The Value of Experience

BRITAIN/(Corrected – Bank of America did not purchase Countrywide early this decade)

Now that the nation’s top public servant is wielding The Donald-like powers over chief executives of bailed-out companies, expectations are high that more heads will roll, and Bank of America CEO Kenneth Lewis is looking like the next contestant on a new economic prime-time drama: The Executive.

Rick Wagoner, ousted as General Motors CEO, had spent more than three decades in the company and had been in the driver’s seat for most of the last one. He also presided over the era of the energy-unfriendly Sport Utility Vehicle and is criticized for sticking with trucks far longer than he should have.

Lewis has been Bank of America CEO for about eight years. He bought CountryWide, the biggest lender after the market went crazy for real estate and was ultimately forced to buy Merrill Lynch as the salad days of Wall Street wilted.

By contrast, Citigroup’s Vikram Pandit has been running things for just about long enough to endure the worst of the crisis, and AIG’s Edward Liddy was installed by the government. Perhaps it’s the longevity of characters like Wagoner and Lewis that make them seem so deserving of a presidential pink slip.

Stockholm Syndrome

BANKS/WHITEHOUSEThe dreaded nationalization of Citigroup may have been forestalled but is hardly gone. Weekend reports said the government would take a bigger share of the bank’s common stock, igniting an off-market really in its shares. The Wall Street Journal reported the government would own as much as 40 percent; it said Citi executives would like to hold the number closer to 25 percent. The bank and the state are talking. That’s clearly better than not talking, but hardly seems to justify the big run-up in Citi shares.

The Journal says a scenario on the table has much of the $45 billion in preferred shares the government holds in Citi, which amounts to a 7.8 percent stake in the bank, being converted into common stock. Never mind how hugely dilutive to existing shareholders this would be, and how much more say the government would have in how the bank operates. In any other circumstance (think back to the nationalization of AIG) these are strong sell signals. But so long as the commentary stays focused on forestalling an outright government takeover, Citi shareholders are becoming more encouraged to increase their exposure.

As we did on Friday, DealZone wonders at the process of softening up Americans to the idea of the state taking over the bank; ergo the title of this missive. Sweden, that Keyser Soze of socialism, is considered the modern home of successful bank nationalizations, and given the terror with which U.S. investors approach the idea of even temporary government administration of a major bank, the market’s interpretation of the weekend reports as cause for celebration can perhaps be best understood as hostage mentality.

Saab Story

GM/SAABIn its latest turnaround plan, General Motors made clear that its money-losing Swedish unit Saab would be independent within a year. Wasting no time, Saab said it would seek protection from creditors and restructure. Better to start with a clean slate.

Saab said it would seek funding from public and private sources through the reorganization, and that GM would provide liquidity.

On another front in the same war, talk of bank nationalization has been dragging down financial markets. Alan Greenspan is talking about it, giving even Republicans an excuse to support this most abhorrently socialist of measures. Even the dire and vague positions of Treasury Secretary Tim Geithner seem designed to ease Americans into accepting what would normally be unthinkable to a God-fearing capitalist.

Merrill losses shocked Flowers

Merrill logoMerrill Lynch’s losses shocked even Christopher Flowers, the private equity guru who advised Bank of America on its purchase of the Wall Street firm last fall.

“Yes, I was appalled. Yes, I was shocked,” Flowers said during a panel discussion in New York when asked about what he thought of Merrill’s losses. Merrill lost a record $15.31 billion in the fourth quarter.

Merrill agreed to be bought by BofA in a weekend deal in mid-September as the financial crisis peaked. Lehman Brothers went bankrupt the same weekend, and the U.S. government had subsequently to rescue AIG.

Taking the Wall St bypass

THAILAND APECRemember early last year and the year before, when the U.S. financial system won huge investments from Asian sovereign wealth funds? Those investments seemed so rich at the time, offering conversions into shares at deep discounts and the kind of interest rates banks had demanded from subprime borrowers. The biggest fear anyone on Wall Street had was some vague sense that foreign ownership of U.S. financial institutions might be somehow un-American or a threat to national security.

Nobody talks about those days much anymore. Merrill Lynch, the recipient of billions of expensive sovereign wealth fund support, was swallowed up by Bank of America. Talk of nationalization swirls around Citigroup, another sovereign wealth fund investment target throughout the stunning collapse in its share price.

