Do CEOs Really Matter?

/13 Comments/in , /by

There’s a BusinessWeek report that confirms two things I’ve been arguing for a while: that Bob Nardelli will be ousted no matter what happens with Chrysler in the upcoming two weeks.

Chrysler CEO Robert Nardelli confirmed in a letter to employees today that he will likely be replaced as CEO of the automaker in the coming weeks as the company faces either an alliance with Italian automaker Fiat or a bankruptcy reorganization or liquidation. The company’s board, too, would be replaced, he said.

And that one of the reasons the Obama Administration treats the Fiat deal as a viable option for Chrysler is that they hope to put Sergio Marchionne, the head of Fiat, in charge of the merged company.

In Nardelli’s letter to employees, the former Home Depot CEO said a new board of directors will have the power to appoint a new CEO. “The majority of the directors will be independent (not employees of Chrysler or Fiat),” Mr. Nardelli wrote. He added that the board “will have the responsibility to appoint a chairman and select a CEO with Fiat’s concurrence.”

Executives close to Chrysler say that it is possible that Fiat CEO Sergio Marchionne will hold the title of CEO, similarly to the way Carlos Ghosn was CEO of both Renault and Nissan for a few years after he was granted the job at Renault. Renault has a controlling interest in Nissan, and had sent Ghosn to Nissan to turnaround the then-ailing Japanese automaker.

 Now, Marchionne is a darling of the Wall Street types because he managed to turn Fiat around. 

"The turnaround he steered at Fiat was just as miraculous as what Carlos Ghosn did at Nissan," says Tony Faria, business professor at the University of Windsor. "Fiat was in big difficulty, losing a lot of money. He had them in profitability in less than two years. The turnaround he steered was just magnificent."

Fiat–one of the oldest industrial businesses in Europe–was on the brink of bankruptcy when Marchionne was appointed CEO in 2004. Less than two years later, the maker of such brands as Ferrari, Alfa Romeo and Maserati returned to profitability as a world leader in environmentally friendly vehicles.

Read more →

Share this entry

The Big Banks’ FDIC Boondoggle

/27 Comments/in /by

In her post on the changing plans to release stress test results, Yves congratulated the Administration for planting a story that blamed everything on Goldman.

Back to the New York Times:

While all of the banks are expected to pass the tests, some are expected to be graded more highly than others. Officials have deliberately left murky just how much they intend to reveal — or to encourage the banks to reveal — about how well they would weather difficult economic conditions over the next two years….

Yves here. That means this is being negotiated. Wonder if the Times story was leaked to box the banks in and (as you will see later) blame it on Goldman. If so, this crowd would be playing a much smarter game than I have given them credit for (the "Goldman made us do it" part, the leak alone is a more predictable move). And this story was clearly planted. The Times reports it came from "senior officials"; as we noted, the Journal also has a story up.

Keep that in mind as you review coverage–both in Sanger’s story on the stress tests, and in a completely separate story–of FDIC backed lending. Sanger sort of throws the reference in at the precise point most designed to blame Goldman Sachs for forcing the Administration’s hand on the stress tests.

The Goldman move also puts pressure on the administration to decide what conditions will apply to institutions that return their bailout funds. It is unclear if Goldman, for example, will continue to be allowed to benefit from an indirect subsidy effectively worth billions of dollars from a federal government guarantee on its debt, a program the Federal Deposit Insurance Corporation adopted last fall when the credit markets froze and it was virtually impossible for companies to raise cash.  In ordinary times, regulators do not reveal the results of bank exams or disclose the names of troubled banks for fear of instigating bank runs or market stampedes out of a stock. But as top officials at the Treasury and the Federal Reserve Bank focused on the intensity with which the markets would look for signals about the nation’s biggest banks at the conclusion of the stress tests, the administration reconsidered its earlier decision to say little.

“The purpose of this program is to prevent panics, not cause them,” Read more →

Share this entry

Grading on a Curve

/27 Comments/in /by

The Obama Administration has reversed its approach from earlier this week and last, and decided it will reveal the results of stress tests. But it warns that it will be grading on a curve to make sure all the zombie banks can pass into the next grade and eventually graduate (rumor has it that JP Morgan Chase also wants to be cleared to play football).

The administration has decided to reveal some sensitive details of the stress tests now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest.

While all of the banks are expected to pass the tests, some are expected to be graded more highly than others.

Understand, though, at least as David Sanger tells it, the Adminstration is not revealing the results of the stress test because it decided transparency is good. Rather, it is doing so because Goldman Sachs and Wells Fargo forced its hand.

The administration’s hand may have been forced in part by the investment firm Goldman Sachs, which successfully sold $5 billion in new stock on Tuesday and declared that it would use the proceeds and other private capital to repay the $10 billion it accepted from the government in October.

That money came from the Troubled Asset Relief Program, or TARP, and Goldman’s action was seen as a way of predisclosing to the markets the company’s confidence that it would pass its stress test with flying colors.

