Lehman Looses Wall Street’s Most Powerful Women

Erin Callan resignation and her new post

Erin Callan joins Credit Suisse after serving Lehman Brothers for 13 years, having most recently served as CFO and a member of the Executive Committee. The move comes a little more than a month after Ms. Callan, 42, was demoted as CFO.

At Credit Suisse, Ms. Callan will be a Managing Director and Head of its Global Hedge Fund Business. In this newly created position, Ms. Callan will join the Investment Bank Management Committee and the Global Client Steering Committee.

What she did at Lehman

Ms. Callan was the first woman ever to serve on the firm's 15-member executive committee. Ms. Callan started at Lehman in the fixed-income department and then rose to advise hedge fund, Callan led some of the most important initial public offerings in the financial world in recent years, including those for the Blackstone Group and Fortress Investment Group.

Lehman Brothers has appointed Erin Callan in Sep 2007, succeeding Chris O’Meara, the firm’s CFO since 2004, who was named global head of risk management.

In June 2008, Callan was demoted, at that time, Lehman chief executive Dick Fuld said Callan would be rejoining the firm's investment banking division "in a senior capacity."

During her short tenure as CFO, Ms. Callan, a brassy and articulate banker who started out as a tax lawyer, pushed management to be more transparent with results and met with hundreds of Lehman investors to make the case that the firm’s business was fundamentally sound.

Reasons for departure

Ms. Callan struggled to regain investors’ confidence after Lehman reported a large, unexpected loss for the second quarter of 2008. She has very little formal hardcore financial accounting experience and her frequent appearances on television had led many to suspect she was more of an extremely well-paid spokesperson than a hands-on executive. And more over CFO is often the first to shoulder the blame when the stock price plunges 40% in one day.

According to the WSJ, She receives a slimmer daily financial summary than her predecessors, relying more on data from the trading-floor contacts built during her 13-year Lehman career. Ms. Callan said "We have a lot of great finance people here." In the CFO seat in this environment, I find it is important to be able to look at the sum total of the information quickly and test conclusions as well as read the reports on my desk."

That looks like management delegation that got a bad reputation on streets

Why Credit Suisse

Credit Suisse has been building its hedge fund business to catch up with rivals Goldman Sachs and Morgan Stanley, which have the largest market share of the prime brokerage business.

Bank Consolidation - Under the Hammer

LIKE plane-crash survivors forced to eat their fellow passengers, investment bankers have found some sources of nourishment amid the wreckage of the banking industry. Goldman Sachs notched up a 72% increase in equity-underwriting revenues in the second quarter, much of it from other banks. Now many have their eyes on M&A deals.

Why banks need to consolidate?

Weaknesses in funding and business models have been laid horribly bare. Some banks were too focused on the wrong markets. Wachovia, America’s fourth-largest bank, has suffered from outsize exposure to California’s imploding housing market and is a potential takeover target. Others face regulations that threaten their profits. Lehman Brothers is at the centre of many of them.

Problems for Buyer

More importantly, buyers are scarce. - Deutsche Bank is under pressure to bring down its leverage ratio. Barclays raised £4.5 billion ($9 billion) in June, but is still more thinly capitalised than many of its peers. HSBC has been burnt by its disastrous acquisition of Household.

Due diligence on banks structured-credit exposures remains a nightmarish prospect for would-be acquirers.

Liquidity is also now a big part of buyers’ calculations. Few want to bump up the amount of debt that needs to get rolled.

Accounting standards add to the complexity, by requiring acquirers to account for the assets and liabilities they buy at fair value.

Regulators themselves may set up roadblocks to deals, either because they take a generally dim view of capital-sapping acquisitions or because of the rules.

Banks Present Status

Banks’ need for capital is not yet satisfied and there is mounting concern that investors are less willing to inject cash into sinking assets. Disposals are the obvious escape route. Bidding is under way for Citigroup to offload its German retail operations.

The big question, of course, is whether that will keep bank finances shored up long enough for markets to stabilize. If losses continue to spiral, capital dries up, and disposable assets cannot find purchasers, banks will have little choice but to cut back even harder on lending, or to take whatever price they can get.

US SEC OK with investment bank efforts on capital

July 14 - The U.S. SEC Chairman Christopher Cox said he is very comfortable with what investment banks are doing to strengthen their balance sheets.

Cox said the Federal Reserve and the SEC are in contact every day with the country's largest investment banks, including Lehman Brothers (LEH).

"We are very, very comfortable that they are all doing the right thing in trying to strengthen their balance sheets, raise more capital and be in a position to weather these very difficult storms," Cox said.

Is any bank CEO safe from the credit crunch?

June 2, 2008 - Today, Wachovia CEO Ken Thompson became the latest to be shown the door. The bank anounced that its board forced Thompson to retire from the company he has run for eight years. The move comes just 24 days after Thompson lost his job as chairman. Lanty Smith, the man who succeeded Thompson as chairman, will become interim CEO.

So what happened? The simple answer: An acquisition gone bad. Thompson, it would seem, was brought down by the ill-timed acquisition in 2006 of Golden West Financial, which caused Wachovia to post steeper-than-expected losses in April.

Wachovia CEO G. Kennedy Thompson stepped down, weeks after losing his chairman role and roughly two months after raising $7 billion.

RBS Cash Call

On 22-Apr-08 the Royal Bank of Scotland said that it planned to raise 12 billion pounds ($23.7 billion) through right issue.

The Right issue or the sale of shares to existing shareholders is an attempt by RBS to restore its capital base.

The rights issue marks an embarrassing U-turn for the bank.

Less than two months ago, the bank said it did not need to raise capital.

On 22-Apr-08, Sir Fred said the cash was required because "the world had changed".

RBS deserves credit for being the first U.K. bank to admit it needs significant help from shareholders.

The issue, which will be sold at a 46% discount to21-Apr-08 share price, will swell the share count 60%. To top it off, the bank will cut its cash dividend per share.

The bank said the rights issue would raise its Tier-1 capital ratio — a measure of financial strength — to 8 percent and its “core” Tier-1 capital ratio — the most liquid type of capital and a key measure of financial strength — to 6 percent by the end of 2008. The minimum for U.S. banks to be viewed as well-capitalized by regulators.

Pressure is mounting on Goodwin and the bank's chairman Sir Tom McKillop following £12bn call cash. RBS board is letting Mr. Goodwin stay. His supporters think the bank needs him for the integration of ABN.

The chairman Tom McKillop defended the chief executive Fred Goodwin, saying “our executive team has all the ability to steer the bank through this tricky period in financial markets.”

The bank has announced the appointment of three extra non-executive directors, in what some have seen as a move to reduce Sir Fred's dominance.

RBS's credit ratings came under pressure, with Fitch Ratings cutting one notch to AA and Moody's Investors Service warning it could strip the bank of its Aaa rating. Standard & Poor's said it maintained a negative outlook on the bank.

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Banks Suffer Reputational Loss

The credit crisis has provided an opportunity for mid-sized and regional banks that avoided its worst effects to take business away from the large banks.

In a survey of 300 companies across the world taken prior to the collapse of Bear Stearns, the only two large I-banks whose reputations have been enhanced by their performance throughout the crisis are, unsurprisingly, JP Morgan and Goldman Sachs.

All other large banks have seen their reputations decline or, at best, were unscathed.

Geographically, US companies thought higher of regional banks such as Wells Fargo and foreign banks with small US franchises such as Royal Bank of Scotland/ABN Amro.

Financial News Online .. Banks Suffer Reputational Loss

Underwriting: Q1- 08

Citigroup Inc missed its title as the world's largest underwriter of stocks and bonds for the first time in more than six years, said Thomson Financial.

According to Thomson, Securities underwriting volume fell by 45% from a year earlier to $1.27 trillion, and fees collected by I- banks fell 47% to $5.8 billion.

