January 8, 2008
And then there were none on Wall Street
On October 8, I listed the three chief executives of Wall Street banks who I thought were most at risk from the credit market turmoil. I have to admit that this was not an extraordinary insight: all three faced obvious problems even then.
Still, with the resignation of Jimmy Cayne as chief executive of Bear Stearns, I am three for three. Rather to my surprise, each (Chuck Prince, Stan O’Neal and Mr Cayne) has now stepped down.
There are no obvious new names to put on the list although the reputation of John Mack, chief executive of Morgan Stanley, has been bruised. Perhaps this is the end of the blood-letting for now.
Mr. Gapper, Three for three is impressive. The blood-letting may not be over quite yet. I would put two more CEOs on the “watch list” for a serious downgrade. MBIA’s Gary Dunton and AMBAC’s Phil Lassiter are presiding over companies whose shareholders are paying a hefty price for the muni bond insurers misguided ventures into the mortgage and derivatives market. MBIA’s stock price is off over 80% in the past three months. While AMBAC’s stock is holding up only slightly better both companies are favorites with the short sellers. Some investors estimate that MBIA will require as much as $10 billion in fresh capital to avoid a downgrade from the crucial AAA rating. Others are suggesting MBIA may face bankruptcy in 2008. The lure of big fees led the nations largest muni bond insurer to stray far from its strength. Evaluating and insuring CDOs and subprime mortgages is a very different ballgame from doing the same for municipalities with taxing authority to cover revenue shortfalls. For companies that made their names and fortunes assessing and insuring risk this has been a big misstep. With Warren Buffet spotting weakness and opportunity in this market MBIA and AMBAC are in serious trouble. Raising new capital from a position of extreme weakness with Berkshire Hathaway ready to jump into the mix may prove difficult. These CEOs have taken their respective companies from leaders to losers in a few short years. Please consider expanding you list. Odds are you can go five for five!
Posted by: bob moore | January 11th, 2008 at 3:03 am | Report this commentMr. Gapper,
Posted by: bob moore | January 11th, 2008 at 7:47 pm | Report this commentCongrats again on being three for three. I owe you an apology. My last writing was off the mark. You wrote of Wall Street CEOs and my comments were misdirected, aimed at the CEOs of bond insurers AMBAC and MBIA. While I still believe Dunton and Lassiter are toast I will attempt to redeem myself by offering up an on point observation that may contribute to your stellar record for picking Wall Street CEOs on the way out. This one may be a bit of a long shot but here’s the name, Richard Fuld. The CEO of Lehman may find things heating up for him and his firm as the Florida Local Government Investment Pool begins to pin blame for many of its poor investments on the brokers selling them tainted securities.There may be more to the story than “he said she said” finger pointing over the responsibility for SIV paper and Countrywide Bank CDs finding a home in the pool. While the loses for the State Pool are staggering and will surely bring taxpayers to the fight the real intrigue lies in the details. Bloomberg reports that former Florida Governor Jeb Bush was a trustee for the pool. Bloomberg also reports Bush formed a consulting agency after leaving office and that his agency was retained by Lehman. The predictable accusations and denials are flying about.Again Bloomberg reports that nearly a billion dollars worth of securities bought by the pool and sold by Lehman defaulted within 4 months. As the morgage backed derivative world was crashing Lehman was aparently moving high risk investments to the pool. Like I said this is a bit of a long shot. If it hits perhaps it will pay double. Again my apologies for not reading your article more carefully.