December 20, 2007
A weird day on Wall Street
This was a weird and wonderful day on Wall Street; one for the history books.
First, we learnt that David Rubenstein of Carlyle Group had bought a copy of the Magna Carta for $23.1m and plans to keep it on display at the National Archives in near his office in Washington. He did it, he told the Wall Street Journal, to "repay a debt I have to the country".
Talking of debt, Morgan Stanley then declared a $9.4bn write-down on mortgage securities, mostly run up by a single trading desk, which is quite a lot of money for a few people to lose. It said it was taking a $5bn capital infusion from China’s sovereign wealth fund and John Mack, its chief executive, would give up his annual bonus as penance.
Finally, we had a conference call to match - and indeed surpass - for strangeness the one held by Bear Stearns in the summer at which Jimmy Cayne, its chief executive disappeared halfway through the call and Bear’s stock fell sharply.
This time, the conference call was held by Sallie Mae, the giant mortgage securitisation group. It started amiably but Al Lord, its chief executive, then got into a tussle with analysts about how much information he was divulging. The call ended with Mr Lord saying testily to his head of investor relations head: "Let’s get the (expletive deleted) out of here" and Sallie Mae’s shares dropping 21 per cent.
You might have thought that staying on a call long enough to answer questions and remaining polite would not be too much to ask of a chief executive trying to retain confidence in his company. These are strange times indeed.
Why not also mention the well-timed recent share sales by the good Lord?
Posted by: Michael M | December 20th, 2007 at 12:24 pm | Report this commentMr. Grapper,
Posted by: Doug Wolkon - Author of The New Game | December 20th, 2007 at 9:25 pm | Report this commentI agree, “these are strange times indeed”. Sallie Mae is a student lender, not mortgage security group. With Sallie Mae in trouble, does that mean that less student loans at low interest rates may be available in the future? After all, they are the largest student lenders with $127 billion of debt outstanding (according to Wiki). Or can we expect the Wizard of Oz to step in and fix the lending rate since the loans are “federally guaranteed”. How many “guarantees” does our federal government have out there anyway. Does it even matter? Do you think the price of college tuition in the U.S. will be forced down proportionately to the likely increase in future lending costs? I hope so for my kids sake. Or maybe we will have to pay cash for college tuition. What do you think the price of tuition would be then? The question is, “How are the Universities going to make up the difference to pay for the expensive education they are selling?” My father-in-law did it with home equity like so many others but that doesn’t seem to be an option right now. The reality is that lenders like Sallie Mae have allowed Univerities to charge students $40,000 of annual tuition for their “must have at any price” 4-year education. Sounds a lot like a “must have at any price” 3-bedroom home with top of the line kitchen and bathrooms in the middle of the Arizona Dessert or Florida Swamp for $350,000 - No Money Down.
Dear all,
Over the holiday season the comments posted to the blog will be pre-moderated by FT staff. This may result in a delay in your comment appearing, but we will keep these delays to a minimum. We will return to post-moderating comments at the start of 2008.
Many thanks for all your contributions, and best wishes for the season.
Posted by: Damian Carrington, Interactive Editor, FT.com | December 21st, 2007 at 2:21 pm | Report this commentmr. grapper, individual share holders excepting saudi princes and the select billionaire heavyweights have lost the ability to impact the decisions of corporate leadership. fear of predatory private equity funds with their “borrow, buy and dismantle” philosophy while not a new phenomenon does exert undue influence over the management of publicly traded companies. the little guy poisioned the well when he fancied himself a day trader, renting shares for a quick pop rather than investing in a quality company for the long haul. such “investors” deserve little recognition from management. analysts as a group and a profession forefited their claim to indignation when they sold their souls to the underwriting department and the ipo sales desks during the .com bubble.
Posted by: bob moore | January 6th, 2008 at 11:28 pm | Report this commenthow does the average joe influence the decisions of ceo’s who are are paid tens of millions each year and have a gawdy severance package in hand from their date of hire? maybe responsivness and civility will return to the conference call and shareholders meeting when; a) ceo compensation comes back to earth and severence packages bare some likeness to an executive’s performance while at the helm and b) when shareholders unite as owners rather than act as short term renters. besides it is hard for highly overpaid executives to plan and execute strategy when they are running scared from private equity and hedge fund management. perhaps the best consequence of the credit crisis, while it lasts, will be to sideline the vulture capitalists. finally, with a recession on the doorstop the easy long money has been made. owning shares of solid companies with strong visionary management may interest the individual shareholder again. once awakened the common investor may find shareholder rights something worth fighting for.