’s medium-term profitability. Paying Hall on the basis of average annual earnings over the past five years makes a certain amount of sense, but paying him 27% of average annual earnings over the past five years is more than a little excessive.

In any case, you can see why Citi says, in its own news release , that the numbers here “are not material to Citigroup’s earnings”: by the time Citi offsets Phibro’s annual profits (after payouts to Hall) with the amount that Oxy is paying for the company, the most important result here is that Citi has managed to lose its highest-paid employee (who owns a castle). That’s going to be very helpful when it comes to pay negotiations with Kenneth Feinberg.

COMMENT

Felix–I’ve yet to see anyone comment on the obvious: Citi’s promise to pay one employee $100M was under attack. Citi now believes that it has avoided the attack by pawning off the employee’s division to Phibro which, presumably, pay the employee the bonus. But, of course, we have to assume that the economic burden of the $100M bonus falls on Citi via a reduction in the sale price. Thus, Citi has avoided oversight on this issue by Feinberg.

Have I missed something?

Counterparties

Felix Salmon
Oct 9, 2009 04:34 UTC

What’s the opposite of adverse? Anyway, that’s the kind of selection that Kaiser Permanente is up to — MR

Can a private-collection art show have real curatorial purpose? Tyler Green says no. I’m inclined to agree — MAN

Robert Parker hasn’t been to Spain since 1972! — Dr Vino

When will Gwyneth Paltrow finally have investing advice in her newsletter? Right now baby, right now. — Goop

Moms under 18 have to get parental consent for prescription contraceptives. Texas! — Economist

Suddenly, Ben Stein cares about conflicts of interest — Bercovici

The Cartoon Introduction to Economics: Volume One — Amazon

Norway is the only country that has never had different classes on its trains — FT

Rights activists see double standard in Twitter arrest — Reuters

Econ fail: Forbes mag screws up basic economics — CWS

Pink, women-only taxis combat insecurity in Puebla — Inca Kola

Major troubles at the Met. I hope Peter Gelb can recover: this is bad! — NYO

Wisconsin Tourism Federation changes name to avoid acronym — JS

COMMENT

I actually just posted a poll asking people Did Obama Really Deserve To Win The Nobel Peace Prize? Most Have Said No So Far…
http://aerocles.wordpress.com/2009/10/09  /did-obama-deserve-the-nobel-prize-do-y ou-retweet-links-before-clicking-them/

Let’s cut Ken Lewis’s payout

Felix Salmon
Oct 8, 2009 21:01 UTC

Millions of Americans know that Bank of America doesn’t care about numbers in the hundreds or thousands of dollars. It seems the government is in a similar situation:

A Bank of America spokesman disputed both the SEIU’s figures – noting the bank received only $45 billion in public assistance.

Yeah, a mere $45 billion. When the numbers are so microscopic, why should anybody pay attention to $126 million (more or less: after all, these values are all of negligible consequence) which is due to be trousered by Ken Lewis upon his departure?

As for me, I like the idea of Kenneth Feinberg cracking down on Lewis’s payout. BofA isn’t paying for performance, and it’s not like the bank needs has any worries about Lewis disappearing off to a higher-paying rival. The bank’s hilarious attempts to downplay the scale of BofA’s bailout — and of Lewis’s package — only prove how easy this decision really is.

COMMENT

Absolutely right, Felix.

No other $45B turnaround investor would allow this payment. None in the whole gdamn world, with the exception of Russia for a personal friend of Vladimir.

Ken Lewis failed. $10M for failure is more than enough. To restore capitalism, we need to establish that you get rich for succeeding, and only for succeeding. Period.

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The men with Geithner’s ear

Felix Salmon
Oct 8, 2009 19:34 UTC

The AP tallies Tim Geithner’s phone calls:

In the first seven months of Geithner’s tenure, his calendars reflect at least 80 contacts with Blankfein, Dimon, Citigroup Chairman Richard Parsons or Citigroup CEO Vikram Pandit…

Ken Lewis appears on Geithner’s calendars only three times. Morgan Stanley CEO John Mack also appears three times.

Why would Geithner speak to Paulson Blankfein so much more frequently than Mack? Well, there’s always this:

Mack was on the phone with Mitsubishi’s chief executive, Nobuo Kuroyanagi, and a translator trying to nail down the letter of intent. His assistant interrupted him, whispering, “Tim Geithner is on the phone—he has to talk to you.”

