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Opinion

Abigail Hofman: Armageddon has arrived

We are engulfed in a tornado of gloom. Wall Street titans and employees alike have seen their share options decimated, pension pots plummet and everyone feels insecure about job security. I’m hearing that investment banks need to cut 20% of their employees to accommodate lower profitability.

As I write, gold is flirting with $1,000 an ounce, the US dollar does a daily dance lower, the Federal Reserve is propping up a Bear Stearns – worth just $270 million according to JPMorgan Chase; OK make that $1.2 billion – and everyone I speak to is pessimistic.


This is a contrarian indicator, so I’m starting to feel a little perkier. But I don’t think any of us involved in finance will forget the first quarter of 2008 in much the same way as we haven’t forgotten August 1998 (when Russia defaulted and the hedge fund LTCM floundered).


How sad it is, therefore, that Ian Kerr, one of the great financial chroniclers of our age, died in March. Kerr wrote about investment bankers and investment banking for more than 20 years in various magazines. His columns could be caustic, but they were also amusing, insightful and widely read. It would often seem as if Ian was inside the institutions he was writing about. Bespectacled Kerr, always sartorially elegant, could sometimes be difficult. “I only come down to the City to see Anshu Jain,” he snapped at some hapless PR peon. Alex Bridport of Bridport & cie, who was a close friend, told me: “Ian was a gossip journalist without the dirty side of gossip. He might savage someone professionally but he would never touch their personal life.”


I met Ian when I was a banker. I can’t remember exactly how we became acquainted. I think he told (Ian rarely asked) the corporate communications department that he wanted to have lunch with me and so he entered my life. Ian was always delightful to me. He approved of female financiers attempting to infiltrate the monopoly of male “suits”, maybe because he had a lovely young daughter, Georgina.


Ian polarized people. However, even those whom he criticized often had a grudging respect for someone who was regarded as a pillar of the international capital markets. At Ian’s memorial service, journalists mingled with friends, family and City stars. I glimpsed Stuart Gulliver, chief executive of HSBC’s investment bank; Jonathan Moulds, president of Bank of America in Europe; Viscount Bridport; Peter Meinertzhagen (formerly Hoare Govett); Kevin Regan (formerly Merrill Lynch); Andrew Pisker (formerly Dresdner); Len Harwood (formerly UBS); Simon Hussey (formerly Nomura); Stephen West (formerly Paribas). I also met for the first time the legendary John Walsh, who used to run debt capital markets at CSFB.



“The wolves are circling for John Mack. His problem is that he has made enemies. Former colleagues at Credit Suisse hyperventilate with rage when I mention Mack’s name”

"The wolves are circling for John Mack. His problem is that he has made enemies. Former colleagues at Credit Suisse hyperventilate with rage when I mention Mack’s name"

And talking of the dear departed, what has happened to May Busch, the energetic and fragrant Morgan Stanley managing director about whom everyone speaks so highly? May made her name as a front-line coverage officer. But then, in 2006, she was given the job of head of firm relationship management, which later became chief operating officer for Europe. And now May is no more (well at least not at Morgan Stanley). A source murmurs that she might have been too closely associated with Jonathan Chenevix-Trench, a former chairman of Morgan Stanley International, who left Morgan Stanley in late 2007 after two decades. This is not true: “I am leaving on the best possible terms,” May told me. “I’ve been at Morgan Stanley 22 years and I love the firm. I’ve had the opportunity to do eight different jobs on two different continents. But now it’s time to seek new professional challenges, maybe something more entrepreneurial.” I will be fascinated to see what Ms Bush does next.


Morgan Stanley is not distinguishing itself in this crisis, which must be acutely annoying for John Mack, the chief executive, and his senior colleagues. How galling to see Goldman Sachs floating like a butterfly on the crest of the sub-prime wave (although investors in Goldman’s poorly performing Alpha hedge fund might have a different view). The wolves are circling for Mr Mack himself. Mack’s problem is that he has made enemies. Former colleagues at Credit Suisse hyperventilate with rage when I mention Mack’s name. Nevertheless, he has his fans. A Morgan Stanley mole told me last autumn that Mack was worshipped within the firm and that however big the sub-prime losses were, he would not be forced out. I disagree: Mack is vulnerable. Unless the ship stabilizes (and first-quarter 2008 earnings indicate that this might be happening), the captain might have to walk the plank. It will be interesting to see the tone of the annual general meeting in April as CtW Investment Group, a union-backed activist investor group, has called for Mack’s leadership to be diluted with the appointment of an independent chairman.

