A Ledgie wants to know: Economy Edition

[strandinthewind]

Another good if not slightly great sign:

Lehman, Goldman Profits Fall, but Beat Estimates

March 18, 2008, 8:28 am

Investment BankingIndustries Financial ServicesTwo of Wall Street’s top investment banks reported earnings well below the heights of last year, but still beating analysts’ expectations at a time when the financial sector is on edge following the collapse of Bear Stearns.

Lehman Brothers, whose stock took a beating on Monday following the announcement of the Bear Stearns sale, reported $489 million in profit for its first quarter. The earnings, which amount to 89 cents a share on $3.5 billion in revenue, are down 57 percent from the comparable period last year. Analysts surveyed by Thomson Financial expected profit of 72 cents a share.

Meanwhile, Goldman Sachs reported $1.51 billion in profit for its first quarter of 2008. Goldman’s earnings of $3.23 per share on $8.34 billion in revenue is less than half of the $6.67 per share it earned in 2007. Analysts had expected $2.58 a share on $7.3 billion, according to Thomson.

Lehman and Goldman reported yet more write-downs, which have become almost de rigueur as buyers of debt have almost completely vanished. Lehman disclosed a $1.8 billion net write-down tied to residential and commercial mortgages, while Goldman reported about $2 billion in charges related to mortgages and other debt, including loans meant to finance leveraged buyouts.

Still, both firms have reported fewer write-downs compared to their peers as the two firms credited strong risk management practices to protect against the mortgage market collapse. Last year, Goldman said it had bet heavily against risky home loans, avoiding the charges taken by Morgan Stanley, Merrill Lynch and Bear Stearns that led to huge losses.

The results follow a big selloff in investment banking shares on Monday, especially those of Lehman, sparked by the rapid demise of Bear Stearns and its fire sale to JPMorgan Chase. Lehman’s stock fell 19 percent Monday, and shares of other financial firms declined as well.

For the chief executives of both firms, the only way to describe the markets today was “challenging,” even as they sounded hopeful notes about ways to make money in a difficult environment.”Although market conditions present many challenges at the moment, they also offer considerable opportunities,” Goldman’s chief executive, Lloyd C. Blankfein, said in a statement.

“In what remains a challenging operating environment, our results reflect the value of our continued commitment to building a diversified platform and our focus on managing risk and maintaining a strong capital and liquidity position,” Lehman’s C.E.O., Richard S. Fuld, said in a statement.

Though some analysts said there were similarities between Bear and Lehman, others were quick to draw a line between the two firms. “Lehman is not Bear,” Deutsche Bank analyst Mike Mayo said in a report Monday.

The firm stressed that it had plenty of cash on hand as it seeks to avoid the sort of credit squeeze that decimated Bear Stearns. In its release Tuesday, Lehman said that it had a liquidity pool of $34 billion, with its parent company, Lehman Brothers Holdings, possessing $64 billion in other unencumbered assets and its regulated entitites holding unencumbered assets of $99 billion.

Lehman said its book value was $39.45 per common share.

Mr. Fuld previously told The New York Times that his firm has a comfortable level of liquidity. “We learned a ton in ’98,” Mr. Fuld told The Times, referring to investors’ panic after Russia defaulted on its debt. “We have a much different liquidity profile today than we did then.”

Lehman’s only decline in revenue came from its trading operations, which fell 52 percent from last year to $1.7 billion. Its debt trading unit’s revenue plunged 88 percent on continued troubles in mortgages and leveraged loans, while its equities trading operations rose 6 percent in large part because of its hedge fund servicing business.

Its investment banking revenue rose slightly to $867 million, as double-digit gains in mergers advisory and stock underwriting were mostly offset by a drop in debt underwriting. Investment management revenues rose 39 percent.

Lehman’s return on common stockholders’ equity, a measure of profitability, fell about 16 percent to 8.6 percent for the quarter. Its book value per common share was $39.45.

Goldman saw a wider decline in revenues across its businesses. Its biggest revenue generator, its trading and principal investment operations, saw a 46 percent drop in revenue to $5.12 billion thanks to the write-downs and some money-losing investments.

Its investment banking operations reported a 32 percent drop in revenue to $1.12 billion as all elements of that business — deal advisory and underwriting — fell amid the market turmoil.

But revenues from asset management and securities services (which includes clearing operations) rose 28 percent on higher assets under management and customer balances.