JPMorgan Chase & Co was the top underwriter in the first quarter. JPMorgan arranged $129.4 billion of offerings, winning a 10.2 percent share.

Citigroup followed with $94.7 billion of offerings and a 7.5 percent share.

Deutsche Bank AG was third, with $91.8 billion of offerings and a 7.2 percent share.

Reported fees fell by 7% to $3.38 billion from $3.65 billion.

Citigroup led in that area with a 15.6 percent share, followed by Bank of America Corp's 8.9 percent and Goldman Sachs Group Inc's 7.8 percent. JPMorgan was fourth.

Wall Street bankers said Citigroup's fall from first place partly reflected a change in strategy by its new management. Citigroup in a statement said it manages its business "for productivity and profitability rather than league table position."

Bear Stearns Cos, a fixed-income specialist that agreed to a takeover by JPMorgan following liquidity problems, ranked 18th in underwriting and 23rd in reported fees.

Merger volume, meanwhile, fell 41 percent worldwide and 56 percent in the United States, Dealogic said last week, suggesting lower need for future bond and loan offerings.

"There was a total contraction in credit," said Richard Peterson, director of capital markets at Thomson. "We don't know if there are more hidden time-bombs. The market is sensing there could be more."

News & Related Links

Reuters – Citigroup dethroned in dismal underwriting quarter

Financial Week – Citi finally knocked off its throne as top underwriter

Wall Street Journal – Debt Turmoil Hits Street Stock, Bond Sales

Regulation To Boost Costs And Cut Profits

Investment banks' invitation to borrow at the Fed's discount window will ``come with a price tag,'' Gross wrote on Pimco's Web site today.

Leverage and gearing ratios of securities firms will in a few years resemble those of commercial banks - resulting in reduced profitability for major houses.

Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. will earn less and face higher borrowing costs because of increased regulation of investment banks, Pacific Investment Management Co.'s Bill Gross said.

These banks will likely be forced to raise expensive capital and/or reduce the bottom line footings of their balance sheets.

This will be costly, and bond spreads as well as stock prices should begin to reflect it.

Bloomberg – Fed Rules to Cut Wall Street Profits, Boost Costs, Gross Says

Guardian - New Capital Raising To Be Costly For Banks

Deutsche Hit by $4 Billion Write-Down in Q1-08

Deutsche Bank expects first-quarter write-downs of 2.5 billion euros, ($4 billion) related to leveraged loans and loan commitments, commercial real estate, and residential mortgage-backed securities

Deutsche Bank said as it had indicated on Earlier (Mar 26) that 'markets remained difficult early in 2008', adding that 'conditions have become significantly more challenging during the last few weeks.'

Deutsche Bank expects a BIS Tier 1 capital ratio at the end of the first quarter 2008 of between 8 and 9 percent, consistent with the bank's published targets.

For the rest of 2008, the risks for the banking industry are accumulating, especially for those firms, such as Deutsche Bank, with significant exposure to the U.S. markets.

CNN Money – Deutsche Bank Sees Q1 Mark-Downs of Around 2.5 Bln Eur

Forbes – Bad News From Deutsche Bank

Citigroup in Banking Overhaul

Vikram Pandit said an internal memo on March 5 that he planned to ``reengineer businesses to more directly address the needs of our clients.'' The review is scheduled to be completed in May.

Citigroup said it would set up an independent credit-card unit and overhaul consumer banking along geographical lines.

The bank said it has reorganized its consumer group into two global businesses - a consumer banking division and a global cards unit.

Steven Freiberg, the current co-head of consumer banking, will run the card unit, which accounted for 62 percent of total consumer revenue last year.

The rest of the group, mainly bank branches and non-bank lending, will be led in the U.S. by Terri Dial, hired from Lloyds TSB Group PLC, and four regional chiefs outside the U.S.

Citigroup has 8,500 consumer branches, stretches across more than 100 countries and has more than 300,000 employees worldwide.

The announcement prompted some observers to speculate about a potential sale or public offering.

In a press release, Citi said the latest changes would allow the company to “focus its resources towards growth in emerging and developed markets and improve efficiencies throughout the company.”

Profit at Citigroup's consumer unit fell 35 percent last year to $7.87 billion as rising delinquencies on mortgages and auto loans forced the bank to set aside more reserves for losses.

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Q1-08 Deals

Global M&A volumes fell 31% to $661 billion in the first quarter of 2008, according to Thomson Financial.

Buyout firms led the collapse in deals as their buying power evaporated and they saw a 77 percent fall in acquisitions after 6 years' growth.

The credit crunch has dented banks' confidence in lending to buyout firms, which rely on debt to achieve their returns.

Meantime slowing U.S. and European economies and volatile markets are making corporate CEOs reluctant to take large risks.

After four years U.S. M&A activity is on track to see its first annual decline since 2002, according to a recent report from Thomson Financial Proprietary Research.

Europe remained ahead of the U.S. in terms of deal volumes and also better-weathered the downturn. European M&A activity accounted for 301 bln usd, which is 10 pct lower than in the first quarter 2007.

Goldman Sachs advised on the most merger and acquisition deals worldwide in the first quarter of this year, followed by Lehman Brothers and Citigroup. Morgan Stanley, which had led the rankings in the same period last year, dropped to number 6.

The top global M&A advisors in the first quarter of 2008 are, in descending order:
Goldman Sachs , Lehman Brothers , Citigroup , Credit Suisse , Deutsche Bank, Morgan Stanley, Centerview Partners, JP Morgan, Merrill Lynch.

Goldman Sachs worked on 81 deals worth $231.5 billion, followed in the second and third spots by Lehman Brothers and Citigroup Inc, which advised on global deals worth $203 billion and $190 billion, respectively.

Citigroup was the most active adviser on deals with a European element. It worked on 42 of these transactions worth $161.6 billion. Credit Suisse was the next most active bank in this respect, working on 36 deals worth $149.7 billion, followed by Goldman, which advised on deals worth $147 billion.

Goldman led in terms of estimated fees for the quarter as well. It earned fees of $399.9 million from its global M&A work, including $200 million for deals including European element.

Merrill Lynch and Credit Suisse were the next most profitable in terms of global fee revenue. Merrill earned $291.8 million and Credit Suisse earned $287.6 million.

In Europe, Morgan Stanley (MS) was the second most lucrative fee earner. It generated $181 million in fees from M&A, followed by Merrill Lynch, which earned $168.6 million.

Announced M&A deals in the US were even lower at a five-year low of 189 bln usd, 53 pct lower than in the first quarter 2007 (401 bln usd). The US recorded the lowest first quarter figures since 2003 (71 bln usd).

Thomson Financial's M&A review also showed a shift in the ranking of investment banks advising on M&A deals in the first quarter of 2008.

Globally, Goldman Sachs Group Inc reached pole position in the year to date, with mandates for deals valued at 231.5 bln usd. In the first quarter of 2007 it was ranked second.

The investment banking arm of Lehman Brothers Holdings Inc soared from sixth place in the first quarter of 2007 to second place in the global ranking, with mandates valued at 203.5 bln usd this year.

In the category of transactions with any European involvement, Citigroup Inc led the pack in the first quarter of 2008, with mandates worth 161.6 bln usd, followed by Credit Suisse Group (149.7 bln usd), Goldman Sachs (147 bln usd) and Lehman Brothers (141.2 bln usd).

U.S. merger volumes are estimated to reach only about $1 trillion in 2008. Still, report said “Looking at the second half of 2008, an improving credit market along with a significant level of available funds for private equity to put to use will likely boost the environment for M&A gains,” the.