Our correspondent George Chen reports China’s $200 billion sovereign wealth fund, China Investment Corp, is shifting to natural resources, fixed income and real estate after taking big haircuts on the U.S. financial sector. The fund, headed by former Vice Finance Minister Lou Jiwei, “has drawn criticism at home over large paper losses on its combined $8.6 billion investments in U.S. private equity giant Blackstone Group and Wall Street bank Morgan Stanley,” Chen says, citing people familiar with the matter.

Nationalization Boogeymen

FINANCIAL/BAILOUT-CEOS(Updated with references from Paul Kanjorski’s office)

Lined up to pay their dues, Wall Street CEOs met their congressional inquisitors on Capitol Hill, sparking bouts of righteous indignation peppered with cringe moments worthy of The Office.

Pennsylvania Democrat Paul Kanjorski implored the posterboys for an era of high finance gone bad to “please find a way to return that money before you leave town,” referring to hundreds of billions of dollars in taxpayer bailout funds that officials believe were poured into unwarranted bonus payments instead of being used to revive the business of lending to America. At least he said please.

The message was clear. Though they may never have been instructed to lend the funds when they got them, that’s what Congress wanted. Bankers need to get back to the business of lending. That’s what they were being bailed out for. Never mind that the business of lending, conducted with adequate credit checks, was not what they were doing before, and that prudence in a period of high inflation would preclude much new lending today.

Wall Street bankers — so humble, so frugal!!!

BERNANKE/It is amazing how the prospects of a grilling in Washington can make Wall Street’s CEOs behave. Until a little while ago, these were the masters of the masters of the universe. An elite group of highly paid stars who rarely showed signs of vulnerability, who rarely seemed to doubt their place at the top of the heap. But take a look at the testimonies they have prepared for today’s hearing at the House Committee on Financial Services and it looks like they have begun to embrace the new era, the new religion.

You would be forgiven in thinking they had all also hired the same speechwriter. They mostly stress they are prudent, frugal, humble, though not quite yet apologetic — it will be interesting if that changes once the grilling begins. Here are some of the themes:

Public anger towards Wall Street is justifiable:
“It is abundantly clear that we are here amidst broad public anger at our industry. In my 26 years at Goldman Sachs, I have never seen a wider gulf between the financial services industry and the public. Many people believe — and, in many cases, justifiably so — that Wall Street lost sight of its larger public obligations and allowed certain trends and practices to undermine the financial system’s stability.” — Lloyd Blankfein, CEO of Goldman Sachs Group.

Banks mea culpa at taxpayers’ expense?

bac4The U.S. government has frowned upon banks using TARP money for things such as corporate jet travel, junkets to Las Vegas, and out-sized salaries.

But it hasn’t said anything about using the money to buy full page ads in major newspapers to try to win back some love from the American public.

For example, Bank of America, which this week said it was selling most of its corporate jet fleet, has been peppering the Wall Street Journal, New York Times and Financial Times with ads extollings its virtues for several days now.

Evercore gets league table boost; Lazard left in the cold

Pfizer Inc’s $68 billion deal to buy Wyeth gave boutique investment banking firm Evercore Partners a huge jump in the rankings of merger advisers, while Lazard Ltd got left on the sidelines.

One mega-deal was enough to catapult Evercore, which advised Wyeth along with Morgan Stanley, into the list of Top 10 advisers. Evercore now stands at No. 7 for the global and U.S. rankings, up from No. 24 and No. 16 in 2008, according to data from Thomson Reuters.

Morgan Stanley stands at No. 2 globally with 15 deals, and No. 3 in the United States with 10 deals, according to Thomson Reuters.

Thain, Lewis part ways

Thain and LewisJohn Thain’s out of the door as well. And one wonders if Ken Lewis could have saved himself a lot of heartache if only he had watched the action movie “Speed”.  

Sandra Bullock called it more than a decade ago. As her character says in the movie: You know, relationships that start under intense circumstances — they never last.

Thain’s departure leaves Lewis without several top executives at Merrill, which it acquired on Jan. 1 for $19.4 billion. Other top Merrill executives to recently leave include Robert McCann, who was to lead the combined brokerage, and investment banking chief Greg Fleming.