Goldman said that it remained well-capitalized, with $42.63 billion in shareholder equity and $179.48 billion in unsecured long-term borrowings. The firm said its book value per common share was $92.44 and its tangible book value per common share was $80.28.

www.nytimes.com

[HejiraNYC]

Originally Posted by strandinthewind

Justice requires implementing the law. Can you prove he did anything illegal? If so, then he should be prosecuted. But, buying a condo at the new Plaza is not against the law and neither is taking a vacation to be in bridge tournament, though his timing sucks.

I don't know the particular details of each transaction... but from my 20,000ft perch, it appears that they exploited loopholes and defrauded investors with voo doo accounting methods and reckless, unethical lending/trading practices. While it may have been legit from a legal perspective, the intent appears to have been fraudulent. But I don't think anyone will really know for certain until it all comes out in the wash...

Again, it seems you are equating a tanking company to illegality. There may be illegal acts here, but they have yet to be proven.

True. However, my problem here is from a moral/ethical point of view. It appears that BS, via their smoke and mirrors, managed to pump and dump gazillions of worthless shares in their favor, took all the profits for themselves, and left the bagholders, er, shareholders with nothing in the end. Meanwhile, they are going to bridge tournaments and buying 25 million-dollar condos at the Plaza while their customers are going to the poorhouse. I suppose it may be technically legal for these guys to pay themselves whatever they want. But at the end of the day, they need to be able to justify their lofty compensation packages. Why do you suppose there was that hearing in Congress last week with the CEO's of Citi, Countrywide, etc.? Something seriously stinks in Denmark, and some members of Congress are finally taking notice.

I know it sounds harsh, but you building a fancy house with lanscaping and a swimming pool in a time when thousands are losing their houses and jobs also likely would appear to many less fortunates as a bad thing and that you certainly must have done something wrong to get that. I know you did not, but the appearance would be there for them to assume that. So, I do not begrudge anyone for making enough money to build a pool or buy a $25 million condo at The Plaza. Again, if they broke the law, then justice should prevail.

For one thing, none of it is "fancy." Secondly, I am not being scrutinized because of a scandal involving a major corporation and billions of dollars going tits-up. Apples and oranges, mon frere! Everything I do is off the radar because there is nothing in the least bit shady about what I do.

I readily agree that in many cases illegal acts are performed. But, as of now, there is no evidence of that. Should the SEC or some other entitity be investigating - yes, they should. And, they often get the bad guys as they did in Enron. And, they take their assets, the ones that have not been legally removed from their possession, which actually is very hard to do believe it or not.

Again, right now the appearance is that these guys are guilty until proven innocent. And they're not the only ones with blood on their hands. All of the major Wall Street firms exploited the system to varying degrees, and the great unwinding is just beginning.

By the way, this guy likely lost about a billion dollars or at least several hundred million dollars yesterday. So, it is not like he is without harm as well Of course, many are loathe to admit that becuase he already is a millionaire and people just cannot help but hate them and think that anything over some arbitrary number of wealth is too much.

Awww... let me call a wAAAAAAmbulance for them.

[strandinthewind]

Originally Posted by HejiraNYC

. . . but from my 20,000ft perch . . .

That is higher than the view from The Plaza.

Originally Posted by HejiraNYC

. . . For one thing, none of it is "fancy." Secondly, I am not being scrutinized because of a scandal involving a major corporation and billions of dollars going tits-up. Apples and oranges, mon frere! Everything I do is off the radar because there is nothing in the least bit shady about what I do . . . .

My point is not that you are not squeaky clean, etc. My point is that you judging someone legally guilty without knowing the facts is likely the same judgement you would get from a poverty stricken person. I pointing out that both are unfair.

Originally Posted by HejiraNYC

. . . Again, right now the appearance is that these guys are guilty until proven innocent. . . . .

Well, that is not how the system works. And, you should be thankful for that because without it people would be shooting what they perceive as sinners right and left

If there was fraud here, and there likely was or at least the case can be made udner RICO (a fairly easy burden) or some other Act, then they will go to jail. Again, most of the crooks in the past decade were convicted. I personally think kCongress should change the law and allow the govt. to seize all assets given again or sold for non fair market value within a year of the fraud.