News and Related Story Links:

Reuters – Global M&A volumes tumbled by a third in Q1

The Age – M&A bankers suffer 35% drop in fees

CNN Money – Global M&A value drops 31 % to $661 bln in Q1; US value drops 54%

Money Morning – Don’t Be Fooled by a Lull in M&A Activity, More Deals Are on the Way

Fed's Says Banks' Problems Could Grow

The Federal Reserve headquarters in Washington, DC.

The woes of U.S. banks could mount as the economy slows down and with greater access to their confidential information, the Federal Reserve can make sound decisions, Boston Fed President Eric Rosengren said on Friday.

Rosengren is regarded as one of the most dovish members of the Fed, but is not a voting member of the central bank's Federal Open Market Committee this year.

"It is too soon to call whether or not we are in a recession. But regardless of what you call it, it is a period of very slow growth," he told reporters at the seminar.

On the troubles caused by the subprime loan crisis, he said: "We need to see some stabilisation in the housing market before I would be confident that the financial turmoil is over."

"While U.S. banks report detailed information on their balance sheets and their income statements, these reports do not provide sufficient information to allow central banks to really discern how banks are responding to problems," he said in a prepared text.

More from CNBC..

I Survived The Crisis

Never before in history was a financial crisis predicted so early as the current one.

But why were some banks able to see what was happening and react accordingly?

Why did some CEOs and risk managers ignore all the warning signs?

Winners were Goldman Sachs, Credit Suisse, Lehman Brothers while others, such as Citigroup, Merrill Lynch and UBS, just carried on playing the markets until they ran into a brick wall?

Close Management – Successful firms have CEOs with either a risk management or a trading background who have remained involved in day-to-day risk-related decisions. Their risk managers are empowered to take businesses apart and to insist that traders explain their positions and unwind them if necessary.

At Goldman at least 10 people in senior management have at one time or another run its mortgage business. Wilson Ervin, chief risk officer at Credit Suisse, has hands-on experience of product engineering.

Market Mistiming– The biggest write-downs were at firms that were still talking about ramping-up their risk or making acquisitions, when subprime default rates were rising steadily. – Why to catch-up with competitors.

Merrill Lynch, for example, bought First Franklin Financial for $1.3bn in September 2006. A year later (one month before he was ousted as chief executive), in an interview in Sep -07, Stan O’Neal justified the purchase by saying that Merrill had not bought a portfolio of bad loans, but had invested in an origination platform; despite the correction, this was still a good business, he argued. In the same interview he continued to argue that Merrill had not been taking enough risk.

Morgan Stanley when it bought non-prime lender Saxon Capital for $706m just as other banks were bailing out.

In July 2007 Citi’s CEO Chuck Prince famously said that the bank was “still dancing” to the tune of the buyout boom, shortly before investor demand for leveraged loans collapsed.

Market Intelligence – Some firms clearly been better at spotting when the markets turned and therefore better at getting out. – These have unrivalled market intelligence using, for example information from in-house mortgage servicing companies to track market gyrations.

Credit Suisse decided that the market was going the wrong way and took hits to its P&L in November and December 2006. Undoubtedly, additional market intelligence made a difference. Credit Suisse traders were helped by the bank’s ownership of Select Portfolio Servicing, a company which services about 270,000 subprime US residential mortgages. The insight that this provided on volumes and default trends must have given their hedging and trading strategies extra muscle.

Lehman Brothers, too, benefited from its US mortgage service provider (MSP), Aurora Loan Services, which at its height was servicing almost 1.5 million mortgages. (That said, it was not able to time the market so well: it did not move to shut down its American subprime lender BNC Mortgage until August 2007.)

Safety first – How did Goldman avoid big losses? Caution. – Bank simply followed the numbers: the more it had to mark losses in its mortgage book through Q4 2006 and Q1 2007, the more it began to hedge. In Q2 it stopped selling collateralised debt organisations and began closing product warehouses. The bank became increasingly cautious and by early Q3 it finally took the decision to buy protection on the entire mortgage portfolio.

Rise of the trading culture – As the trading businesses grew at every bank, they began to dwarf the classic investment banking operations.

At Deutsche Bank, for example, Q1 2007 figures (ie: prior to the subprime meltdown) revealed sales and trading revenue of €5.1bn, versus origination and advisory revenues of just €798m. Some bankers say that this shift undermined the client relationship-based culture of investment banking and replaced it with a transaction-based culture. Combined with a compensation structure that rewarded virtually unfettered risk taking, a crisis was inevitable.

Human Judgment And Experience – Wall Street is going to have to refocus on relationships with clients, and more importantly, with its own employees. It will have to return to making business decisions based on human judgment and experience, and that is ultimately a good thing for both clients and risk management.”

Soul searching – It is clear that the industry has entered a phase of reflection and adjustment. It is being forced to re-evaluate the way it measures, prices and, most of all, manages risk. Shortly after announcing writedowns, Morgan Stanley said it would be reviewing its risk management procedures.

Rethinking remuneration – Compensation structures tend to be based on longer-term and firm-wide results. – Mr Thain has stated that he will overhaul Merrill Lynch’s compensation structure in an effort to inculcate a sense of bank-wide responsibility and accountability. Bonuses will reflect the firm’s performance first, and then that of the business line, and lastly that of the individual, he says.

But it will be impossible for a single bank to change the system. Any reworking of compensation philosophy will have to be industry-wide to prevent the leaching of senior bankers from low-bonus to high-bonus firms.

Culture – Only time will tell how well banks have prepared for any further market dislocations but one thing is clear. But when investment banks emerge from this latest crisis, they must tackle their cultural problems head-on.

Complete Article from the Banker..

John Thain… The Fixer

To be offered one of the toughest jobs on Wall Street is an opportunity afforded to few; to be offered at two i-banks at the same time is extraordinary.

Citi-group and Merrill Lynch at the end of last year had one man’s name at the top of their short lists: John Thain, Wall Street’s “Mr Fix-it”.

In the end, the former co-president of Goldman Sachs turned down Citi and accepted the role of chairman and chief executive at Merrill.

His rivals say he picked the right job. “Citi still has big problems; Merrill is a simpler story and it is fixable,” said one.

Mr. Thain, who developed a reputation as a fixer at the NYSE, has wasted no time trying to repair the damage at Merrill.

It’s been nearly 70 days since he took on the job and so far he has managed to patch up Merrill’s wounds with more than sticking plaster.

He has tapped into the cash-rich sovereign funds to raise $13 billion in new capital. Now he says “We will not have to go back to the market to raise capital."

Mr. Thain disclosed $15 billion of sub-prime mortgage-related write-downs - the largest quarterly loss since the broker was founded 94 years ago. He accepts there could be more write-offs, but says they are unlikely to be on the same scale.

He has also overhauled risk management, to ensure the same mistakes are never repeated.

He said he wants every part of the bank thinking about its actions, and the likely knock-on effects of other parts of the bank

Now he wants to focus on rebuilding the firm. He is trying to find ways to further exploit growth opportunities in its international wealth-management and banking businesses as well as explore the synergies between them.

“In terms of growth, we will focus our opportunities outside America because that’s where the world’s economy is growing. If you exclude our high-net-worth business, about 60% of our revenues are already generated overseas,” he said.

The plan is to expand wealth-management operations as well as the equities and fixed-income arms further into the Middle East, Russia, India, China and Brazil.

Mr. Fix it is likely to focus on China, but Merrill has to apply for a licence to operate there, a process that it is about to start.

Another area where Thain wants to concentrate is operating as a single firm across the group. The biggest implication of this is how staff would be remunerated?

“Over the last few years Merrill had moved to compensating people more on their individual businesses and I want to move towards paying them on the basis of how well the firm does first and also paying them using equity so they have a longer-term perspective,” he said.

He takes a dispassionate view of the financial meltdown on Wall Street. He said: “We won’t overreact to that, we’ll be prudent in managing our expenses but we want to maintain our strategic direction.”