Cupping the receiver, Mack said, “Tell him I can’t speak now. I’ll call him back.”

Five minutes later, Paulson called. “I can’t. I’m on with the Japanese. I’ll call him when I’m off,” he told his assistant.

Two minutes later, Geithner was back on the line. “He says he has to talk to you and it’s important,” Mack’s assistant reported helplessly.

Mack was minutes away from reaching an agreement. He looked at Ji-Yeun Lee, who was standing in his office helping with the deal, and told her, “Cover your ears.”

“Tell him to get fucked,” Mack said of Geithner. “I’m trying to save my firm.”

Geithner should, in the interest of listening to the people who are going to tell him something he doesn’t already know, have made extra effort to talk to Mack after being told by him to get fucked. But the guy’s only human, and it’s understandable that he might not have.

Update: I thought “Blankfein” when I was posting this, but wrote “Paulson”. Wonder what that means. Many thanks to Justin Fox for noticing.

COMMENT

straight-talkin AND chivalrous, hmmmm? who could have guess? did he slam his fist down on a desk, too? god, nothing is more tedious than the macho narratives of capitalism……

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How much is Twitter worth to high-frequency traders?

Felix Salmon
Oct 8, 2009 18:50 UTC

Kara Swisher says that Twitter might start selling access to its “firehose” — the full stream of all public tweets from its tens of millions of users — to Google and Microsoft. Such companies, she says, might be willing to pay “several million dollars” for such a product.

Which raises the obvious question: if the Twitter firehose is worth millions to a search engine, how much would it be worth to algo traders and data miners? And how much of a premium would they be willing to pay to get that information a few milliseconds before anybody else? Indeed, would they be willing to pay Twitter a huge amount of money just for the privilege of hosting its servers in a the same location as their own proprietary stock-trading black boxes?

There’s been a lot of speculation of late about how on earth Twitter could be worth $1 billion. Maybe this is it! After all, the stock market, like Twitter, is basically a reflection of real-time sentiment. If you could somehow mine Twitter to isolate changes in sentiment, that could be worth billions.

COMMENT

And perhaps then Twitter could be used to manipulate markets?

Steve Tuttle, economic prophet

Felix Salmon
Oct 8, 2009 18:25 UTC

What would you consider a reasonable cost of borrowing $20? On an annualized basis, my guess is you’d say something between 5% and 100%, or $1 and $20. Which means that you’re not Steve Tuttle:

Why not charge at least $100 if you overdraft at the ATM? That seems a reasonable fee to pay to get $20 that you don’t have from the bank.

I think that Tuttle is on to something here. Implement a law saying that every time anybody borrows money, even if it’s only for a day or two, they need to pay back five times what they borrowed. Alternatively, just get the Fed to raise the Fed funds rate to somewhere in the 10,000% range.

That would do wonders for the dollar — no more political fire on that front — and would at a stroke get rid of all that horrible debt which we want to convert to equity. Of course, stocks would plunge to unprecedented lows, but just imagine the buying opportunities!

Ryan Chittum and Dan Gross are being far too short-sighted here. Tuttle isn’t a moronic nonsense-peddler, he’s a veritable prophet! (Indeed, his views on debt are positively Islamic.) So next time you ridicule a CNBC talking head for spouting gibberish, just remember. There are some views which are so close to the bone they can only appear in Newsweek.

COMMENT

Oh my God. Tuttle’s article was shockingly stupid, even for the internet.

He argues that overdraft fees are a good thing because they punish people who make bad decisions. And yet he writes “Are we so pathetic that we need Wells Fargo to be our mommy?”

And then he brings up debtor’s prison. WTF? The guy whines about government run amok. What could be a bigger government intervention into the private consumer credit business than tossing delinquent borrowers in jail?

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The credit-card burden

Felix Salmon
Oct 8, 2009 15:35 UTC

Yesterday’s news about the drop in consumer credit made sense to me: if people are saving more, that means they’re likely to be paying down their debts. But one thing jumped out at me in the official statistical release: it had figures going back to 2004 for credit-card interest rates, and the latest numbers are the highest of the lot.

The release doesn’t have intra-year data, though, so I looked back at the historical data. It turns out that credit card interest rates, for people assessed interest, hit a low of 11.96% in February 2003; they then rose slowly to a high of 15.24% in August 2007. After that, they went back down: they were 13.36% in November 2008. But in the three quarters since then they’ve risen sharply, and are now back up to 14.90%.

