Goldman doesn’t need to be guilty, just smelly

If Goldman’s business starts suffering from the stain of the SEC’s lawsuit after a stellar quarter of earnings, the investment bank’s role in the rehabilitation of the financial sector could look more like a quadruple bypass at the heart of the matter.

Goldman’s stunningly hot earnings are nothing new. The company routinely throttles forecasts. So it almost didn’t matter how much money they earned. Think about that for a second. The nation’s most celebrated money maker getting no love from investors for making more money than it was expecting. What else is it supposed to do? Or, more importantly, are investors finally beginning to begrudge Goldman Sachs its success? If clients start to become fearful about doing business with the bank because of the lawsuit, its earnings-generating power will take a hit.

In fact, the smell test in this case could ultimately prove to be more important than the legal one. If the perception of unethical behavior at Goldman helps the Obama administration pass more stringent financial reform, then the SEC’s action will have been a bigger boon than any fine or penalty the bank might be made to pay down the long legal road ahead.

That may turn out to be of bigger value to a reformist government than a Goldman guilty plea. And if it turns out Goldman is not guilty, then the SEC will take it on the chin again, and the market is almost as familiar with that result as it is with another blowout quarter from Goldman Sachs.

Jacob’s Ladder at Lazard

The mid-size investment bank has named Kenneth Jacobs as CEO and chairman, reinforcing an institutional commitment to dealmaking since the death of legendary Wall Street wizard Bruce Wasserstein. Jacobs has been with the firm for more than two decades and touts an in-the-trenches approach to running the firm. He joined Lazard in 1988, was named a partner in 1991 and became deputy chairman in 2002.

Steven Golub, interim chief executive since Wasserstein’s death, will continue as Lazard vice chairman and chairman of its financial advisory group. Ashish Bhutani and Gary Parr will become directors and vice chairmen. Bhutani will continue as CEO of Lazard Asset Management. Parr is a deputy chairman. Steven Heyer, a director since Lazard’s initial public offering in 2005, will become lead director, a new board position.

While Jacobs’ ascension was widely anticipated, it will be interesting to see if other senior execs stay with the bank, given that the new boss is only 51 and will presumably be in the top spot for some time.

R.I.P. Salomon Brothers

It’s official: Salomon Brothers has been completely picked apart.

Citigroup’s agreement to sell Phibro, its profitable but controversial commodity trading business, to Occidental Petroleum today puts the finishing touches on a slow erosion of a once-dominant bond trading and investment banking firm.

When Sandy Weill (pictured left) staged his 1998 coup – combining Citicorp and Travelers, Salomon Brothers was a strong albeit humbled investment banking and trading force. Yet little by little, a succession of financial crises, Wall Street fashion and regulatory intervention has whittled away at the once-dominant firm.

Not long after the Citigroup was formed, proprietary fixed income trading –  once the domain of John Meriwether, was shut down after the Asian debt crisis fueled losses that Weill could not stomach.

Bank of America’s Chalice: Poison or Red Bull?

For months, as he endured hearings on Capitol Hill and fought off a series of lawsuits, Bank of America CEO Ken Lewis trudged through a post-apocalyptic financial landscape against a steady drumbeat of questions about his future. The deal he had called “the strategic opportunity of a lifetime” — his purchase/salvage of Merrill Lynch — had swung from an act of patriotism, keeping the American way of banking from utter ruin, to a scandal over Merrill losses and bonuses.

Perhaps he should have seen the writing on the walls of the vacant houses financed by Countrywide, the mortgage lender Lewis purchased/salvaged just six months before the Merrill deal. The two transactions may have been strategic gems, but they were laced with political poison as the economy floundered toward its dramatic deleveraging and taxpayers pumped $20 billion into Bank of America to fund the Merrill deal.