Eliot Spitzer, the New York state governor, is another man who has made many enemies. Indeed, the Economist has invented a new word for his current discomfort: “Spitzenfreude”. The revelation that Spitzer had been calling call girls was greeted with cheers on Wall Street as traders battled with bellicose markets. Scintillating scandal has replaced stodgy sanctimony. Women don’t understand the thrill of dallying with harlots. So I will confine my comments to a few aspects of the modern-day Greek tragedy.

Why did he do it? Eliot’s lapse reveals a strong self-destructive impulse and maybe a subconscious desire for revenge on an over-achieving, demanding Jewish father. There’s a big difference between boasting about ‘My son the scourge of Wall Street’, and ‘My son the hirer of whores’. A girlfriend who has had a successful 20-year career in finance commented: “Why did he need to pay for it? There are hundreds of women who are happy to have an affair with a powerful, well-connected man.”

Is Spitzer alone? I doubt it. A lot of financiers shop for sex. “It’s endemic among the men we know,” an elegant I-banker wife sniffed. “And these girls are gorgeous. You can take them to cocktail parties.” A male banker, Barry, demurred. “Maybe a group of traders end up in a topless bar after a few drinks. But there’s a big difference between an evening in Wanchai that gets a bit out of hand and sitting at your desk during working hours dialing a brothel.” Catching my steely glare, Barry muttered unconvincingly: “Both are morally reprehensible, of course.”


"The revelation that Eliot Spitzer had been calling call girls was greeted with cheers on Wall street as traders battled with bellicose markets. Scintillating scandal had replaced stodgy sanctimony"

"The revelation that Eliot Spitzer had been calling call girls was greeted with cheers on Wall street as traders battled with bellicose markets. Scintillating scandal had replaced stodgy sanctimony"

Why did Spitzer’s wife support him? I am at a loss to understand this. How could any self-respecting, educated woman stand on the podium, gazing doe-eyed at her philandering husband as he apologized for his behavior. Has supine Silda, a Harvard Law School graduate, taken leave of her senses? Some female columnists have berated Silda for not appearing alluring enough to Eliot when he returned home after a hard day tormenting investment bankers. Stay-at-home moms are urged, by such commentators, to take erotic dancing lessons and to ‘unleash their inner vixen’ (I’m quite keen to become better acquainted with my own inner vixen). A more prosaic view is that ‘Spitzer syndrome’ can cement rather than separate a couple. Think: ‘Mother’s little helper’ or ‘take-away dinner’. I’m with my dynamic girlfriend, Debbie, on this one. “If it had been my husband,” she said. “I would have hired the best lawyer in town and sued the bastard for every penny he had.”

And it’s not only aggrieved wives who sue. Most senior bankers have libel lawyers on speed-dial. This month marks the second anniversary of the Abigail with Attitude column. The column is unusual in that in the arcane arena of finance, I discuss individuals as well as firms. I have crossed swords with a number of top investment bankers, often employing humour to undermine ego. “It’s very funny when it’s someone else,” a former chief grumbled. “But it’s a lot less amusing when it’s your shortcomings that are highlighted.”

I consider it part of my mandate to challenge those who normally decapitate challengers. I have discovered that most of those in charge of investment banks seek out the oleaginous and are not enamoured of those who answer back. Perhaps this is not surprising: if you have clawed your way to the top of the financial jungle, you probably think you’re a lot cleverer than other people. You certainly earn a lot more than other people (or did before financial shares swooned). I’ve also learnt that banking chiefs are sensitive souls whose self-esteem is easily punctured. “Abigail, you wrote that I was lucky, when in fact I’m smart,” one chief wailed. Apparently, there is no such thing as constructive criticism.

In March, I discussed the management line-up at Merrill Lynch and pondered whether or not the arrival of the new chief executive, John Thain, had diminished the power base of Greg Fleming, Merrill’s president and chief operating officer. It was probably not the most flattering story but Fleming graciously had a drink with me when he was in London for a recent Merrill Lynch board meeting. I can report that gregarious Greg seems to be thriving under the new boss. He remains upbeat about Merrill as a brand and the future of the investment banking industry because of the long-term trend of global wealth creation. Larry Fink, the highly respected chief executive of BlackRock, told me: “I’ve known Greg for over 10 years. He was recommended to me by Dave Komansky [Merrill Lynch’s former CEO] as one of the firm’s best bankers. I developed a strong relationship with him and relied on his advice. Greg knows when to be patient and when to be neurotic, and he’s emerged as a fine leader.” Perhaps those who are betting against Mr Fleming should remember, democratic presidential candidate underdog Hillary Clinton’s victory speech in the Ohio primary: “For everyone who’s ever been counted out but refused to be knocked out, and for everyone who has stumbled but stood right back up, this one is for you.”