As credit issues begin to surface on all forms of consumer lending, from auto loans to credit cards and in consumer lending. Thain is not predicting a quick cure; he foresees a wave of lawsuits as people seek compensation for their losses and problems in the capital markets.

Go to Article from Times>>

Further read >> John Thain on His New Job as CEO of Merrill Lynch

If he can manage to steer Merrill back on course in the first half, and if the economy comes right again in the second half, as Fed chairman Ben Bernanke predicts, then he and the bank should be in a good position to sail full steam ahead.

Mr. Mack Faces Share Holder Wrath

This is a response by John Mack for a shareholder query in 2007 AGM

“Do we take a lot of risk? Yes,” he said forcefully, in response to a shareholder who questioned him about Morgan Stanley’s reliance on risky trades and increased debt to finance these positions. “I think this firm has the capacity to take a lot more risk than it has in the past.”

At 2008 AGM, Mr. Mack is unlikely to be so bold.

The CtW Investment Group, a shareholder activist group representing union-sponsored pension funds with about $1.4 trillion, is weighing a campaign aimed at persuading Morgan Stanley investors to withhold their vote for Mr. Mack as chairman. The hope is to persuade Morgan Stanley’s board to appoint an independent chairman.

The proposal does not suggest that Mr. Mack leave the board or resign from his job as chief executive.

In a statement, a spokesman for the board, Mark Lake, said, “We are comfortable with John Mack’s role as both C.E.O. and chairman of Morgan Stanley and also have a strong independent lead director.”

Mr. Mack, still enjoys plenty of support from directors and shareholders, and they are expected to preserve his dual status for now.

Nevertheless, the move strikes a wounding blow to Mr. Mack. And by forcing investors to contemplate the risk measures, it raises awkward questions for the Morgan Stanley board about Mr. Mack’s decision-making, strategy and succession plans.

Chief executives of Wall Street firms that have taken major write-downs have stepped down, but Mr. Mack is the only one who remains in his post.

CtW is also weighing a call to withhold votes for C. Robert Kidder, Morgan Stanley’s lead director, and Howard J. Davies, the former head of the Financial Services Authority, Britain’s top financial regulator.

Both directors were on Morgan Stanley’s audit committee in 2005 when Mr. Mack took over as chairman and chief executive and allowed the top risk officer to report to Ms. Cruz instead of Mr. Mack.

The group has also sent letters to the boards of Merrill Lynch, Citigroup, Bank of America, Washington Mutual and Wachovia questioning the conduct of the audit committees of those financial institutions. Merrill Lynch, Bank of America and Wachovia all have chairmen that also hold the chief executive title.

To date, Mr. Mack has convinced investors as well as his board that the firm’s write-down was the unfortunate but isolated result of a group of traders who made a disastrous bet on the subprime market.

By doing so, Morgan Stanley has argued, they saddled the firm with an illiquid and ultimately worthless position in collateralized debt obligations.

Mr. Mack took full responsibility and asked his board not to pay him a bonus last year. He has also appointed a senior executive, Kenneth M. deRegt, to oversee risk and report to him.

Mr. Mack’s critics contend that it is not so much the faulty subprime trade that should be held against him as it has been a combination of other factors. Those include not only failed deals for Saxon Capital, a mortgage originator, and Goldfish, a credit card company, but more broadly, what they see as his failure to manage the firm’s capital position effectively.

Increased borrowing and an accumulation of risky assets put excessive strain on the firm’s equity position, they note, forcing Morgan Stanley to raise expensive funds from China when the trading losses arose, even though the firm made $2.3 billion in profit last year.

Mr. Patterson representing less then 1% said, “There was a failure of Mr. Mack’s leadership when the board restructured the risk reporting structure,” he said. “Shareholders should review this and they will review this.”

How investors will react remains unclear. While many top Morgan Stanley investors said privately how unhappy they were with Mr. Mack’s performance last year, they have not pushed Morgan Stanley to replace him. Their refrain has been a consistent one: who better is there to succeed him?

In fact, people who have spoken with board members about Mr. Mack say that directors share a similar view. While they too are unhappy with the losses, they see Mr. Mack, who is 63 and has spent 30 years at Morgan Stanley, as the person best placed to lead the firm to recovery.

Some disgruntled investors have begun to discuss names of outside executives who might be not only viable successors to Mr. Mack, but also would lend a degree of independent stature to a board that many investors say has become too beholden to its chairman and chief executive.

Go to Article from New York Times..

$305m For Top 5 At Goldman… Woooh !!

Five senior executives at Goldman Sachs received bonuses totaling $305m with Lloyd Blankfein, chairman and chief executive, Gary Cohn and Jon Winkelried, presidents and chief operating officers, each receiving more than $66.9m.

Blankfein received a bonus of $67.9m, a record for the chief executive of a Wall Street bank, in addition to his salary of $600,000 according to Goldman’s proxy statement.

Cohn and Winkelried each received bonuses of $66.9m. David Viniar, chief financial officer, was awarded a bonus of $56.9m and Edward Forst, chief administrative officer, was paid a bonus of $43.4m.

Mr. Cohn, 47, and Mr. Winkelried, 48, received 40 percent of their compensation in cash and 60 percent in restricted stock and options, Goldman said in latest proxy filing

The filing said: “At the time the committee made compensation decisions, our financial performance was very strong relative to our core competitor group in terms of year-on-year growth in net revenues, net earnings and earnings per share. Based on final 2007 results, we had the highest growth in the group for each of these measures.”

Mr Blankfein's pay, initially disclosed in December, was up from $54m in 2006. Mr Cohn, former co-head of global sales and trading, received $53m in 2006, as did Mr Winkelried, who spent much of his career in Goldman's fixed income trading unit.

Mr Blankfein elevated Mr Winkelried and Mr Cohn to their co-president roles after taking over as chief executive in the summer of 2006.

Goldman's earnings rose 21 per cent to $11.6bn last year after it avoided big subprime mortgage losses, and its pay and benefits bill increased 23 per cent to $20.2bn.

Go to Article from Financial Times»

Would Goldman missed it if any of the top 5 left? Hmmm….Hank Paulson left and they didn’t skip. Looks like Wall Street is all about getting what you can and making those around you think that you earned it because without you they wouldn’t have made anything.

Executives who got $XXX millions need to do something with it. In theory, they could hire a manager for their investing, that they will be severely “distracted” from their paid job to invest in their own pet projects.

J.P. Morgan Still Biggest Hedge Fund

Assets at the largest US hedge funds grew by more than a third last year, even though three of the 10 largest funds lost a combined $24bn in assets. According to the biannual survey by Absolute Return magazine.

JPMorgan retained its position as the largest US hedge fund manager, with $44.7bn under management at yearend, even though it lost $8.5bn in assets over the course of the year. The losses were mainly due to redemptions and losses from a statistical arbitrage fund.

JP Morgan has a number of hedge funds under its management, including JP Morgan Asset Management and Highbridge Capital Management

The biggest loser of 2007 was Goldman Sachs Asset Management, which fell to seventh place from second as assets dropped 27% in the second half to end the year at $29.20 billion. D.E. Shaw fell to sixth place, from third.

Goldman Sachs also lost heavily as a result of problems at quant funds that fell victim to heightened market volatility.

The second-and third-placed firms were Bridgewater Associates and Farallon Capital Management, both of which now manage $36bn in assets.

Renaissance Technologies, which took a hit in its quant funds, recovered to rise to fourth place with $34bn.

Och Ziff Capital Management, which went public last year, rose to fifth place with $33.2bn.

Not surprisingly, the biggest winner in terms of asset growth last year was Paulson and Company, which entered the top 10 for the first time after its assets soared 306 per cent last year to $29bn as a result of its early and correct bet against the US subprime mortgage sector.

