"They shoot horses, don’t they?" That line repeats itself methodically in my mind as I watch the House of Representatives financial services committee interrogating senior bankers in mid-February. "Barney Frank and the seven dwarfs," a source snorted. In fact there were eight dwarfs, and congressman Frank is a cross between a grumpy buddha and a garden gnome.
Eighteen months ago, the chief executives of major financial firms were revered. We envied their elevated status – the jets, the bodyguards, the limousines and the layers of gatekeepers. Hedge fund managers might have been richer, but the combination of prestige and perks still affirmed Wall Street bosses as human deities. Now these men are reduced to squirming schoolchildren who’ve been caught stealing from the communal cookie jar.
As the chief executives struggled to explain how munificently they had allocated the taxpayers’ Tarp money, they fell into a number of potholes. It did not inspire confidence to learn that since receiving taxpayer funds, wealthy men such as John Mack and Lloyd Blankfein have not purchased any shares in the companies that they run, despite bargain-basement prices. Vikram Pandit is definitely the class swot – but his eagerness to please is nonetheless endearing. Pandy burbled that he got the new reality and would work for one dollar a year until Citi returned to profit.
Who would want to be a financial chief executive today? The upside is a mirage, the downside unlimited and the scrutiny is unacceptable. Congressman Paul Kanjorski spat at the financiers: "When you took taxpayer money, you moved into a fish bowl." Most of the chiefs travelled from Wall Street to Washington on public aircraft. Ken Lewis, however, undertook a nine-hour train pilgrimage. Schadenfreude, thy name is credit crunch. Is Ken sulking I wonder: defiantly trying to prove the point that private planes improve efficiency?
These are depressing times: even the most optimistic person despairs of rapid improvement; some sourpusses are stridently predicting an L-shaped recovery where the economy swoons and then bumps along the bottom for many years.
It is vital to laugh in these despondent days. I therefore urge you to watch on YouTube the flagellation of the contrite chief executives by congresswoman Maxine Waters. Mad Maxine prefaces her unintelligible rant with the ominous words: "All of my political life I have been in disagreement with the banking and... financial services’ community..." The Wall Street Warriors crumple cravenly in the face of her wrath. Ken Lewis can be seen nervously licking his lips. Waters demands to know whether the banks have "loss-mitigation" departments offshore. Lewis demurs that he is not sure where the departments are based but that Bank of America has 5,000 people working on these issues. "So you do have offshore facilities," Waters hisses, completely disregarding the senior banker’s response. Vikram Pandit attempts to deal with the dragon in a boyish but charming manner. He is slapped down. The more astute chiefs, such as John Mack and Jamie Dimon, decide to sit this one out and refuse to engage with the irate congresswoman.
Scanning the faces of the eight dwarfs, I have to say all of them except for Perky Pandy look haggard and harassed. Not one of the chiefs seemed to be having a "good crisis". Obviously none of them had envisaged that the pinnacle of his banking career would effectively involve basking in the spotlight of public revulsion. Fearsome Frank summarized the venomous mood towards finance’s finest: "People really hate you," he said. "And they’re starting to hate us because we’ve been hanging out with you." Jo Sawicki, director of Ceres, a company that provides media training for senior executives, told me: "These chief executives are still doing what worked for them in the past: bravado and blustering. They need to show much more vulnerability and to realize that there is strength in vulnerability."
And while we are on the subject of the foibles of finance chief executives, former Merrill Lynch chief executive John Thain is in trouble because of allegations that he authorized the Merrill bonus payments to be paid earlier than usual. I saw a copy of the letter the New York state attorney general, Andrew Cuomo, sent to Barney Frank, chairman of the House of Representatives financial services committee, and the fallout could be nuclear. Cuomo grumbles that "in a surprising fit of corporate irresponsibility... instead of disclosing their bonus plans in a transparent way as requested by my office, Merrill Lynch secretly moved up the planned date to allocate bonuses and then richly rewarded their failed executives". Cuomo continues: "The vast majority of funds were disproportionately distributed to a small number of individuals. The top four bonus recipients received a combined $121 million."
Thain and Bank of America’s chief administrative officer, J Steele Alphin, have received subpoenas to testify before Cuomo and I sense that "Alf" will be hung out to dry on this one. Alphin, according to the Bank of America website, is a member of the senior management team responsible for "global human resources, global marketing & corporate affairs and corporate aviation functions". That is a big job, albeit that it will shrink as Bank of America is forced to dispose of its private jets. Alphin was one of Thain’s key Bank of America contacts during the transition period in late 2008. Bank of America has tried to distance itself from the Merrill bonus payments. However if it turns out that Alf knew all about them, doesn’t that mean Bank of America knew all about them? Cuomo might agree with my line of thinking as he has now subpoenaed Bank of America’s chief executive, Ken Lewis. "You’re wasting your time going after Thain," an impeccable source scolded. "You should dig deeper into the Bank of America board and the fact that after eight years of King Ken’s reign, there is still no obvious internal successor. Isn’t that an indictment of both Lewis and Alphin (who has been responsible for the group’s human resources since 1999)?"
Profits and losses
I am normally the first to criticize the failings and hypocrisy of the investment banking world. However, this month I would like to congratulate those big institutions that made a profit during the appalling conditions of 2008. The roll call of the successful includes Bank of America, Banco Santander, BNP Paribas, Barclays, Goldman Sachs, JPMorgan, Morgan Stanley and Société Générale. Some would argue, however, that profit has become a meaningless term in the banking world because the profit figure depends on the accuracy of each firm’s mark-to-market write-downs and accounting policy.