However, I do not underestimate the challenges for the old guard of adjusting to a new regime. Over at Citi, Michael Klein, who in 2006 was frequently mentioned as a future chief executive of the largest American bank, has a new job. Previously, Klein was co-chief executive of Citi’s markets and banking division. He now becomes chairman of the institutional clients’ group and will focus on client relationships. Meanwhile, John Havens, a long-term ally of Citi’s new chief executive, Vikram Pandit, adds responsibility for Citi’s markets and banking division to his current role as head of alternative investments (isn’t this too much for one man in these turbulent times?).

The memo announcing these responsibilities included the abstruse sentence: “Mr Klein will chair a company-wide client committee focused on delivering ‘one-Citi’ to all clients and work on other firm-wide projects.” Whenever the word “projects” is mentioned in connection with someone’s career, you imagine they’ve been side-lined.

So 44-year old Klein’s meteoric ascent seems to have been arrested. And, by the way, Citi’s market capitalization has collapsed. It is now worth roughly the same as San Francisco-based banking group, Wells Fargo. During the past two years, I have consistently urged Citi’s senior management to take radical strategic action (sell assets, dismantle Sandy Weill’s unwieldy empire). I have been ignored and shareholders have suffered.

Although some argue that Michael is perfect for a senior client role, the financial industry always accords greater esteem to those who manage firms rather than cosset clients. “Michael will be gone in three months,” a mole whispers. I wonder. Jobs for senior managers in the financial industry are not abundant at the moment. The credit-crunch casualty crowd (such as Klein’s former colleague, Tom Maheras) are still unemployed. Michael has fans in the private equity industry but last time I looked, private equity was teetering on the verge of a nervous breakdown.

My advice to Michael: stay steadfast at Citi. After all, when Jamie Dimon arrived at JPMorgan in mid-2004, people whispered that Bill Winters, co-chief executive of the investment bank, was history. But Bill bounced back. A mole reports that he was leading conference calls on the Bear Stearns acquisition. I’m delighted. In these gloomy months, we need a touch of glamour: Bill Winters is the financial markets’ George Clooney to complement Merrill Lynch’s Andrea Orcel’s Cary Grant.



“Can it be true, as one mole reports, that last July, Jamie Dimon, JPMorgan’s chief executive offered Jimmy Cayne $120 a share for Bear? Cayne sent Dimon away with a flea in his ear. In March 2008, Morgan looked poised to gobble up Bear for $10 a share. Now that’s what I call hubris”

"Can it be true, as one mole reports, that last July, Jamie Dimon, JPMorgan’s chief executive offered Jimmy Cayne $120 a share for Bear? Cayne sent Dimon away with a flea in his ear. In March 2008, Morgan looked poised to gobble up Bear for $10 a share. Now that’s what I call hubris"

So let’s pan the camera back and think about the past two years during which I have chronicled developments in the financial markets and the fortunes of those who run financial firms. In April 2006, excess was everywhere. In December 2006, I was asked by the BBC to comment on record City bonuses (surely a “sell” signal for the market). Six months later the bubble was bursting just as Steve Schwarzman floated his private equity company, Blackstone – “Don’t buy,” I pleaded, “this is a market top.” The shares, which were priced at $31, traded up to $38 on the first day when a lot of retail investors piled in. By mid-March 2008 (less than nine months later), Blackstone shares were trading 60% lower at $14.55 (that’s a casino-like, negative return).


And now we are engulfed in a tornado of gloom. Wall Street titans and employees alike have seen their share options decimated, pension pots plummet and everyone feels insecure about job security. I’m hearing that investment banks need to cut 20% of their employees to accommodate lower profitability. The good news is that there are dozens of interesting stories to write about and that virtually all of us are better off than Joe Lewis, the reclusive investor and bridge partner of former Bear Stearns’ chief Jimmy Cayne. Lewis has lost nearly $1 billion on his stake in the beleaguered Bear.


And can it be true, as one mole reports, that last July Jamie Dimon, JPMorgan’s chief executive, offered Cayne $120 a share for Bear? Cayne sent Dimon away with a flea in his ear. In March 2008, Morgan gobbled up Bear for $10 a share. Now that’s what I call hubris.


Finally, a spring riddle for redoubtable readers to ruminate on: Which bank chairman (married to a much younger woman) has endured a face-lift? “I promise you, it’s true,” my mole whispered. “I sat next to him in a meeting, and saw the scars behind his ears.” 


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