CNNMoney.com

Why Did I-Banks Fail In Subprime Crisis

There is a clear difference between big I-banks that recorded massive losses stemming from the subprime mortgage-lending crisis, and those firms that have been able to avoid this calamity. – Risk Controls

On Wall Street, it is true that you have to take risks to make money, but excessive risk-taking can also turn into financial dynamite.

The recent market crisis has provided a real-life test of risk controls. Unfortunately, many firms have scored failing grades.

As the level of sophisticated trading products expands and capital markets continue to become more complex and interconnected. This growing trend, coupled with the need to ensure a healthy balance in risk taking, requires strong firm-wide risk controls.

Examples of firms with strong risk-control cultures include Goldman Sachs, Lehman Brothers and Credit Suisse. They were able to minimize their financial exposure to this subprime market debacle.

The common characteristics of these risk-focused firms include board participation in setting corporate risk appetite and tolerance, committee participation and active involvement in risk-related questions and concerns.

These firms require adherence to company-stated risk-management policies, procedures and controls. Such risk policies and controls are also frequently updated to reflect changes within the companies and to insure that policies are not easily circumvented.

These firms understand that effective risk management requires that risks be evaluated and understood prior to deciding whether to take them.

Risk managers at these firms are not viewed as traffic cops who are asked only to show up at the accident scene. Their risk concerns are never just dismissed.

Risk controls in such firms are built on the principle that risk management can provide valuable insights prior to taking on risk, and accurate monitoring once bets have been taken.

Firms that have not been able to fully understand the risks that they are taking on have experienced devastating financial losses. Many of these I-banks (e.g., Merrill Lynch, Citicorp, UBS AG, Bear Stearns and Morgan Stanley) shared a common characteristic--they had weak or lax risk controls.

Many of these firms entered into the mortgage derivatives business without a full understanding of the level of risk actually being taken, or if they did understand it, they simply ignored the risk in the pursuit of lucrative bonuses. For such firms, these actions were a deliberate failure to adequately control risk--from the board level on down.

Until these investment banks fix these fundamental risk-control problems, including the lack of strong board and risk-management oversight, many remain vulnerable to future losses. Several of these firms have already begun to overhaul their risk-management functions, but this is only a first step.

As more information about the level and types of control failures come to light, we can reasonably expect that shareholder and regulatory pressure will also help to make sure that these lax firms move swiftly to correct their control deficiencies.

Go to Article from Forbes »

Merrill to Shut Down Subprime Lending Unit

Merrill Lynch plans to wind down most of its First Franklin subprime mortgage lending unit, CNBC reported.

The move could result in the elimination of 400 to 500 jobs starting next week, CNBC said.

Merrill would reportedly keep First Franklin’s loan servicing business, which could perform well in the current mortgage and housing markets.

Merrill, which ceased originating subprime mortgages on December 28, on Monday said it was “evaluating continued involvement in this market.”

Merrill, the nation’s largest brokerage house, bought First Franklin from National City, a bank based in Cleveland, in December 2006 for $1.3 billion to expand in a business that had generated big profits for rivals like Lehman Brothers.

The deal closed just before the subprime mortgage market began to collapse.

On Monday, Merrill Lynch disclosed in its 10-K annual report that last year it cut back on subprime home lending, mortgage purchasing and extending credit facilities to other lenders.

Merrill reported mortgage-related losses and write-downs totaling $24.4 billion in 2007. The annual report shows that Merrill still has significant exposure to risky home loans and related assets.

Full story At:

http://www.nytimes.com/reuters/business/business-merrilllynch.html?_r=1&dlbk&oref=slogin

Ackermann Sees More Subprime Pain

Deutsche Bank managed subprime mess that has swamped its rivals. Now it’s chief executive says that he expects further writedowns at other banks.

“One must expect that the next six to nine months will remain difficult for the financial markets,” Mr. Ackermann said in a speech to entrepreneurs in Frankfurt, according to Bloomberg News. Mr. Ackermann said he expects the declining value of both asset-backed securities and leveraged loans as contributors to these write-downs.

Earlier this month, the bank said that it did not suffer any subprime-related losses in the fourth quarter of 2007, though market turbulence did affect its overall profit and it could not rule out future write-downs of other loans.

Deutsche Bank reported a $3.1 billion write-down in its third quarter tied to subprime-backed investments. It currently holds about $36 billion in leveraged loans.

Full Story at:

http://www.bloomberg.com/apps/news?pid=20601087&sid=assbtSiemE1Q&dlbk

When Bankers Fear to Act

In times of market crisis, the safest course for any one market participant may be the riskiest course for the entire market.

In past financial crises, it has fallen to someone — regulators, investment banks or even a single banker — to organize collective action and avert disaster.

Such moves involved persuading people to take steps that seemed to go against their own private interests. Buy stocks when everyone wants to sell? Lend money to a bank in danger of failing, when your own bank might need the money tomorrow? It goes against the basic principle of markets, that your job is to look out for yourself.

In 1907, Morgan demanded that presidents of New York trust companies — then a type of second-class bank — act together to save one of their own, the Trust Company of America, from a bank run.

Morgan, then the dominant figure in American finance, called the presidents to a Saturday meeting in his library — and locked the door. Not until dawn Sunday did he let them out, after they had committed the needed cash.

In 1987, on Tuesday, Oct. 20, it appeared that the crash of the previous day was going to get worse. Market makers had little capital and less appetite to risk it, and one by one trading in the shares of major companies was halted because there were no buyers.

That changed when two major brokerage firms — Goldman Sachs and Salomon Brothers — sent word to the New York Stock Exchange floor that they would buy any stock in the Standard & Poor’s 500 if their orders were needed to keep the shares trading. Just after that word was sent, the market turned around.

In 1998, when a possible hedge fund failure seemed to threaten the financial system, it was the Federal Reserve Bank of New York that called in all the major financial institutions and organized a bailout.

But efforts to organize concerted action this time have been limited. Treasury Secretary Henry M. Paulson Jr. has sought to get agreements in two areas — renegotiating mortgages and putting together a fund to deal with structured investment vehicles.

In part, that may reflect the slow realization of what is at stake. For many months, we called it the subprime mortgage crisis, because that was where the problem first became apparent. But that label is far too narrow, and serves to obscure what is at stake.

“The principal cause for concern today is the paralysis of the credit markets,” said Martin Feldstein, a Harvard economist.

The latest area of crisis is one that Morgan would have recognized in 1907. The major Wall Street houses refused to commit capital to the auction-rate market.Now many auctions are failing.

When the crisis storms gathered in late 2007, much of the problem was with complicated securities — collateralized debt obligations. The big banks were unable or unwilling to either buy the securities or find customers to buy them.That lack of action has damaged the reputation of each of the houses. Bosses are no longer are sure just how adequate their capital is, and they are afraid to commit it while the financial crisis swirls around them.
It is not clear what the Fed or the Treasury could, or should, do now. The players can no longer be gathered into a single room, and they are regulated in different countries around the world, if they are regulated at all. Things are far more difficult because many of these markets are unregulated, making it difficult to gauge who is at risk and for how much.

But it is hard to see this ending until something is done to, in Mr. Feldstein’s words, assure “that necessary extension of credit.” Lowering interest rates will not, by itself, do that so long as the banks and investors are too scared to lend money at any rate.

In their book on the Panic of 1907, published last year before the crisis began, Mr. Bruner and Mr. Carr hailed Morgan’s actions, as well as the Fed’s 1998 move to salvage the hedge fund. But they warned, presciently as it turned out, that the current environment might hamper similar efforts in a new crisis.

“In a globally complex financial system, will such collective action be possible if the crisis is triggered beyond the reach of any of today’s regulators?” they asked.

So far, it appears the answer is no.

Go to Article from The New York Times »

Bond Insurers Deepen Sub-Prime Crisis

The sub-prime market is focused on providing home loans to those with limited or poor credit histories.

