It's the start of August, and there's alot of whipsaw action in the markets. Looking at STI, it is now at the pre-crisis levels and rumored to even hit 3000 by end of the year!
Ok, let's look back. Since the mad sell off in Feb-Mar, the market took a huge turn by killing all the bears and most of the stocks you have bought during that period of time will have made you at least 30-40% gain till date. It seems that Asia markets has recovered quite a fair bit but the US markets has still room to move up. Dow is still below its 10,000 mark and NASDAQ close to its 2000 mark.
Moving back to the STI, Celestial is still suspended, pending its negotiation with the bond holders. Below is the latest reply:
----
CELESTIAL NUTRIFOODS LIMITED
(the “Company”)
(Incorporated in Bermuda)
UPDATE ON EARLY REDEMPTION OF CONVERTIBLE BONDS FOR JULY 2009
Further to the Company’s announcement nos. 00073 and 00175 released on 15 June 2009 and 30 June 2009 respectively, the Board wishes to inform that the Company has had preliminary communications and discussions with bondholders representing a substantial majority interest in the convertible bonds, and has been working with the sole dealer manager, Merrill Lynch Far East Limited and the legal advisor, Milbank,Tweed, Hadley & McCloy LLP to develop potential proposals for bondholders’ consideration.
Should the bondholders wish to communicate with the Company, please find below the contact details of the Company:-
Contact : Sun Feng
Telephone : 0086-10-65561809
Email : info@celestialsms.com
The Company will provide an update as and when there is any further development.
By Order of the Board
Ming Dequan
Executive Chairman
31 July 2009
----
It has missed the bull run recently, with most of the S-Shares moving fast and furious and recovering to its pre-IPO prices. Yangzijiang is currently trading at $0.895, which is at the 2006 pre-crisis levels, and others like China Milk and China XLX moving into the $0.50 levels.
Kinda busy nowadays, as banks are trying to catch this sudden uptrend in the economy, and doing the mid year appraisal is stressful as well!
An interesting article I read
This may interest some people in terms of perception:
Why I participate in the great stock-market guessing game is beyond me. I know it is a futile undertaking, but that didn't stop me from predicting last August that the S&P 500 would see a marked breakout from its narrow summer trading range.
I wrote, 'a flat finish to this tumultuous year doesn't feel right. There is too much uncertainty. Too many catalysts that could drive big changes in the stock market.'
My logic was impeccable back when the S&P traded at 1281. And so was my prediction-impeccably wrong. A level of 1450 on the S&P 500? It would have been funny had I not lost so much money. The index actually closed at 903. A summer later, the U.S. market is again stuck in a narrow range. And, again I see a bull market on the horizon. My call is for the S&P 500 to
finish somewhere between 1150 and 1200 at year end, a 30% bump from Tuesday's close.
Will it get there? I actually don't see the economy picking up until next year. But the market works in mysterious ways, as investors favor the perception of tomorrow over the reality of today. So what catalysts in the coming months could radically change investor perception? Here are three big ones:
Catalyst No. 1: U.S. Companies Keep Delivering Earnings
Give America's CEOs some credit. Most of them have figured out that underpromising and overdelivering on profits is a good way to keep their jobs. Just look at recent strong earnings from Johnson & Johnson, Yum Brands, CSX and Goldman Sachs. Intel crushed consensus analyst expectations by 10% on the top line and by more than 100% on earnings per share.
This doesn't mean business is great. But it does mean American CEOs know how to protect profits in this lousy economy: cut inventories, slash costs and fire workers. It also means share prices are more likely to rise than fall as analysts re-jigger their earnings and price targets upward. This morning more than a dozen Wall Street analysts upped their price target on
Intel. Its shares are up 7%. And the market is up more than 2%.
Catalyst No. 2: The 'Animal Spirits' Are Unleashed Again on Wall Street
There is nothing like confidence, envy and greed-the 'animal spirits' - to get Wall Street investors and banks back into risk-taking.