“It was only a matter of time,” Campbell Harvey, a professor at Duke University’s business school, told Jon Stempel. “There is too much collateral damage.” As Stempel reports, Lewis spent north of $130 billion on acquisitions, including FleetBoston Financial Corp, the credit card issuer MBNA Corp, LaSalle Bank Corp, Countrywide, Charles Schwab Corp’s U.S. Trust private banking unit, and Merrill. In buying Merrill, he added a giant investment bank to what was already the largest U.S. retail bank, credit card issuer and mortgage provider. (Wells Fargo & Co has since become No. 1 in mortgages.)

BarCap bulks up in European M&A

Signs are displayed on the former Lehman Brothers, now Barclays Capital building in Times Square in New York

Barclays Capital has hired a senior Citigroup banker and a former top Morgan Stanley banker as co-heads of European mergers and acquisitions (M&A), as the former debt powerhouse repositions itself as a full-service, global investment bank.

The duo are Matthew Ponsonby, formerly Citigroup’sglobal co-head of infrastructure investment banking, and Mark Warham, who until earlier this year had been chairman of UK investment banking at Morgan Stanley.

BarCap, like SocGen and others, sees a chance to grab market share in M&A and other advisory work. Granted, European M&A volumes are less than a third of 2007′s — but some competitors are weakened and some bankers are restless (if not actually unemployed).

JPMorgan slashing research, ex employees say

NEWYORK-BEAR    JPMorgan is cutting 30 percent of its research department, according to two former employees, but the bank is keeping mum about its plans and declined to give details of the cuts.
    David DeRose and Leighton Thomas, co-founders of a Bear Stearns alternative research unit that moved to JPMorgan when that bank acquired Bear a year ago, said on Wednesday they sold the unit to an investment firm largely because they could not hire more staff under JPMorgan’s management.
    “If you stay under a research division that’s being cut 30 percent, we can’t get any headcount,” said DeRose.
    JPMorgan intends to shed 1,000 to 2,000 jobs from its investment bank this year, co-investment bank chief Steve Black said at the bank’s investor day in February.
    It was unclear whether the cuts DeRose mentioned are included in these figures and a JPMorgan spokesman declined comment.
    Research staff may be an easy target for cuts, since it is hard to quantify their contribution to the bank’s bottom line.
    And banks’ research divisions across Wall Street have been shrinking since the Securities and Exchange Commission in 2002 banned firms from using banking fees to pay analysts.

By Elinor Comlay

(Be)league(red) tables

Preliminary first-quarter data from Thomson Reuters on mergers and acquisitions (M&A) and capital markets are out. And unsurprisingly, spring has not sprung in investment banking, with the big exception of a record deluge of corporate bonds.

Fees across investment banking (M&A, loans, and debt and equity capital markets) halved, while fees for completed M&A topped that with a 68 percent fall. Overall announced M&A fell by a third, compared to the same period last year, to $444 billion.

And even that figure is flattered by two huge pharma deals, which bankers doubt will be followed by more of the same, and a flurry of bank bailouts.

Some Lehman employees bag their belongings

lehmanbox22.jpgStaffers at the once No. 4 U.S. investment bank headed into its midtown Manhattan headquarters on Monday morning, armed with bags and suitcases of all sizes.

Their emotions ran the gamut.

One man caught his co-worker’s eye and threw his hands up in the air in dismay before hurrying into Lehman’s global headquarters, a few minutes’ walk from Times Square.

“It is madness,” one man said on the phone, as he walked by dozens of reporters lined up on the sidewalk in front of the building. 

At Lehman, a stunning loss leads to serious thought

lehman-1.jpgFrom the Iranian coffee cart guy to the Italian graduate student, almost everyone who walked past Lehman Brothers’ headquarters on a  windy Wednesday morning in New York seemed to stop and mull its future.

Philipp Steiner, a graduate student in entrepreneurship from Italy, walked up to Lehman’s offices at 50th St. and 7th Ave after reading news about the investment bank’s $3.93 billion quarterly loss on the famous news ticker a few blocks south in Times Square. There’s never such big news in Italy, he said. Still, he didn’t think Lehman bankers had too much to worry about, despite its troubles.

“I would see that as a good experience, and then move on to another job,” Steiner said.