Many of these mortgages were converted into financial instruments and sold on to investors including banks.

But a series of interest rate rises over the past two years has meant many sub-prime borrowers could no longer afford their monthly payments, causing them to default.

This led to a steep fall in the value of investments linked to sub-prime loans and has caused many banks to report massive losses.

Bond Insurers (like Ambac, MBIA) sells policies that protect banks against losses on investments backed by sub-prime mortgages. To do that it relies on a strong credit rating.

But analysts are concerned that the insurers will not be able to pay out.

Credit rating agencies Moody's and Standard & Poor's have threatened to downgrade the firms on fears they do not have the ability to pay claims on mortgage-backed securities that soured as a result of the credit crisis.

A poor rating would force the banks to acknowledge a drop in the market value of bonds insured by the guarantors.

Some fear that if bond insurers like Ambac and MBIA were stripped of their 'AAA' rating, that could spark the next wave of writedowns at the nation's largest financial firms.

To date, major financial firms have endured losses totaling more than $100 billion as a result of bad bets on mortgage securities and some analysts are warning that that number could grow.

Right now, the credit rating agency estimates that about 20 different financial institutions have about $120 billion worth of credit default swaps on asset-backed collateralized debt obligations guaranteed with different bond insurers.

Moody's said that financial firms may have to ante up as much as $30 billion in reserves to offset worsening conditions related to the bond insurance industry.

John Varley Raises Dividend, In Tough Environment

Barclays, Britain’s third-biggest bank, reported a 2007 pretax profit of 7.08 billion pounds, down from 7.14 billion in 2006 but just above an average forecast of 7.05 billion from Reuters Estimates. Underlying profits, which exclude sales of businesses, rose 3 percent. The results included a £1.6b ($3.1 billion) writedown on the value of risky assets.

Barclays’ shares have fallen 40% in the past year on uncertainty over its exposure to US sub-prime mortgages following the US housing slowdown.

Barclays increased its dividend 9.7% to 34 pence from the 31 pence paid on 2006 earnings. The rise represented a slight slowdown from the 10% dividend increase a year ago.

Profits at Barclays Capital, its investment bank arm, rose 5 percent to a record 2.34 billion pounds.

Within its divisions, Barclays said that profits at its UK retail business grew 9pc to £1.28bn, while its commerical bank saw profits rise 5pc to £1.3bn. Profits at its international retail business, excluding its South African arm Absa, reached £246m.

Earnings at Barclaycard jumped 18pc to £540m.

"Barclays delivered a resilient performance in 2007, with profits broadly in line with the record prior year results,"" said chief executive John Varley.

Chief Financial Officer Chris Lucas said the final net write-down of £1.64 billion had three components: £1.4 billion on super-senior exposures: £800 million against other credit exposures; and a positive effect of £600 million, as the same spread that caused write-downs caused a "write up" of its own credit.

Altogether, Barclays's impairment charges rose 30% to £2.8 billion. The figure includes the credit-market-related write-downs, loan-loss provisions and credit-card impairments.

Looking ahead the firm Mr. Varley said he expected ""significant opportunities for growth"".

John Varley admitted that he was “disappointed not to acquire” ABN Amro last year. Buying the Dutch bank would roughly doubled its market capitalization, becoming one of the world’s largest banks.

Mr. Varley went on say that failing to win ABN “hasn’t affected our strategy”. However not? It can be argued that the merger would have merely accelerated Barclays’ own growth plans, and that the UK bank was being opportunistic

For 2004 to 2007, the target was in the range of £6.5 billion to £7 billion, or a compound annual growth rate of 10% to 13%. It outperformed both, with an £8.3 billion economic profit and a compound annual growth rate of 16%.

In the next three years, Barclays wants compound annual growth of 5%-10%, to a cumulative total economic profit of between £9.3 billion and £10.6 billion by 2011.

Asked about the modest target for the next three years, Mr. Varley said it reflects the increased cost of doing business: "The cost of capital has risen over the last 12 months," risks have changed and the environment is less benign.

JP Morgan Takes Stakes In Asia-Pacific

JP Morgan Chase is launching a private equity unit in the Asia-Pacific region with its own capital of $750 million and client funds.

JPMorgan is expanding its Asian operations by absorbing a Hong Kong-based firm called TVG Capital Partners.

TVG is a private-equity investment firm with offices in Hong Kong; Bangalore, India; and Sydney, Australia. Its Web site says it manages more than $700 million in capital. TVG had focused on the technology, communications and media sectors.

Varun Bery and John Troy, co-founders of TVG Capital Partners, who will join JPMorgan as managing directors, will head the expansion. The 10-person team is also joining from TVG.

Varun Bery was a telecom banker for Credit Suisse Group and a consultant for McKinsey & Co. John Troy worked at the Asian Infrastructure Fund since its inception in 1994 and was previously at several global telecom firms.

The team from TVG will be the Asian arm of JP Morgan's Private Equity Principal Investments business, which is headed by Bob Case in New York.

JP Morgan will take stakes in consumer, retail, industrial, health care, technology and natural resources in businesses in Asia-Pacific region, where buyouts are notoriously difficult.

JPMorgan said it would allow its corporate and financial sponsor clients to put their own capital together with that of the bank to "co-invest" in the opportunities it finds.

JP Morgan's investments are minority stakes of between $75m and $100m.

JPMorgan has invested in Asian private equity through its units One Equity Partners and Principal Investment Management.

Lets look at Good things in this

The move demonstrates JP Morgan's ability to finance new investments at a time when many of its rivals are seeking sovereign wealth funds and other outside investors to help shore up their balance sheets following massive losses related to the turmoil in credit markets.

It also indicates JP Morgan's desire to catch up with investment banks such as Morgan Stanley and Goldman Sachs that were quicker to commit a significant portion of their own money to Asia.

JP Morgan decision to hire TVG staff to run the fund will get new operation up and running faster than if it built a team from scratch. TVG is bringing in 10 people, and J.P. Morgan expects to add to that quickly.

The new fund will evaluate investments across many sectors, but has avoided the real estate and financial institutions.

IMF has forecasted that Asia-Pacific economic growth may outpace the USA during the current year. The developing Asian economies have been driving corporate profits higher during the recent years, with the annual growth of about 8.6 percent. In the USA the index could only reach 1.5 percent.

Difficult listing conditions in Asia due credit squeeze, may open new doors for principal investments by banks because many in Asia's huge pool are privately held or family companies that will not go ahead with IPOs amid such stock market volatility.

Companies faced with difficult market conditions are looking increasingly to private-equity funds as stakeholders. Recent declines in stock prices and a fallback in markets have led to more favorable investment conditions for private equity funds.

Buffett Try’s To Rescue Wall Street….Really!!

Warren E. Buffett offered to help three insurance companies whose plunging fortunes have become a threat to the financial system.

The companies are MBIA, the Ambac Financial Group and the Financial Guaranty Insurance Company. The three companies are struggling to maintain their AAA ratings after writedowns on the value of mortgage guarantees.

Mr. Buffett said he would stand behind, or reinsure, policies that the three companies had written on $800 billion of municipal bonds.

For years, bond insurers mainly provided credit-enhancement for municipalities in exchange for an upfront fee. A bond insurer would take a bond with a midling investment grade rating – like single-A, -- and offer to pay investors what they were due (interest and principal payments), if the issuer defaulted. These insurers had sufficient assets and expertise to garner triple-A ratings, so the issuers could pay less interest on their bonds than they would have without the backing.

Few bond issuers have gotten greedy in recent years, by insuring subprime-linked securities. Those bad bets now threaten their credit ratings and their future. The downgrade of a bond insurer would force some insurers to sell any municipal debt that didn't have an underlying AAA rating.

