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Today's Top News1. Still statesman-like, Blankfein weighs in on sequestration
People love to speculate about the future of Goldman Sachs CEO Lloyd Blankfein. He has weathered some nasty storms and has arrived at a point where he could set in motion a transition to a new CEO, without people suggesting he was forced. The speculation as to who is in the running to succeed him continues as a great guessing game. I noted recently that he seems to be preparing for life after Goldman Sachs, perhaps eyeing public service. In several recent appearances, he has sounded like quite the statesman. That hasn't changed in his most recent appearance, during which he was willing to take on some big political issues. He was interviewed by CNBC recently and was willing to characterize his views as "center-left." He also said he would be willing to a 5 percent steeper tax in exchange for a political deal that would avoid "sequestration." As CNBC notes, Blankfein thus became "part of a group of corporate executives who have raised nearly $30 million to support a deal to avoid the so-called cliff - about $600 billion in tax hikes and spending cuts set to take effect at the end of the year." My sense is that he would prove a pragmatic and effective Treasury Secretary, if he were to get the nod. Despite "center-left" views, he'd likely fit no matter who won the White House, though the fit might be better if the Democrats win. For more:
Read more about: Goldman Sachs, CEO
2. Citigroup board's dilemma: Come clean or stay silent
Citigroup's board has some explaining to do. The abrupt CEO transition has left a foul taste in the mouths of some. Analyst Mike Mayo did not mince words: "Citigroup has had some of the worst corporate governance under Vikram Pandit and in fact I think the way this transition has taken place is a microcosm of that poor corporate governance…And it's one day after we were all listening to the CEO talk about the long-term strategy. What is taking place here? By the way, where is the conference call with the new CEO? This corporate governance – whether it's just in the last few hours or the last few years – has been awful, so that is the opportunity and challenge of the new CEO to improve a culture that has led to a lot of mishaps and some underperformance." So what can the board do to placate the mystified critics? Bloomberg Businessweek makes the case that chairman Michael O'Neill should be as transparent as possible right now by coming clean about what actually happened. Because it's pretty clear something happened. There is no other way to explain it. "By patting himself and fellow board members on the back for a succession well done, O'Neill fails to appreciate the importance of clarity with investors. This is a bank that lost 90 percent of its value under the last chief, a company that would have failed if not for taxpayer support. To have its CEO suddenly quit for no apparent reason is a big deal." I would tend to agree. There's no reason to cloud the launch point of a new CEO. Why not give him every chance to start with a clear deck. For more: Related articles: Read more about: directors 3. Bank of America earnings beat estimates
Bank of America reported a pittance of a profit for the third-quarter, which rounded out to $0.00 per diluted share, compared with $0.56 per diluted share a year ago. It's true that $0.00 per share was better than the $0.06 loss that analysts had expected on average, an upside surprise in theory. But there's a whole of reason for worry. The top line numbers continue to be jarringly weak, making it harder for people to grasp what the future of the once-proud banking giant really is apart from massive cost cutting. Total revenue shrank precipitously, to $20.7 billion, down about 28 percent year over year. Sequentially, revenue shrank 7 percent. The bank still doesn't have an answer to the Durbin Amendment, as revenue in core consumer and business banking fell $1.1 billion from a year ago to $7.1 billion, primarily from the implementation of debit card interchange fee rules in October 2011 as a result of the Durbin Amendment, lower average loan balances, the continued low-rate environment and the negative impact of the company's consumer protection products. People had been hoping for a pop from more mortgage business, which it got. Origination and re-financing activity was strong. But while the home loans business was profitable, the continued high costs of managing delinquent and defaulted loans in the servicing portfolio combined with the costs associated with managing other legacy mortgage exposures resulted in the overall net loss for consumer real estate services. Trading and investment banking helped out. Global markets revenue, excluding the DVA, increased $2.1 billion to $3.7 billion, as credit markets improved and volatility declined compared to the year-ago period. FICC-related revenue rose 4 percent from the previous quarter. The bank also took a $1.6 billion charge for litigation expenses. A tax-related charge cost the bank another $800 million. Read more about: earnings, bank earnings 4. Michael Corbat's first task: Win over analysts
If Michael Corbat wants to be successful in getting Citigroup back to being an above-tangible book value stock, he has a clear task right off the bat: Win over analysts. As of now, there's a fair amount of skepticism about the man. Here's what Mike Mayo has to say about him: "Twenty-nine years at a company, you probably know how things are run, but a company like Citigroup with $2 trillion of assets is tough for any one person to run that well. I am keeping an open mind. I think sometimes a change can be positive." Meredith Whitney says: "Citigroup is 'the incredible shrinking bank,' and the least interesting of the big four, in our opinion. No CEO will be able to change these facts in the near-term. It appears the board feels the same way, as they have appointed an unknown to the outside to the new CEO position, Mike Corbat." CNBC weighed in, noting that, "Indeed, Corbat is something of an enigma to analysts and Citigroup watchers — all of whom scrambled in the wake of the executive shuffle to make sense of why Pandit left so suddenly. Corbat's colleagues and acquaintances offered little detail to reporters about his personality or work habits." Corbat needs to work hard to get the market on his side early. He needs to reach out. This is not time to be aloof. Analysts will be looking for signs of improvement quickly. He may not be off the best start. According to DealBook: "His first public conference call as chief executive on Tuesday was not encouraging on that front. He seemed to disappoint analysts who wanted to hear Mr. Corbat express a greater desire to change things. Instead, he said, 'Today's changes do not alter the strategic direction of Citi, which we believe is a good one.' " For more: Related articles: Read more about: CEO, CEO succession 5. "Too big to fail" solution gains ground
While much of Wall Street seems to have galvanized behind the Republicans in this presidential election, the reality is that Republicans have an issue with "too big to fail" as well. While both sides of the aisle think sheer size is a problem worth addressing, there is still have no clear path toward ending the status quo. As things stand now, the credit markets basically are pricing in an assumption that should push come to shove, the government will once again ride to the rescue of large systemically important institutions. But one idea has gained currency as of late: capping total assets as a percentage of gross domestic product. The idea is not new, as Democrats have proposed such a cap (at 2 percent of GDP) in legislation that has little chance of ever passing. Daniel Tarullo, a Federal Reserve governor who oversees bank regulation, said in a speech last week also that the idea was worth exploring, according to media reports. "That a regulator at the Fed — the most powerful of the banking industry's overseers — would say that such a structural overhaul of the financial system might be considered, was a sign that the policy debate over what to do about 'too big to fail' might be shifting," notes DealBook. The big issue of course is where to set the cap. At 2 percent, it would require a massive balance sheet restructuring effort by the top banks. At 8 percent or more, the growth prospects of banks might be limited. In any case, the idea is on the table. For more: Read more about: too big to fail Also Noted
SPOTLIGHT ON... Mayo says to buy shares as Pandit exits Few analysts were as tough on ex-CEO of Citigroup Vikram Pandit as Mike Mayo. He has now reversed his long-standing position that Citigroup stock should be avoided. He has changed his rating from outperform from underperform because he now discerns a stronger board, willing to act in the face continued malaise, reports Bloomberg. "Yesterday's CEO change definitely gives a greater sense of accountability, though we strongly would have preferred a smoother transition," wrote. Article Company News:
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Thursday, October 18, 2012
| 10.18.12 | Citigroup board's dilemma: Come clean or stay silent
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