It is a good bet that plenty of other banks are already boosting their risk-taking. Just look at J.P. Morgan's 'renewed swagger' as outlined in the WSJ today. With the TARP repaid, CEO Jamie Dimon seems mighty hungry to make his bank lots of money.
Junk-bond issuance surged to $51 billion in the second quarter after practically halting last September.
This aggressiveness is a good thing. It is good for an economy that needs capital. And it is good for a stock market that is stoked by risk capital. With banks back seeking higher returns, how long will it be before investors follow suit? A yield of less than 1% on a two-year Treasury? Is
that a good risk-return trade-off as the Federal Reserve pumps hundreds of billions of dollars into the economy?
Catalyst No. 3: President Obama Moves to the Political Center
What will President Obama do when October arrives with 10% unemployment, a soaring, $2 trillion budget deficit and dozens of unhappy Democratic Congressmen? Will he actually double down on his tax-the-rich, anti-business policies?
It seems unlikely. After all, politicians want to get re-elected. And without the votes of conservative Democratic senators, the president's entire agenda is doomed. So, the president will have no choice but to move to the center. And that switch from Obama as Jimmy Carter to Obama as Bill Clinton will be good for the U.S. economy, good for U.S. companies and good for the U.S. stock market.
Just think of the surge in energy and utility stocks if 'cap-and-trade' legislation is indefinitely postponed. Or consider the boost health-care and pharmaceutical stocks would get from taking the 'public health' option out of health-care reform. After all, why should a share of Merck or Eli Lilly carry a 6% dividend yield when the 10-year Treasury is under 3.5%?
So, 1200 for the S&P 500? The catalysts are there.
Why I participate in the great stock-market guessing game is beyond me. I know it is a futile undertaking, but that didn't stop me from predicting last August that the S&P 500 would see a marked breakout from its narrow summer trading range.
I wrote, 'a flat finish to this tumultuous year doesn't feel right. There is too much uncertainty. Too many catalysts that could drive big changes in the stock market.'
My logic was impeccable back when the S&P traded at 1281. And so was my prediction-impeccably wrong. A level of 1450 on the S&P 500? It would have been funny had I not lost so much money. The index actually closed at 903. A summer later, the U.S. market is again stuck in a narrow range. And, again I see a bull market on the horizon. My call is for the S&P 500 to
finish somewhere between 1150 and 1200 at year end, a 30% bump from Tuesday's close.
Will it get there? I actually don't see the economy picking up until next year. But the market works in mysterious ways, as investors favor the perception of tomorrow over the reality of today. So what catalysts in the coming months could radically change investor perception? Here are three big ones:
Catalyst No. 1: U.S. Companies Keep Delivering Earnings
Give America's CEOs some credit. Most of them have figured out that underpromising and overdelivering on profits is a good way to keep their jobs. Just look at recent strong earnings from Johnson & Johnson, Yum Brands, CSX and Goldman Sachs. Intel crushed consensus analyst expectations by 10% on the top line and by more than 100% on earnings per share.
This doesn't mean business is great. But it does mean American CEOs know how to protect profits in this lousy economy: cut inventories, slash costs and fire workers. It also means share prices are more likely to rise than fall as analysts re-jigger their earnings and price targets upward. This morning more than a dozen Wall Street analysts upped their price target on
Intel. Its shares are up 7%. And the market is up more than 2%.
Catalyst No. 2: The 'Animal Spirits' Are Unleashed Again on Wall Street
There is nothing like confidence, envy and greed-the 'animal spirits' - to get Wall Street investors and banks back into risk-taking.
It is a good bet that plenty of other banks are already boosting their risk-taking. Just look at J.P. Morgan's 'renewed swagger' as outlined in the WSJ today. With the TARP repaid, CEO Jamie Dimon seems mighty hungry to make his bank lots of money.
Junk-bond issuance surged to $51 billion in the second quarter after practically halting last September.
This aggressiveness is a good thing. It is good for an economy that needs capital. And it is good for a stock market that is stoked by risk capital. With banks back seeking higher returns, how long will it be before investors follow suit? A yield of less than 1% on a two-year Treasury? Is
that a good risk-return trade-off as the Federal Reserve pumps hundreds of billions of dollars into the economy?