[snip]

Citigroup and Bank of America made positive statements about the current quarter weeks ago, and last week, John Stumpf, the chief executive of Wells Fargo, said the bank was in good shape and expected a $3 billion profit this quarter. The Wells Fargo statement appeared to frustrate some Treasury officials, and regulators clearly fear it will be more difficult for them to issue negative assessments of banks that have already proclaimed that they are in good shape.

A Wells Fargo spokeswoman, Janis Smith, said the company would not comment on interactions with its regulator.

At this point, the Obama Administration needs to realize something else about their plans to bring back the banking industry. These banksters believe they will be and can be immune from regulation. They are treating their gravy train and regulator like a doormat. 

So it’s probably a good idea to impose the new regulations now, before doling out more money in PPIP. Because until Read more →

Share this entry

Ponzi Nation

/72 Comments/in /by

Atrios and others have been having some perverse fun tracking the number and frequency of banks getting eated. But there’s another disturbing trend passing largely unnoticed (save for its more spectacular examples): the number of Ponzi schemes the SEC busts up.

Counting just the schemes the SEC issues a press release on and labels a Ponzi scheme (and using the SEC’s most conservative estimate for the size of the scheme), there have been 19 Ponzi schemes in the last year, amounting to $17,848 million dollars in fraud (Bernie Madoff counts for the bulk of that–$17 billion–and I did not include Stanford’s scheme, since SEC has not used the word "Ponzi" in their public releases on it yet). 

Date   Name Amount (000s)
4/13/09   Maximum Return Investments 23,000
4/9/09   Richard Copeland 35,000
4/8/09   Shawn Merriman 17,000
4/6/09   Overseas China Fund 50,000
4/1/09   Gemini Fund 50,000
3/26/09   Millenium Bank 68,000
3/11/09   Equity Investment Management and Trading 40,000
2/19/09   Billion Coupons 4,400
1/15/09   CRE Capital Corporation 25,000
1/8/09   Joseph Forte 50,000
12/30/08   Creative Capital Consortium 23,000
12/11/08   Madoff 17,000,000
11/12/08   Biltmore Financial 25,000
10/30/08   Bottom Line and Summit 30,000
10/6/08   Norman Hsu 60,000
9/16/08   Cornerstone Capital Management 15,000
9/15/08   PIPE Investments 52,700
8/11/08   Wextrust 255,000
5/2/08   Safevest 25,000
      17,848,100

And in an April 1 press release, the SEC said it had shut down 75 Ponzi schemes in the last two years (it only released a press release for one more Ponzi scheme in that time). In other words, the SEC has actually been shutting down more Ponzi schemes than the number of banks the FDIC eated. 

Now, a lot of those schemes target a particular potentially vulnerable or trusting class of people. (One Ponzi scheme targeted the deaf, for example, and others targeted particular ethnic groups.) 

Even accounting for the ways these schemers have instilled trust among their targets, this is still a big number of Ponzi schemes. Doesn’t anyone look for the tangible product at the end of a money-making scheme anymore?

Share this entry

Dana “Pig Missile” Perino to Do Crisis Communications for AIG?

/24 Comments/in , /by

Hiring someone who doesn’t know the difference between the Bay of Pigs and the Cuban Missile Crisis to do crisis communications for big evil corporations?

I’ve got a feeling this may end badly. But we might get some laughs along the way.

Share this entry

Elizabeth Warren’s Not Allowed to Know the Super Stress Test Secrets, Either

/24 Comments/in /by

I noted the other day that Timmeh (or, according to other coverage of this, Helicopter Ben) told the banks to keep their stress test results to themselves.

Well, apparently, stockholder and taxpayers are not the only ones left out of the secret. So is Congressional Oversight Board Chair Elizabeth Warren. In fact, she’s not even allowed to know the formulas they used to measuring the banks. (h/t My Philosophy at DKos)

Q: Do you have a clear sense of what the overall TARP plan at this point is supposed to do? Are you capable of summarizing what it’s supposed to be doing?

A: No. And neither is Treasury. Treasury has given us multiple contradictory explanations for what it’s trying to accomplish.

There’s a major problem and a minor problem. The minor problem is documentation. I’ve spent four weeks now looking for someone who can give me the details of the stress test so that we can do an independent evaluation of whether the stress test is any good.

We get: "someone will call [you] right back." Only the call doesn’t come.

Then again, I think it’s clear that Timmeh is trying desparately to prevent anyone from assessing whether the stress tests are worth a damn.

Which pretty much tells you what you need to know about them.

Update: Apologies to selise, whose diary on this I just saw.

Share this entry

Yo Ho Yo Ho, It’s The Risk Management Life For Thee

/81 Comments/in , , /by
Image by iairia/Melange

Image by isiria/Melange

Pirates! Arrrr, they’re teh new sharks matey. Scary! And we should rightly be worried about this pirate problem, because CNN, MSNBC and the print have been relentlessly telling us so. First it was the seizure of the quasi American flagged cargo ship Maersk Alabama, and now the pesky pirates have snared an Italian tugboat too.