Speaking on CNBC, Buffett said his holding company, Berkshire Hathaway, is willing to commit $5 billion to reinsure the municipal bonds in exchange for a fee equal to 1.5 times the remaining unearned premium over the life of the bonds. The deal, he added, would ensure that the bonds would sell at a fair price. Currently, he said, the bonds sell at significant discounts because of concerns about the financial health of the bond insurers.

The bond insurers that lend their AAA rating to municipal debt, If reinsured by AAA rated Berkshire, the municipalities would also retain the top rating.

The insurers were considered unlikely to agree to Mr. Buffett’s stringent terms. Ambac, in a statement, said the offer would not benefit the company.
Mr. Dinallo, who regulates MBIA and F.G.I.C., has asked large banks like Citigroup, Merrill Lynch and UBS, many of which hold insurance policies from the guarantors, to devise a plan to shore up the insurers. The officials are discussing investing in the insurers or providing them with lines of credit to cover future losses and restore confidence in them. (Ambac is regulated by Wisconsin regulators.)

My Views

Take a closer look and you will see that the billionaire investor is prepared to provide an extra safety net only for insurance policies covering municipal bonds — debt issued by cities, sewer authorities and the like, which rarely default anyway. His offer doesn’t extend to collateralized debt obligations and other risky securities linked to subprime mortgages whose value has plunged in recent months.

Buffett is effectively offering the companies to give up future profits, insurers make on their traditional business in order to free up capital to deal with the situation. — “It does not make sense to give up what is the good part of your business.”

Buffett is trying to be opportunistic — Buffett is using his higher credit rating to extract value for his shareholders — it seemed a better deal for Berkshire Hathaway than for the troubled firms that might need his help.

This offer may force banks to come to the table as fast as possible and probably do it on better terms than, what Mr. Buffett is offering.

Credit Suisse Beats UBS For First Time In Decade

I hope you dont have to put lot of efforts to know who heads what?

The Credit Suisse Group is earning more than UBS for the first time in almost a decade after Chief Executive Officer Brady Dougan, age 48,avoided the write-downs that forced UBS to report the biggest-ever quarterly loss by a bank.

Credit Suisse Group, Switzerland's second-biggest bank, said fourth-quarter profit fell 72 percent on lower earnings at the securities unit after write-downs of 1.3 billion Swiss francs ($1.2 billion) on debt and leveraged loans. That missed the 1.43 billion-franc median estimate of 11 analysts surveyed by Bloomberg.

UBS, the world's biggest wealth manager, said on Jan. 30 it had a net loss of 4.4 billion francs in 2007. UBS, Switzerland's biggest bank marked down $14 billion on securities infected by U.S. subprime mortgages.

Managers at Credit Suisse's SPS mortgage-servicing unit alerted the executive board more than a year ago to concerns about subprime assets. By the end of 2006, the company had originated about 40 percent fewer subprime mortgages than in 2005, according to Dougan.

``The hardest thing in all of these is not just seeing the issue but taking action,'' Dougan, told business leaders in Zurich on Feb. 5. ``It's always very difficult to say no.''

Brady Dougan, a former derivatives trader who became Credit Suisse’s chief executive in May after making investment banking the company’s most profitable unit, scaled back debt holdings before the slump led to more than $145 billion in write-downs and loan losses at the world’s biggest banks.

The company got 54 percent of 2006 profit from operations before taxes from the investment-banking unit, which Dougan ran for three years before becoming CEO in May.

Credit Suisse said it is ``well-capitalized and conservatively funded'' and expects ``continuing turmoil in the credit markets'' in the short term.

``I'm confident our 2008 performance will be strong relative to the industry,'' Dougan, 48, said. ``The markets today are full of uncertainty.''

On other hand, Marcel Rohner, age 43, was named UBS's CEO in July has turned to sovereign funds to shore up its finances. The Swiss bank will seek shareholders' approval on Feb. 27 to sell 13 billion francs in bonds that will convert to shares to investors in Singapore and the Middle East.

Credit Suisse's net third-quarter debt write-downs amounted to 2.2 billion francs. The bank, which reported a profit on subprime, said in November it had ``de minimis'' holdings left. By contrast, UBS still held $29 billion of subprime-linked assets at the end of November. Rohner, and Chairman Marcel Ospel told investors in December the positions were created ``by a small group of people in one team.''

Credit Suisse's investment bank may be more resilient as demand for trading and financing slows. It spent 68 cents of every dollar of revenue in the first half of 2007, compared with UBS's 71 percent cost-to-income ratio.

Rohner has cut 1,500 jobs at UBS's securities division since taking over direct control in October. Dougan, who ran the unit at Credit Suisse for three years, is cutting about 500 jobs.

Credit Suisse is still behind in managing money for wealthy clients, attracting 38.2 billion francs in net new money in the first nine months, compared with UBS's 120.2 billion francs. The company plans to hire 1,000 more advisers through 2010 and is investing in the U.S., Singapore and Hong Kong.

My Views

Dougan is doing an excellent job, certainly better than his competitors. Congrats, finally.

UBS's investment bank is suffering a greater loss, against a backdrop of greatly increased headcount and management departures.

Credit Suisse has already pushed ahead of its large rival in terms of I–banking. Now Credit Suisse should concentrate on private banking and institutional asset management as I – banking is so volatile and it goes rotten every four years or so.

At a time when rivals like UBS are seeking to raise capital to plug holes in their balance sheets, Credit Suisse said it aimed to increase its cash dividend.

By the way did you get your answer - Who among the both looks like a person, who beat after 10 years .. Let me give a tip..Look at that smile..Hmmmm ?

Towards Left is Brady Dougan (CS) - Smile

Towards Rights is Marcel Rohner(UBS - Worried

The Most Outspoken Analyst on the Street

That woman in top you see is Meredith Whitney, a banking analyst for CIBC World Markets. She is making a name for straight talk amid the credit crisis. In late October of last year, Whitney predicted that Citigroup would have to sell assets or cut its dividend. She also downgraded the stock to essentially a "sell." That report peeled $15 billion off Citi's market value in one day and, some say, helped usher then CEO Chuck Prince into an unceremonious retirement. On Jan. 15, Citi slashed its dividend by 41%. On Feb. 6 she downgraded Goldman Sachs (GS) even though she's a big fan. Whitney was expecting losses in the following week when major European banks report earnings.

Now, Ms. Whitney’s advice is taken much more seriously — which is why you’ll find her most recent predictions in the pages of Business Magazines. She recently spoke with Maria Bartiromo about the bumpy road ahead for banks.

Amid the deepening credit crisis, Citi will not be the only bank cutting dividends on the heels of fourth quarter losses, Ms. Whitney told Ms. Bartiromo.

Wachovia and Bank of America, which recently resorted to another round of capital raises — $3.5 billion and $13 billion, respectively — are especially strong candidates for dividend cuts, she noted. “At certain point people might start to think, well, maybe it will simply be cheaper to cut our dividend,” she said.

If such predictions prove correct, Wachovia and Bank of America shareholders will hardly be alone in their misery, Ms. Whitney added. “You can’t take anyone off the table because the loss curves have accelerated at such a pace from the third quarter to the fourth quarter that people’s earning are going to be in jeopardy this year.”

Ms. Whitney also explained her recent downgrade of Goldman Sachs, which until now was a star performer among banks weathering the credit crisis.

“[Goldman shares are] going to probably do mid-teens [return on equity], and so the comedown is going to be significant for investors, and they may not choose to pay the premium they paid last year for the stock,” she explained. “Goldman will look more like its peers this year, and as a result I think it’ll trade more like its peers.”

The upside? The current crisis is a buyers’ market in the making.

“There are going to be great buying opportunities,” she noted. “Any stock you love you can buy this year at a much better bargain.”

Armed with a history degree from Brown, Whitney came to research 16 years ago when Wall Street was the most competitive place she could find to work. Hedge fund manager Steve Eisman, Whitney's first boss at Oppenheimer, said she did not know a thing about analysis but learned fast.