[SuzeQuze]

Originally Posted by HejiraNYC

See, it's shizz like this that makes me batshizz about the unmitigated corporate greed at BS:

http://www.observer.com/2008/bear-st...za-then-bridge

Bear Stearns' Cayne Takes The Plaza, Then Bridge
by Tom Acitelli | March 17, 2008 | Tags: Real Estatebear stearnsJames CayneThe Plaza

Bear Stearns chairman James Cayne was in Detroit at the start of the weekend that saw the tanking of his venerable investment bank. Why? Mr. Cayne was competing in the North American Bridge Championship, according to reports.

Also last week, as the perfect storm gathered, Mr. Cayne closed on a $25 million condo at the revamped Plaza.

********
If there is any justice in the world, the SEC or the Fed or somebody should be going after the personal assets of these criminals. Government Repo Sale at The Plaza! Besides, who needs The Plaza when there is a luxury suite waiting for him at Rykers Island.

Asshole. When I got laid off from my last job the new CEO bought a $3 million house in Martha's Vineyard. He was new so didn't exactly do anything criminal and I don't know that he ever did. However, the company was suffering and he paid himself 4x what the prior CEO did. I believe he also exercised options to buy that house. He did eventually get let go though. Karma.

[HejiraNYC]

Originally Posted by strandinthewind

How exactly was Bear Stearns bailed out? The company was worth tens of billions of dollars and got sold for $262 million. Their office tower on Madison was worth $1.3 billion, not to mention the other viable assets of the firm. So, Bear Stearns was most certainly not bailed out. Rather the sale to JP Morgan was a fire sale that stopped a run on a bank. JP Morgan will make billions off of this. Hopefully, they structured it so that the $30 billion or so in Fed backing for the mtg. securities will have to be repaid is they turn out to be good, which is unlikely.

True, Bear Stearns is history. However, the House of Cards/ponzi scheme was bailed out with government money, and JP Morgan Chase just happened to be the one and only company willing to stand up and take on this catastrophe with the help of taxpayer money. And about this so-called 30 billion-dollar "loan," do you honestly think that it will ever get paid back?

But, your point is interesting and, quite frankly, very conservative. You are endorsing a free maket with no govt. interderence, which is the best method or correcting the market, though it also is the harshest. It is the harshest because it provides no stability to the markets and corrections turn into panics. So, some govt. interference is required IMO.

Yes and no. We need an open market; however it needs to be tightly regulated, to the point where disasters like this would be prevented. But what's galling about all of this is the way Wall Streeters were such open market capitalists on the way up, but suddenly have become socialists on the way down. They are indeed having their cake and eating it too. Not only should Wall Street take on a big giant IOU for all of this, the Federal Bank should fall completely under the control the U.S. government (contrary to popular belief, it is indeed a private organization with Wall Street insiders on their board). As for the markets, I think they should correct without government intervention, even if it means they crash. If the government intervenes in bad times, doesn't it also mean that the government and taxpayers should share in the profits during the good times too? One or the other, folks!

Interestingly, one of the primary reasons NOLA is not rebuilt is the people there are arguing about what to do. There are big plans to redo many neighborhoods, but the homeowners, city, state, and Feds cannot agree on issues of property rights. I will say this though - much progress has happened, though much remains to be done.

True, however, with the proper funding and leadership, NOLA would be much further along today. In any case the bottom line is that leadership, money and resources were focused on waging a losing war (based on lies and greed) in Iraq while people were dying unnecessarily and/or living in Third World conditions in our own country. What would Jesus have done?

[strandinthewind]

Originally Posted by SuzeQuze

Asshole. When I got laid off from my last job the new CEO bought a $3 million house in Martha's Vineyard. He was new so didn't exactly do anything criminal and I don't know that he ever did. However, the company was suffering and he paid himself 4x what the prior CEO did. I believe he also exercised options to buy that house. He did eventually get let go though. Karma.

1. If he could fix the company, he likely was worth it.

2. How is it karma when he did nothing wrong? True, that you lost your job sucks, but his getting let go was some kind of cosmic payback for that?

To beat a dead horse, people just love to hate the rich, some of them I suppose derserve it, but not all of them

[strandinthewind]

Originally Posted by HejiraNYC

. . . True, however, with the proper funding and leadership, NOLA would be much further along today . . . .

The trouble is you are dealing for the most part with individual property rights, which the govt. cannot without good cause take away. It is very hard to tell someone (rich or poor) that they can no longer live in the house they inherited from their parents and they have to move ten miles away to where it is safer.

