More Good News - 30 Nov 2008

Sunday, November 30, 2008

http://skepticaltexascpa.blogspot.com/2008/11/more-good-news.html

More Good News

"Capital
is key to Citigroup's future. And on that score, investors are still
worried, even after the banking giant announced plans Monday to cut
50,000 employees. ... Tangible assets, which don't include goodwill or
intangibles, are 55 times the bank's tangible equity. J.P.Morgan Chase,
by contrast, is 31.4 times, with Bank of America is 31.3", David Reilly
at the WSJ, 18 November 2008.

"Behind headlines of
record losses, a small group of Wall Street traders on commodities,
currencies and interest-rate trading desks have made huge profits
for the banks that employ them. That is setting up a scramble as
traders vie for dwindling pools of bonus money once heaped on such top
performers. So far, they look to be on the losing side of the trade.
... UBS, meanwhile, is crafting packages that withhold short-term pay
if long-term bets go sour. Shaken by the global financial crisis and
increasing government oversight, banks are groping with a new way of
doing business: Pay out huge sums and risk public ire and
perhaps more government intervention. Pay too little, and tempt
defections or insurrection from the few people who are driving
this year's profits. ... While Morgan Stanley's chief financial officer
cited the commodities-trading group on an analyst call this year as one
of the bank's 'two top businesses,' some traders in the unit in the past have argued that the commodities group is undercompensated relative to its contribution.
... The best traders at top-tier commodities and currency trading desks
made $10 million to $20 million or more last year, and the next level
down, traders who brought in $100 million in revenues, might have made
$4 million to $5 million [Michael Karp] says. Generally, traders look for bonuses of up to 10% of profits they made for a firm,
with adjustments for the performance of the unit and the overall firm.
... [Gustavo] Dolfino says star foreign-exchange traders who expected
to make $25 million this year after earning the firm $250 million may get less if
it isn't clear the feat can be repeated without the use of borrowed
money. Acess to the firm's capital has been a key element to the
returns of Morgan [MS] and Goldman [GSG], who have led a
virtual duopoly in this commodities-trading business for more than two
decades. ... Goldman, the other dominant Wall Street commodity dealer,
could make as much as $3 billion in net revenue, say people familar
with the results", my emphasis, Ann Davis (AD) at the WSJ, 19 November 2008.

"'The
villagers are at the gates of the castle with burning torches,' says
one compensation consultant. The sheer amount that bankers are paid
riles people at the best of times. When the economy is ravaged and the
source of the trouble is banks themselves, the pitchforks come out.
Politicians on both sides of the Atlantic are gleefully grilling
bankers on pay. ... Bankers are desperately trying to placate their
critics. ... Paying out billions in bonuses will still look awful.
Worse, many expect the ratio of compensation to income, which normally
hovers just below 50%, to balloon as banks' revenues fall faster than
their pay bills. ... Surely things are so bad that banks could still
afford to disappoint even their better employees by screwing down on
their pay? Banks everywhere are ditching staff, after all. ... Mob
justice may have deserving targets but it is always crude and usually
goes too far. Attacks on bankers' pay are no different", Economist, 20 November 2008, link: http.www.economist.com/finance/PrinterFriendly.cfm?story_id=12650356.

"Treasury
Secretary Henry Paulson, under fire from lawmakers and others for his
approach to resolving the financial-sector crisis, defended his actions
as 'necessary steps to prevent a financial collapse.' Mr. Paulson said
Thursday that Washington should take a hard look at compensation practices in the financial-services industry,
as well as the process of securitzing loans and selling them to
investors. ... Mr. Paulson said he has dealt with matters as best as he
could, and blamed the turmoil on factors including 'government action
and mistaken actions, outdated U.S. and global financial regulatory
sytems, and ... the excessive risk-taking of financial institutions',"
my emphasis, Deborah Solomon at the WSJ, 21 November 2008.

"Wall
Street firm [GSG] said Friday that it will issue debt backed by the
Federal Deposit Insurance Corp. under the new Temporary Liquidity
Guarantee Program, or TLGP", Matthew Cowley at the WSJ, 22 November 2008.

Mike Shedlock's 20 November 2008 post about Citigroup is worth reading: http://globaleconomicanalysis.blogspot.com/2008/11/citigroup-blames-short-sellers-for.html.

Yves Smith's (YS) 20 November 2008 post about Citigroup is also worth reading, http://www.nakedcapitalism.com/2008/11/citi-considers-selling-itself-in-whole.html.

YS has another post about Citigroup, 23 November 2008 worth reading, http://www.nakedcapitalism.com/2008/11/new-york-times-citi-woes-due-to-lousy.html.
I add, "Where were the CPAs"? CPAs are supposed to evaluate a client's
"business risks" among other things while doing an audit. The American
Institute of Certified Public Accountants published Assessing and Responding to Audit Risk in a Financial Statement Audit (Assessing), 2006, a 498-page tome about how CPAs should consider risk during audits, 498 pages of junk to me. I read all 498 pages.
Silly me. Lots of words, no substance. If Citi has "risk control"
problems, whatever that means, what did KPMG get $88 million in 2007
for? Plaintiff's bar, start your engines. I smell a lawsuit. Section
4.21 of Assessing reads, "Usually, management identifies
business risks and develops approaches to address them. This process
for managing risk is an element of the client's internal control and
should be evaluated as part of your procedures to gain an understanding
of internal control". Then what? Another gem, "During the audit, you
may identify risks of material misstatement in the financial
stattements that management failed to identify. In such cases, you
should consider why the client's risk assessment process failed to
identify those risks and whether their process is appropriate to the
client's circumstances". Well KPMG? Does anyone at Citi or KPMG know
what cost of capital means? Isn't Robert Rubin (RR), "formerly" of
Goldman Sachs and Treasury a Citi director? Why does Citi pay RR,
double Ivy Leaguer, Harvard followed by Yale Law School, $17 million a
year? Much of auditing is window dressing. Hey Mark Olson, of the
PCAOB, did you read this NYT article? What if anything, will you do about it? Hey RR, do you know what cost of capital means?

GSG
"top executives"? You're kidding. That these guys are eligible for any
bonuses shows Wall Street compensation practices are bizzare. Joe
Schmoe gets "punished" to support overpaid incompetants and worse, who
want bonuses! What chutzpa; i.e., asking a judge for mercy after
murdering your parents saying, "Your honor, I'm an orphan". What are
investment banks today? A scam! They pay employees every dime possible,
then having pushed themselves to the brink of insolvency, scream for
bailouts. And get them! Babe Ruth, the Sultan of Swat, El Bambino, in
1931, during the depression asked for an $80,000 ($3 million today)
salary. When told that's more than President Hoover makes, $75,000,
responded, "I had a better year than he did". Did you have a better
year than Bush, Lloyd Antoinette Blankfein (LAB)? Is your public
approval rating better than Bush's 20%? LAB, here's a tip: keep your
head down.