Now clients like hedge and mutual fund managers praise Whitney for coolly dissecting complicated financial statements and having the courage to stray from Wall Street's pack.

Whitney has a knack for staying in touch and delights people with an ability to laugh at herself and enjoy a party. Former boss Steve Eisman helped celebrate Whitney's marriage to Layfield, nearly three years ago, and remembers the wedding as "one of the most fun ever." He also said: "I've never felt so small. Those people were huge."

Ackermann Handles Subprime

Deutsche Bank AG, Germany's biggest bank, fourth-quarter profit fell 48% on lower revenue from trading bonds and higher compensation costs.

Net income declined to 953 million Euros ($1.39 billion), or 1.93 Euros a share, from 1.84 billion Euros, or 3.56 Euros, a year earlier. That beat the 923 million-Euro a median estimate of 12 analysts surveyed by Bloomberg.

For all of 2007, Deutsche Bank earned a profit of 6.5bn euros ($9.4bn), which is up 7% compared with 2006.

Net revenues for the fourth quarter were EUR 7.3 billion, up 2% versus the fourth quarter 2006.

"I am pleased to report robust earnings for the fourth quarter, which concludes one of our best years ever and a year of solid performance in challenging times," chief executive Josef Ackermann said. "We put up a good fight."

The investment banking division, which is the motor of the group's business, posted a 57% decline in pre-tax profit to 447m euros in the final quarter, due to sagging demand for debt products.

Deutsche Bank said it didn't take any write-downs related to subprime or other mortgage exposure in the quarter. And in its leveraged-finance operations, which had significant write-downs in the third quarter, the latest charges were kept below 50 million euros.

Dr Ackermann said Deutsche Bank's risk management policies helped it to weather the wild fluctuations in financial markets.

Last summer the bank made a bet that the markets would not bounce back after the collapse of the subprime housing market.

Deutsche Bank said it acted swiftly, reducing its positions in asset-backed securities and collateralised debt obligations

Ackermann is upbeat about 2008, He reiterated its full-year pretax profit target of 8.4 billion Euros, excluding one-time costs and charges, and plans to raise the dividend by 13% to 4.50 Euros a share. Analysts say bank may miss the profit goal because of slowdown in debt markets.

Compared to the losses taken by Citigroup, Merrill Lynch and UBS, Deutsche Bank has dodged the worst of the sub-prime mortgage crash. So no further write-downs, at least for the time being!!

My worries

My worry is that they're too geared to the fixed-income market. So even though they've been good at avoiding writedowns, it's very hard to replace the business they were doing last year.

How much was skill, and how much was luck? Ackermann says Deutsche Bank strategists last year recognized that the U.S. housing market was overheated and unwound their exposure. However the bank couldn't avoid some losses, writing off $3.2 billion in the last quarter. And in the most recent quarter, it wrote off about $74 million related to its leveraged finance business.

Goldman – Got Fired

Feb 7, 2008 - The Massachusetts state pension fund has fired Goldman, terminating a $1.2 billion contract, dissatisfied with Goldman's performance and changes in senior management.

The pension fund was especially unhappy with way the new group would be run, after it learnt that Robert C. Jones, a senior money manager, would give up daily investment duties, replaced by Mark Carhart, who came from the hedge fund side.

Mr. Carhart runs Goldman's Global Alpha Fund, which lost about 40% last year. In spite of the dismal performance of his hedge fund, Goldman Sachs’ Mark Carhart is getting a promotion. But that promotion is getting a rude welcome from an important client.

The personnel changes involve the merging of Goldman's quantitative equities group, whose head Robert Jones managed the pension fund's money, with its quantitative strategies group, which was led by Mark Carhart and Ray Iwanowski and invested more in alternative assets.

“It all comes down to confidence in the managers,” Stan Mavromates, chief investment officer of the pension fund, said at a meeting yesterday. “They are having significant management changes. We feel very uncomfortable with those changes.”

At the same time, performance was lackluster, with Goldman returning only 2.86% for the pension fund's accounts while the benchmark Standard & Poor's 500 index (excluding tobacco) gained 5.29% last year.

Massachusetts temporarily transferred money to State Street Corp's State Street Global Advisors unit, which will invest temporarily in a passive fund that tracks the index until it completes a review of its domestic equity allocation.

Late last year the pension fund took back $1.5 billion from money managers Boston Co and Wellington Management Co amid poor returns.

Lehman Changes Its Head of Fixed Income – Third Time Since 2005

Feb 6, 2008 – Lehman’s global head of fixed income, Roger Nagioff, 43, is retiring from the I-Bank after just eight months in to the job. He joined Lehman in 1997.

In a statement Mr. Fuld CEO said: ``While we are deeply disappointed that Roger is retiring, we understand and respect his desire to spend more time with his family and pursue other interests.''

Mr. Nagioff will be replaced by Andrew Morton, co-chief operating officer of fixed income. As part of his promotion, Mr. Morton will join the firm’s executive committee. Mr. Morton, 46, joined Lehman in 1993. Before that he was a leading academic expert on interest rate modeling.

This is the third time since 2005 that Lehman has replaced its head of fixed income. Mr. Nagioff replaced Michael Gelband, who left Lehman last year to pursue other interests. In 2005, Gelband took over from Herbert McDade, who moved to run equities.

When he took over last year from Michael Gelband, who left the bank, Mr Nagioff was charged with speeding up revenue growth and further diversifying Lehman's business outside of the US. Mr Morton will have the same objectives.

In 2007, Lehman's revenue from fixed-income dropped 29% to $5.98 billion from $8.45 billion in 2006 as the firm suffered a decline in the value of mortgage-backed securities. Goldman Sachs's fixed-income sales rose 13 percent to $16.2 billion, while Morgan Stanley's revenue in fixed income fell 93 percent to $650 million from $9.29 billion.

Fixed income remains Lehman's biggest business in spite of the investment bank's expansion in equities and other areas.

MSFT-YHOO: A Look at the Advisers

Feb 5, 2008 - Morgan Stanley and alternatives investor The Blackstone Group were picked up by Microsoft to advise on $44.6bn bid for Internet search provider Yahoo! This would be the largest technology takeover in history.

Neither Morgan Stanley nor Blackstone had done much deal-advisory business with Microsoft before. In fact, out of Microsoft’s five biggest deals, only one firm advised the company more than once: Goldman Sachs. The I-Bank advised Microsoft on its failed bid for Yahoo last year.

But this time, Goldman is representing Yahoo in its potential defense, along with Lehman Brothers. Goldman previously advised Yahoo in its biggest-ever deal, the $6.62 billion purchase of Broadcast.com.

Morgan Stanley, which suffered losses of $10.6bn from the credit crunch and collapse of subprime mortgages in America, is expecting $150m if Microsoft is successful. Leading the Morgan Stanley team is global head of mergers Paul Taubman, a media and telecommunications specialist who advised media group Time Warner on its ill-fated $164 billion merger with Internet services provider America Online at the height of 2000 dotcom boom.

Blackstone, which began as a mergers advisory shop, is lead banker on the deal, Jill Greenthal, advised Yahoo in her previous job at Credit Suisse, for $1.45 billion purchase of Overture Services in 2003.

Morgan Stanley is well versed in tech deal-making; last year, it and Credit Suisse essentially tied for second place in Dealogic’s league tables measuring advisory work on global tech mergers; each had a market share of nearly 15 percent by volume.

However in M&A advisory, it's always good to be on the sell side, because you're guaranteed your fee: if Microsoft fails to win Yahoo for whatever reason, Morgan Stanley and Blackstone are likely to go home largely empty-handed, while Goldman and Lehman will still be paid.

The proposed deal will be one of the biggest for years, although analysts warned it was unlikely to spark a rush of M&A activity.