Today's Top Stories Editor's Corner: Misinterpretation of rules may cost Wall Street dearly Also Noted: OpenText News From the Fierce Network:
Today's Top News1. Predicting the next CEO to get sacked
The Citigroup boardroom drama just might be a wake-up call to others in the industry -- notably Bank of America, where some think that CEO Brian Moynihan just might be in for similar treatment at some point. Breakingviews puts it bluntly: "Moynihan can't ignore the regime change at cross-town rival Citigroup. His three years in the corner office is less than Vikram Pandit had, but he faces the same challenges to boost performance. BofA's third-quarter return on equity of just 6.3 percent is a case in point. While improving, Moynihan needs to do more before he, too, clashes with his board and shareholders." Moynihan can point to some progress. "Seriously delinquent mortgages declined substantially in the three months to September while there's greater clarity on what it still might have to pay Fannie Mae and Freddie Mac. And the bank's stock has been on a tear, up 64 percent so for this year." As of now, most of the top banks' stocks are languishing below tangible book value. My sense is that there is comfort in numbers. If every top bank is mired in the below- book-value muck, they sort of all get a pass. Unless you've got a really proactive board and chairman, like Michael O'Neill, the chairman of Citigroup's board. It remains to be seen whether Charles Holliday, the current chairman of the Bank of America board, will make any aggressive moves. At some point, shareholders will grow more restive. No doubt the directors are aware of that. For more:
Read more about: CEO, CEO succession
2. Charges dropped against ex-Morgan Stanley exec
One might think that William Bryan Jennings just caught a break. After all, police officials in Connecticut have announced that they are dropping all charges against the former Morgan Stanley co-head of U.S. bond underwriting in connection with a lurid altercation with a cab driver in December. The cab driver claims that he was attacked with a knife and racially slurred over a dispute about the fare; Jennings had just taken a cab home to Darien from Manhattan after a social event. The incident prompted many rounds of tabloid articles that did not put the former executive in a good light. The police say they dropped the case because the cab driver did not turn over the knife in question in a timely manner. So while Jennings may be able to claim victory in a strict sense, it is clear that he has lost greatly in all this. His once promising career at Morgan Stanley was terminated, and his prospects for ever returning to a top Wall Street firm in a comparable position seem less than favorable. Then again, after an incident like this, one can only hope he took the opportunity to make personal gains, to get his personal ship in order and get moving in the right direction. This could end up being the best thing that ever happened to him personally, depending on how he reacted. His legal problems from the incident are not over. The cab driver's attorney says he might pursue civil charges against the former bond underwriter. For more: Related articles: Read more about: Hate Crimes, Morgan Stanley 3. Goldman Sachs gets aggressive in Greg Smith controversy
You can't publish a screed about the abusive culture of Goldman Sachs in the New York Times and then publish an entire book that expands on the theme without expecting some consequences. Surely Greg Smith, the author of the hotly anticipated Why I Left Goldman Sachs, knew that the bank would fight back, and it has. Bloomberg Television was the lucky recipient of a leaked nine-page report of Goldman's investigation on Smith, which includes internal emails, personnel records and performance reviews. "The document shows Smith as a 'striver,' eager to make more money and frustrated when he 'didn't advance' – and writing his op-ed after being denied $1 million in compensation. Smith didn't know his future at Goldman might have been short-lived anyway. The report says his managers 'discussed the possibility of Greg's departure from the firm.' Goldman's investigation paints a different picture of Smith that is at odds with the kind of image he fashioned for himself in his op-ed." It continues, noting that, "Smith told a manager in a December 2011 meeting that he expected to earn $1 million a year, more than double what he was making at the time as an executive director in London. He also complained in the meeting that he wasn't advancing up the corporate ladder fast enough and expected to win the promotion to managing director he had repeatedly stated as a goal in self-evaluations." In addition, "in Goldman's assessment, Smith had an overgenerous view of his own performance. The documents say that Smith was placed in the bottom half of the firm in regular evaluations from 2007, while giving himself scores that were 'significantly above' those he received from others." It's unclear whether this unflattering portrait will tamp demand for the book, which appears to be strong. Rogue copies are said to be circulating on Wall Street. Many will likely tune into the 60 Minutes segment that is set to air--if only to jeer. For more: Related articles: Read more about: Goldman Sachs 4. Google mistakenly releases earnings
Google's third quarter earnings miss was surprising enough, but the added surprise was that an apparent fat-finger mistake pushed the technology giant's earnings release, still incomplete, out to the market early. Within just a few minutes, the inadvertent news led to a massive sell-off that cut the firm's market cap by $20 billion. Google was forced to ask Nasdaq to halt trading of its shares, and as noted by the LATimes, it quickly pinned the blame on R.R. Donnelley & Sons. The blunder brought out another surprise: Larry Page, the CEO himself, got on a conference call with analysts to explain the "scramble." That's noteworthy because he had not been attending earnings calls, due to an illness that affects his ability to speak without pain. The printer has launched an investigation into how the premature release could've happened. But one would guess that human error is the issue. Still, the company will be under pressure to prove it has controls in place. My guess is that the incident will not lead to any lasting damage for the issuer. It might have exacerbated the effects of the poor results, but it's quite likely that the market would have bid the stock down anyway. The market just did it a bit earlier. In any case, this is a wake-up call to all companies that managers cannot take the financial reporting process for granted. Certainly, Google did not want to look amateurish at a tricky time. For more:
Read more about: earnings, Financial Printer 5. Details emerge on Pandit vs. O'Neill
I suggested recently that the Citigroup board of directors, led by Michael O'Neill, needs to come clean about the bank's very odd CEO transition. Now, more information is coming available via media leaks. CNBC reports that tension between Pandit and O'Neill "had been brewing for months after a series of public missteps with regulators and shareholders and concern that Mr. Pandit was not moving fast enough to cut costs." The tension seemed to have started in April, when O'Neill became chairman. The offices of the two men were just 100 feet away apparently. Quickly, O'Neill "along with several other board members, grew increasingly disenchanted with what the board saw as Mr. Pandit's sluggish pace in executing a strategy of slimming down the bank, according to several people close to the bank. In addition, some board members were concerned that this summer Citigroup did not lock down a price for its stake in the wealth-management joint venture it has with Morgan Stanley, forcing the negotiations into arbitration. Some board members think Citi lost hundreds of millions of dollars on the deal as a result. Still, others within the bank said that much of criticism being leveled at Mr. Pandit was unfair and that his ouster stemmed instead from a simple clash of personalities." It may have been a bit of a stew, a host of controversies that escalated all at once. So it may be that the board had had enough and decided to replace Pandit, and then Pandit got wind of their plans and forced their hand. Obviously, the board would've liked a cleaner transition. In any case, you get the feeling that there is more to the story. It would be nice to hear Pandit's version of events. For more: Read more about: CEO, directors Also Noted
SPOTLIGHT ON... Gorman's compensation to fall Bloomberg reports that Morgan Stanley CEO James Gorman is primed to forego almost $2.9 million given that the bank has missed certain financial goals. He probably "will forfeit so-called performance- based stock units awarded in 2009 that required the New York- based firm earn a 12 percent average return on equity and have shareholder gains ranking in the top half of a 10-company group during his first three years as CEO. He could have earned shares worth almost $6 million if he exceeded those goals." Article Company News:
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Monday, October 22, 2012
| 10.22.12 | Misinterpretation of rules may cost Wall Street dearly
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