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.

Merrill Execs Get Stock, Not Cash, For '07

Feb 1, 2008 - Merrill Lynch & Co. is offering stock-option grants to some high ranking officials instead of bonuses for 2007. The Management in its SEC filing says these retention options "promote the continuity of the management team as they continue to navigate through challenging market conditions in 2008."

Greg Fleming, president and COO, received 1.2 million retention stock options. Robert McCann, vice-chairman and president of global wealth management was awarded 971,346 special options and Rosemary Berkery, vice-chairman and general counsel, received 593,600.

One third of the retention options will become exercisable on or after January 28, 2010, with the remaining exercisable two years from now only if specified stock price targets are achieved. Half, if the stock closes at an average of $80 a share over any 15-day trading period, and other half if the stock closes at an average of $100 a share over any 15-day trading period.

John Thain, who stepped in as CEO in December in the wake of Mr. O'Neal's departure, received a nice initial pay package when he agreed to take over as CEO in November. It's valued at anywhere from about $50 million to as much as $120 million if Merrill's stock goes up $40 from where it was when he was hired. On NYSE yesterday, Merrill shares fell $1.38 to $56.09.

John Thain in Jan-08 has promised to overhaul the bank’s bonus system following record Wall Street pay-outs, despite huge losses.

Merrill’s executive chairman said one of his first initiatives would be to rework the bank’s pay system. “We are going to move toward a compensation system based more on how the whole company did, then on how the individual business did, then how the individual did.”

But Mr. Thain also said “It’s basically an impossible situation. Most of our businesses had very good or record years. The huge losses were created by a small number of people.”

I question the reasoning behind these payments.

• Does Merrill really have to keep them?
• How is Merrill going to balance with individual performers VS performance of company as a whole? Ultimately it comes down to the simple fact that financial system rewards people for taking extravagant risks.
• It looks like Fleming won't be receiving a bonus, that’s an encouraging sign but what about huge package former CEO Stan O'Neal left with? Merrill Lynch, paid $100 million in the last two years as a result of the massive profits the bank made during the subprime housing bubble. When the bubble burst, Merrill Lynch suffered massive losses which eliminated the earlier gains. O'Neal, however, won't be giving any money back.
• Merrill Lynch chief executive officer John Thain wants to change compensation system. The problem is he trying to close the stable door after the horse has bolted?
• Further more, stock options give executives an incentive to strive for great results. But they do not adequately punish bad results because, if the share price falls by a little, the value of the option is zero; but if the share price falls a lot the value is still zero.
• Some companies will no doubt argue that they have to offer extravagant pay packages to attract top management talent. That's fine, but it underscores Shareholders say and a need for government intervention.