I suspect that what’s going on here is partly that limited-time teaser rates are expiring, and consumers aren’t getting new credit-card offers into which they can roll over their debts; it’s surely also a function of card companies raising rates unilaterally while they’re still allowed to.

So what’s happening to credit-card interest payments? When revolving credit hit its peak, in the third quarter of 2008, there was $975.2 billion outstanding, with average credit-card interest rates at 11.94%. Multiply the two, and you get $116.4 billion: that’s not a real number for interest payments, since many people pay off their credit cards in full, but at least it allows for a back-of-the-envelope apples-to-apples comparison. Today, outstandings have fallen to $899.4 billion, but rates have risen to 13.71%: multiply those two, and you get $123.3 billion — it’s gone up, rather than down.

I hope that the rising credit-card interest rates, along with the positive savings rate and the fact that credit card balances can’t be paid off with low-cost home equity lines any more, mean that the current decline in credit-card balances continues for a long time to come. What’s more, once the new rules come in later this year, credit-card companies won’t be able to continue to simply decide to raise their interest rates any more. But if you needed another reason to pay down those credit cards, this is a good one: your rates have gone up sharply, and they almost certainly won’t come down any time soon.

COMMENT

Credit cards companies are constantly coming up with new ways to attract new users. From no interests to free point systems, users are tempted to pay everything with credit cards. However, to remain debt free, users should remember to make timely payments, and avoid the trap of only paying the minimum sum. Credits cards provide many comforts in life, and being our of credit card debt just requires some responsibility.

Simon – http://www.idpro.co.uk

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The FT’s very peculiar news judgment

Felix Salmon
Oct 8, 2009 13:56 UTC

There are two big, above-the-fold stories on the front page of today’s FT. One is the fact that, yes, Santander’s IPO of its Brazilian operations went according to schedule. And the other is headlined “Obama under fire over falling dollar”.

What fire is this? A Sarah Palin Facebook update. Here’s how the story starts:

The falling US dollar is giving ammunition to the critics of the Obama administration and fuelling broader concerns about the potential erosion of America’s reserve currency status.

Republican politicians have highlighted the dollar’s slide as evidence of waning US power.

Sarah Palin, the former vice-presidential Republican candidate, on Wednesday sought to link the dollar decline to rising US indebtedness and dependence on foreign oil. “We can see the effect of this in the price of gold, which hit a record high today in response to fears about the weakened dollar,” she wrote on her Facebook page.

The crazy thing is that the note wasn’t even particularly about the dollar. “Bottom line:,” she concluded, “let’s stop digging ourselves into debt and start drilling for energy independence.”

Since when does an utterly predictable and unoriginal Facebook update justify front-page “Obama under fire” headlines in the FT? Do the editors think that if there isn’t any news they have to invent it?

Update: It’s worth noting that Palin’s Facebook note doesn’t even make sense. Not that that’s much of a surprise, but still.

COMMENT

Yeah Sarah Palin is where I go for all my trusted high finance advice and energy market predictions. LOL!! Oh and beauty tips as well. Face it the news is packaged and sold by big businesses. If you dont believe it watch the “Fox news Monsanto” video on you tube. Nothing goes out on the airwaves without being aproved by the financial overlords.

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Counterparties

Felix Salmon
Oct 8, 2009 00:56 UTC

This article on the rise of debt cards really should have mentioned overdraft fees — WaPo

Slideshow of the Obamas’ art choices — NYT

The meaning of the White House art — Atlantic Wire

Oooops. Somali pirates attack a French naval ship by mistake — BBC

Neil Collins takes the long view: “Gold tends to go down when money is tight, and up when conditions are easy.” — Reuters

Wells Fargo is raising its credit-card rates by 3 percentage points, one day before the law stops them doing that any more — Bloomberg

GQ’s “will you be my black friend” feature to be made into Chris Rock movie produced by Oprah — NYDN

Pictures of abandoned towns — Flavorwire

The Louvre declares its new McDonald’s to be “in line with the museum’s image” — Telegraph

Tina Brown: Old media’s “volcanic realignment” will create “golden age of journalism” — I Want Media

Treasury’s PPIP plan finally lands, and bankers resoundingly answer, “Dude, what’s the point?” — IDD

CNN, like a moth to the slaughter, ditches reporting for nonsense — Guardian

More Conde cuts: “the spokeswoman said Details will operate without a publisher” — NYP

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