Catalyst No. 3: President Obama Moves to the Political Center
What will President Obama do when October arrives with 10% unemployment, a soaring, $2 trillion budget deficit and dozens of unhappy Democratic Congressmen? Will he actually double down on his tax-the-rich, anti-business policies?
It seems unlikely. After all, politicians want to get re-elected. And without the votes of conservative Democratic senators, the president's entire agenda is doomed. So, the president will have no choice but to move to the center. And that switch from Obama as Jimmy Carter to Obama as Bill Clinton will be good for the U.S. economy, good for U.S. companies and good for the U.S. stock market.
Just think of the surge in energy and utility stocks if 'cap-and-trade' legislation is indefinitely postponed. Or consider the boost health-care and pharmaceutical stocks would get from taking the 'public health' option out of health-care reform. After all, why should a share of Merck or Eli Lilly carry a 6% dividend yield when the 10-year Treasury is under 3.5%?
So, 1200 for the S&P 500? The catalysts are there.
Finally the weekends!
It seems to be quite some time since my last post. Recently, there seem to be alot of work to be done and momentum is picking up in my job.
I took some quick peek at the markets and it seems that the downtrend is coming back again in the short run. Many blue chips have been battled down again in the SG and US markets. Celestial on the other hand, is still under suspension and pending more updates from the management.
It seems that I have been kinda tired of going to work nowadays, without any breaks since my leave in May which was practically mugging books too.
I took some quick peek at the markets and it seems that the downtrend is coming back again in the short run. Many blue chips have been battled down again in the SG and US markets. Celestial on the other hand, is still under suspension and pending more updates from the management.
It seems that I have been kinda tired of going to work nowadays, without any breaks since my leave in May which was practically mugging books too.
If you are interested in getting a webspace for yourself or company..
Please contact me if you are interested in getting a webspace for yourself. I have a lobang for web hosting, which includes unlimited disk space, personal email address availability, plus advanced features like FTP and database (mySQL, phpmyAdmin etc) support. Rates are definitely competitve or if not, better than market rates.
Drop me an email at marcushanyk@yahoo.com.sg if you are interested or need more details.
Drop me an email at marcushanyk@yahoo.com.sg if you are interested or need more details.
General Electrics (GE)
As the title mentioned, I have some vested interest in this company. Why did I buy this?
Some introduction of the company:
A diversified industrial corporation whose products include major appliances; lighting products; industrial automation products etc. Its services include product services; electrical apparatus installation, engineering, and repair and rebuilding services.
1. The company has been one of the largest US companies globally and well established.
2. It has reached a low of $5+ trading range and now its trading band is between $12.60 - $13.78+
3. Warrent Buffett has a vested interest in this company at a conversion price of $22.50 per share.
Below is the 10 years trading chart for GE:
The highest it went was at $60+ in 2000 - 2001, while after that, it was trading at the range of mid $20+ to a close of $40 until mid 2007 when the subprime crisis occurred.
A steep fall and now trading at a range of $10-$14, does it warrant a buy-in? From the trends, it seems that it cannot reach its peak in 2001 and even when the economy recovers, it may not even reach the peaks of $40+. Judging from the trends, I'm looking at the next 10 years of a price at around $20-$30+ highest.
I'm not very inclined to see that it may reach the highs based on the following trends. If I am able to obtain the results from 1989 - 1999, it may show a clearer picture.
Some introduction of the company:
A diversified industrial corporation whose products include major appliances; lighting products; industrial automation products etc. Its services include product services; electrical apparatus installation, engineering, and repair and rebuilding services.
1. The company has been one of the largest US companies globally and well established.
2. It has reached a low of $5+ trading range and now its trading band is between $12.60 - $13.78+
3. Warrent Buffett has a vested interest in this company at a conversion price of $22.50 per share.
Below is the 10 years trading chart for GE:
The highest it went was at $60+ in 2000 - 2001, while after that, it was trading at the range of mid $20+ to a close of $40 until mid 2007 when the subprime crisis occurred.