Sara related some fascinating background on Maersk and its business:

…. part of Public Law 480 requires that food relief from US Agricultural surpluses, be carried in “American Bottoms” — and US Flagged and owned ships, all have union crews. This ship is owned by Moller/Maersk, which is a vast international Danish Company, but which bought an American Shipping Company, and thus is a bi-national corporation. When it carries American Humanitarian Relief Supplies, they must use a ship chartered in the US, US Flagged, and American Crew. Moller/Maersk is perfectly capable of changing the charter, flag, and crew if it is hired to deliver a non-restricted cargo. For instance, this is the Danish Shipping Company that “sold” Ollie North his ship for shipping the anti-tank weapons to Iran back in the middle of Iran Contra — the ship he took back to Denmark and parked once the story broke, and left the crew without paying their wages. Not covered in the US Press at all — the Danes had a nice little trial in a public court on the Island of Fyn, and took public testimony of all the seamen (all Danes) who were unpaid, and out spilled all the cargo’s they had hauled, and all their ports of Call. Not sure whether North ever paid his fines and got right with the Danish Seaman’s court. Moller/Maersk also was the primary contractor hauling arms to Central America back in the Reagan Days. They’ve done covert stuff for CIA for years.

Shipping, even through troubled waters like those near Somalia, is big business. Isn’t everything these days? Which brings me to the knee jerk question, one I am sure many have asked, of why these big global business ships do not simply arm themselves sufficiently to repel the rag tag Somali pirates? Seriously, the Maersk Alabama is 508 feet long and staffed by a trained and unionized crew, why can’t they fight off these pirates with AK-47s in rinky dink junks and skiffs? Insurance and regulatory liability concerns; and, it turns out, that appears to be a pretty valid explanation. Read more →

Share this entry

Geithner to Banks: “Ix-Nay on the Solvency-Inay”

/38 Comments/in /by

I suppose, if Wells Fargo boasted wildly in its earnings report that it not only made a profit, but passed its stress test with flying colors, and Bank of America and Citi remained silent about the results of their stress tests in their earnings report, then we all might conclude that Bank of America and Citi had fared rather poorly on their tests.

As opposed to all of us concluding that Bank of America and Citi failed their no-fail stress test based on the FDIC want ads and the way Geithner has been wandering around saying "Shhhhhhh!" all week.

Still. Isn’t it bad form for the Treasury Department to order financial institutions to hide data about their financial health on their earnings reports? (h/t Stephen)

The U.S. Treasury Department is asking banks not to mention the regulatory "stress tests" as part of their first-quarter earnings results, according to a source familiar with government discussions.

If I were a BoA or Citi stockholder, I’d be finalizing my suit against Geithner right now to avoid the rush.

Share this entry

Will Alabama Join Michigan in Boycotting Chase?

/46 Comments/in , /by

Turns out Michiganders aren’t the only ones fed up with JP Morgan Chase. JP Morgan Chase is even preying on Richard Shelby’s constituents. [h/t scribe]

The Alabama state school construction authority has declined to make a payment due to JP Morgan under a derivatives deal until a federal court rules on a state lawsuit seeking to have the contract thrown out. Alabama finance director has said he won’t make or accept any payment under the swap deal: the first contractual payment is due May 1.

[snip]

In October a lawsuit was filed in Montgomery, AL district court saying that a sale of a swaption (option on an interest-rate swap) wasn’t allowed under state law. The deal had been executed in connection with bonds sold by the Alabama Public School and College Authority.

As Zero Hedge asks, "what the hell are Alabama residents doing trading swaptions?"

How about it, Richard Shelby? Ready to close your Chase account in solidarity? Want to sign our petition? Join our Facebook group?

Share this entry

America Strikes Back at Pirates … with Unions!!

/49 Comments/in /by

Remember how a union flight crew, union ferry crews, and union first-responders pulled off the incredible rescue back in January? Those union employees had gotten a lot of their safety training because of their union.

Well, those darn unions are at it with the heroics again. This time, it’s in vanquishing pirates.

American crew members aboard a U.S.-flagged ship have regained control of the vessel hijacked by pirates off the coast of Somalia Wednesday, FOX News confirms.

Defense Department officials confirmed that one pirate is in custody. A U.S. official said the status of the other pirates is unknown but they were reported to "be in the water."

"All the crew members are trained in security detail in how to deal with piracy," Maersk CEO John Reinhart told reporters. "As merchant vessels we do not carry arms. We have ways to push back, but we do not carry arms."

[snip]

At least 12 of the Americans aboard the Maersk Alabama are members of the Seafarers International Union, spokesman Jordan Biscardo said.

I had dinner one night last year with members of the SIU; they told me that ships sailing under US flags are the union crews. And as MoJo has confirmed, it appears that union membership is a big part of the reason these men were able to retake their ship.

And as I just heard on Fox News (and confirmed with the SIU), crew members of the Maersk Alabama received anti-piracy training from (where else?) their union.

If this serial heroism keeps up, businesses are going to be clamoring for unions to keep their operations safe. 

Typo fixed per wohjr.

Share this entry