Sunday, March 22, 2009

Pandit the Bandit

I've received mixed responses on my Pandit post, especially vis-a-vis John Thain.

I want to emphasize that I am not saying John Thain is a great guy. In fact, like many banking CEO's, he might be on a different plane of the universe when it comes to his personal (not legal) values of right and wrong. All that I am saying is that he has done the best for his shareholders of the CEO's who have been in burning banks, far better than Cayne, Fuld, or now, Pandit, whose respective performance numbers are -100%, -100%, - 95%.

Thain, unlike all these other CEO's who were in a constant state of denial, saw the writing on the wall after he was brought in to fix Stan O'Neal's mess in late 2007 and he prevented Merrill Lynch from going bankrupt thereby preventing a total wipe out of whatever brand equity and human capital it had left, saving ML shareholders, creditors, and employees in the process. What other course of action should he have taken? He took the best one available for ML. His fiduciary responsibility was to his bondholders, shareholders, employees, and customers, ML's institutional strengths were in areas that BOFA has always been weak in, e.g. Bank of America has always wanted a real brokerage arm and a real commodities operation, and he knew that it was his best bet to save the firm.

Yes, Thain spent $1.2 MM to renovate his office, two conference rooms, and a reception area in December 2007, after he was named CEO of ML from his then current post running the NYSE. Of that $1.2MM, $800,000 went to the designer, and $400,000 for the contents. In hindsight, he said it was not a good thing to do, he apologized and reimbursed the firm for the expenses. It was clearly not the greatest idea in world. But better than flushing 95% of your firms value into the toilet.

Furthermore, recent events emphasize my previous post. Pandit just announced he is spending $10 MM renovating his office while his stock is on the McDonald's dollar menu. So my point stands. Thain has had the best performance of any of the banking CEO's whose house is on fire. Pandit needs to be fired as he obviously lacks even the most basic common sense and foresight. How about learning from Thain's mistake?

I have been so aghast and so appalled at the recent behavior of many captains of industry, that I am building a new website, Greediest.com, that will contain all the gory details on this incredibly callous, often illicit, and generally distasteful behavior. It will have an action reaction pair:


Payouts
Bailouts
Golden Parachutes
Job Losses

and

Arrests
Convictions
Bankruptcies
Lawsuits

Stay tuned, it should be interesting.

Saturday, March 21, 2009

Bonuses bonuses bonuses

Yes, the AIG bonuses are atrocious

Yes, many of those executives do not deserve them

Unfortunately, passing this 90% bonus tax bill into law in order to recoup the bonus payment would be creating an unconstitutional law.

First off, the proposed law is an ex post facto law, a law passed after an act has been committed that acts retroactively to change the legal consequences of the act committed.

Second off, the federal government is prohibited by the Constitution from taxing property, and can only tax increases in wealth (wages, bonuses, dividends, etc..). The accession already occurred, and since ex post facto laws are illegal, modifying the law to tax the bonuses would likely result in a property tax, which is also illegal at the federal level.

Lastly, the law is clearly intended to punish a very select group of individuals without trial, namely the executives at the AIG financial unit, meaning it is likely a bill of attainder, also prohibited by the Constitution.

Besides these factors, has Congress bothered to think of the unintended consequences of their actions? Goldman Sachs and Morgan Stanley will raise capital from investors, return the necessary funds to the government to fall below the $5B threshold, and proceed to poach every last rainmaker from the four remaining large commercial banks JPMorganChase, CitiGroup, Bank of America, and Wells Fargo, effectively imploding them by grabbing their primary asset, people, thus concentrating power in these two investment banks.

Monday, March 2, 2009

The Problem with Pandit

Pandit is a design engineer who specializes in designing houses that are fire-resistant.

Unfortunately, the house he's standing in is rapidly burning to the ground.

That makes Pandit more than useless, like a design engineer whose house is in a three alarm fire.

Were Pandit running Citigroup six or seven years ago, much of what has happened the last year could have been avoided. Unfortunately, timing is everything and he is not the right person to be running Citi at this time.

That said, what do you need when your house is rapidly burning to the ground?

You need a firefighter, someone like John Thain, who will do whatever is necessary to protect the company and save it from complete destruction. Criticize Thain all you want for his $1,000 waste paper basket, but he very handedly saved Merrill from implosion.

Once the fires are under control and some sense of normalcy returns, that could be Pandit's time to shine, but until then, he's about as useful as a deep fried rotisserie chicken.