The power of the pen
When the journalist becomes the story, it is not ideal. On Friday, I was in Paris to meet the delightful Grégoire Varenne, head of fixed income, currencies and commodities at Société Générale. Around 1pm as I was reading some briefing material, my mobile rang.
The call was from a Financial Times journalist, Joanna Chung. Initially, I thought she was ringing about an opinion editorial the FT had published the day before written by my erudite sister, Tracy. However, Ms Chung was calling about an article that I wrote last year discussing my brief return to the City in 2005. Even though my colleagues were charming and inclusive, going back felt like going backwards. I resigned in early 2006 and started writing the Abigail With attitude column.
The topic of female financial recidivisim is hotter than a baked potato right now. I won’t boast that I broke this story because it might not be true but I was certainly one of the first to climb on the bandwagon following my meeting in late April with Jeremy Isaacs, Lehman Brothers’ chief executive for Europe and Asia. I asked Ms Chung to send me an email listing her questions and hurried off for a series of appointments. After an alcohol–fuelled dinner with one of president Nicolas Sarkozy’s advisers, I had completely forgotten the Financial Times.
Next morning, the paper ran a large article about the efforts of investment banks to lure female financiers back to the fold. I was used as a case study of a ‘refusnik’ and dubbed ‘independently wealthy’. The implication was that I could afford to walk away from the City. “It’s so humiliating,” I wailed to a girlfriend who effortlessly combines motherhood and Morgan Stanley. “I have been reduced to a Paris Hilton wannabe.”
People jest about the power of the pen. However, recently hedge fund managers have wielded literary and numerical skills to create weapons of financial destruction. Chris Hohn, the founder of the Children’s Investment Fund, astounded European markets when he wrote a letter in February to Rijkman Groenink, ABN Amro’s chief executive, stating: “It would be in the best interests of all shareholders, other stakeholders and ABN Amro for the managing board of ABN Amro to actively pursue the potential break-up, spin-off, sale or merger of its various businesses (or as a whole).” From his prose, it would appear that Mr Hohn does not believe in excluding any options.
My favourite hedgehog author is Daniel Loeb of Third Point. Loeb takes stakes in companies and writes scathing letters to chief executives who are depressing his alpha. Usually, the letters accompany Loeb’s government filings. If you buy in excess of 5% of a public American company, you must file with the SEC. Apparently, Loeb once increased his holdings, at a cost of more than $4 million, so he could file a letter. A flavour of Loeb’s style emerges from a letter he wrote last December to Mr Van Wagenen, chief executive of Pogo Producing Company. “In the one and a half decades you have run Pogo,” Loeb fumes, “shareholders have suffered sub-par returns. Your track record is long and meagre, and it is time for change.” A source who met Loeb several years ago claims: “He’s done well for his investors. But he's very aggressive, I didn’t warm to him.”
If you want to laugh out loud, go to the following web-page: http://paul.kedrosky.com/archives/001219.html. Financial commentator Paul Kedrosky posts email correspondence between Loeb and a potential recruit that goes from application to altercation in eight taut exchanges. In the penultimate email, the recruit hisses: “hubris”. Loeb shoots back: “Laziness”. Delicious.
For some weeks now, I have been highlighting the fact that Chuck Prince is a sitting duck – although ostrich might be a better choice of bird for activist hedge fund managers. It seems that alternative investor Eddie Lampert agrees. He has purchased an $800 million stake in Citigroup through his vehicle, ESL Investments. I do hope Lampert will write an “open letter” to Prince so we can all be spectators at the ensuing bullfight.
"What will Kim’s legacy be? He ought to be have a place in the Merrill Hall of Fame, as one of the chief lieutenants to Stan O’Neal as he turned the firm around from its dark days at the turn of the decade"
It sometimes seems as if all the action these days is in the hedge fund community. There is a whiff of second best about working for an investment bank. This brings us to the news announced last week that Dow Kim, Merrill Lynch’s co-president of global markets and investment banking, is leaving the firm to found a hedge fund. In his last few years at Merrill, Kim whose background is in derivatives trading, was responsible for the global debt and equity businesses. Other press reports have highlighted the fact that in the new Merrill world there will not be a trader at the top table. Greg Fleming, an investment banker, and Ahmass Fakahany, a chief administrative officer, become co-presidents, and all the businesses report to Stan O’Neal through F and F. “I’m not sure Merrill is a trading power house in the same way as Goldman or Lehman,” a source opined. There might be some truth in this statement – at least judging from the percentage of net revenues contributed by trading at each firm. So shouldn’t a trader have been elevated to a more prominent position at Merrill, precisely to compensate for this weakness? What do you think? Kim’s departure shows just how strong the lure of the hedge fund industry – and perhaps being your own boss – is. With Kim, it can’t be all about the money. “If you are earning $5 million as a trader, fine, go off and start a hedge fund,” a mole said. “But Kim earned $40 million last year, will that be so easy to replicate?”
What will Kim’s legacy be? He ought to have a place in the Merrill Hall of Fame, as one of the chief lieutenants to Stan O’Neal as he turned the firm around from its dark days at the turn of the decade. The one potential black mark against his name? In September 2006, it was announced that Merrill was acquiring the First Franklin mortgage origination franchise from National City Corporation for $1.3 billion. Was this a Kim initiative? He is quoted as stating: “These leading mortgage origination and servicing franchises will add scale to our platform and create meaningful synergies with our securitization and trading operations.” With hindsight I’m not sure last September was the right moment to plunge into sub-prime.
A Merrill Lynch insider insisted that the firm was very happy with the First Franklin acquisition and its performance. Insider also stressed that the last two quarters were record ones for Dow’s division. It will be interesting to see where Semerci and D’Souza, who inherit Dow’s trading responsibilities, will take the business. And even more interesting to see how many other trading chiefs follow Mr Kim’s example and quit Wall Street for Hedge Fund Alley.
Next week: the focus is on continental banks. Please send news and views to firstname.lastname@example.org.
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