Personally, I think the Fed. Govt. should have just passed a bill, paid these people the fair market value for their land in areas like the Ninth Ward, which always floods, and have been done with it. Let them go buy houses in safer areas or leave the city. Then, take that area and make it into a spillway. To me, that is the only viable solution. But, that is political suicide and in many ways an awful thing to do to someone.

[strandinthewind]

Originally Posted by HejiraNYC

. . . And about this so-called 30 billion-dollar "loan," do you honestly think that it will ever get paid back? . . . .

I do not think it is a loan. I think the Fed backed the obviously troubled debt. So, if that debt does what they think it will and goes bad (if it is not already there) JP Morgan is not responsible. So, the Fed is only on the hook to absorb the losses. If the losses do not happen, which appears to be unlikely, then JP Morgan gains an asset. So, I think my use of the word "loan" was a mistake. I could be wrong though. The deal appears quite complicated and the entire then is not out yet, but likely will be if Bear Stearns accepts the deal, which it may not BTW.

[strandinthewind]

Originally Posted by HejiraNYC

. . . doesn't it also mean that the government and taxpayers should share in the profits during the good times too? One or the other, folks . . . .

Well, it does. Look at that tax base article I posted earlier. When times are good, the various govt.'s make tons of money as well

[SuzeQuze]

Originally Posted by strandinthewind

1. If he could fix the company, he likely was worth it.

2. How is it karma when he did nothing wrong? True, that you lost your job sucks, but his getting let go was some kind of cosmic payback for that?

To beat a dead horse, people just love to hate the rich, some of them I suppose derserve it, but not all of them

He had no skills to fix the company. He was brought in because of who he knew. I do not just like to hate the rich. You're making a huge assumption there. Big leap.

[David]

Originally Posted by strandinthewind

To beat a dead horse, people just love to hate the rich, some of them I suppose derserve it, but not all of them

I like rich people & I like greedy corporations: They enable me to make an income & buy stuff like food & shelter & computers to read the Ledge! We need MORE greedy corporations, not fewer -- & we need LESS state regulation, not more.

[strandinthewind]

Originally Posted by SuzeQuze

He had no skills to fix the company. He was brought in because of who he knew. I do not just like to hate the rich. You're making a huge assumption there. Big leap.

I did not know or assume he could. I specifically said "if"

You seemingly are quick to judge the rich as scoundrels. If not, I recant with hat in hand.

[HejiraNYC]

Originally Posted by strandinthewind

I do not think it is a loan. I think the Fed backed the obviously troubled debt. So, if that debt does what they think it will and goes bad (if it is not already there) JP Morgan is not responsible. So, the Fed is only on the hook to absorb the losses. If the losses do not happen, which appears to be unlikely, then JP Morgan gains an asset. So, I think my use of the word "loan" was a mistake. I could be wrong though. The deal appears quite complicated and the entire then is not out yet, but likely will be if Bear Stearns accepts the deal, which it may not BTW.

Oh, it is definitely considered a "loan," on top of the $200 billion "loan" pumped into the Fed last week. And this is on top of the billions already "loaned" to Wall Street over the past six months. But then again, I don't know where all of this money goes or how it is "packaged" and sold off. It just seems like monetary supply is always growing bigger and bigger, and that any financial problems are simply inflated away these days.

[HejiraNYC]

Originally Posted by strandinthewind

Well, it does. Look at that tax base article I posted earlier. When times are good, the various govt.'s make tons of money as well

But tax revenue is collected no matter what. From everybody. So does that mean if I was reckless with my money and bought millions of dollars worth of dot-com stocks in the late 1990's, that I am entitled to a government-sponsored bailout because I paid my taxes?

[strandinthewind]

Originally Posted by David

I like rich people & I like greedy corporations: They enable me to make an income & buy stuff like food & shelter & computers to read the Ledge! We need MORE greedy corporations, not fewer -- & we need LESS state regulation, not more.

Interestingly, what is greed and what is normal compensation and/or profit. Who sets that bar? In the end, the number will always be arbitrary. The poorest of the poor will say that anyone making, say, $50,000 a year is a crook, privileged, etc. Most middle class people have never made over a million dollars a year or know anyone well who does. So, they may assume the millionaires are crook, privileged, etc. - despite that many of them worked legally, honestly and hard for it.

In the end, I am all about the facts and try never to rush to convict without them.