A steep fall and now trading at a range of $10-$14, does it warrant a buy-in? From the trends, it seems that it cannot reach its peak in 2001 and even when the economy recovers, it may not even reach the peaks of $40+. Judging from the trends, I'm looking at the next 10 years of a price at around $20-$30+ highest.
I'm not very inclined to see that it may reach the highs based on the following trends. If I am able to obtain the results from 1989 - 1999, it may show a clearer picture.
Celestial is suspended from 16/06/09
As reported in SGX, celestial has requested for suspension for its share until further notice:
Quote:
The suspension is to allow Merrill Lynch Far East Limited and its affiliates, the appointed sole dealer manager to assist the Company for negotiation with the Bondholders. The suspension will be lifted as soon as the views of the Bondholders are obtained.
Link: http://info.sgx.com/webcorannc.nsf/vwprint_portal/36EC058E838F56F3482575D30005AAA9?OpenDocument
They have also taken the chance to dismiss the rumour of a bank going to buy its bonds:
MISCELLANEOUS :: CLARIFICATION TO THE RUMOURS IN RESPECT OF THE ARTICLE IN THE LIANHE ZAOBAO HEADLINED "传一中资大银行或收购天圜营养债券" OF 13 JUNE 2009
Link: http://info.sgx.com/webcorannc.nsf/vwprint_portal/C205199BDC4E5343482575D6002DBAE3?OpenDocument
As I was saying previously, Merrill should be generating some form of contact and deriving solutions to resolve this and fast enough, I am guessing that this suspension could be proposed by Merrill and some news may come out fast enough these few weeks. Quite a number of comparisons were done with other suspended companies like Sino-Environment Tech and Beauty China. This definitely leaves some worries for investors, especially it didn't worked well for the 2 companies and I am quite heavily invested in this counter.
Quote:
The suspension is to allow Merrill Lynch Far East Limited and its affiliates, the appointed sole dealer manager to assist the Company for negotiation with the Bondholders. The suspension will be lifted as soon as the views of the Bondholders are obtained.
Link: http://info.sgx.com/webcorannc.nsf/vwprint_portal/36EC058E838F56F3482575D30005AAA9?OpenDocument
They have also taken the chance to dismiss the rumour of a bank going to buy its bonds:
MISCELLANEOUS :: CLARIFICATION TO THE RUMOURS IN RESPECT OF THE ARTICLE IN THE LIANHE ZAOBAO HEADLINED "传一中资大银行或收购天圜营养债券" OF 13 JUNE 2009
Link: http://info.sgx.com/webcorannc.nsf/vwprint_portal/C205199BDC4E5343482575D6002DBAE3?OpenDocument
As I was saying previously, Merrill should be generating some form of contact and deriving solutions to resolve this and fast enough, I am guessing that this suspension could be proposed by Merrill and some news may come out fast enough these few weeks. Quite a number of comparisons were done with other suspended companies like Sino-Environment Tech and Beauty China. This definitely leaves some worries for investors, especially it didn't worked well for the 2 companies and I am quite heavily invested in this counter.
Another day, another week gone
Another week of volatile trading, with the focus on Celestial. Friday was the day where the convertible bonds were due, but no news were out in particular to the company. Merrill Lynch has been appointed to tackle this problem and likely, there would be some solutions in the next few weeks.
Even Channel U and 早报 made some coverage on Celestial too:
市场谣传，一家大型中国银行可能成为拯救中资企业天圜营养集团(Celestial NutriFoods)的“白武士”，出资收购后者一批总值2亿3480万元的债券(convertible bonds)。
Link: http://www.zaobao.com/cs/cs090613_512.shtml
To translate that, it means there are rumours that there may be a big bank to buy over the bonds from Celestial. I guess there may be more trading done on Celestial and likely it may go below $0.165.
Putting that aside, governments are all trying to find ways to unwind the huge stimulus packages that they have put in place to fight inflation. Once the economy recovers, inflation will be shooting fast and furious. Remember the $150 oil? Oil is now at around $72, which is coming back to the precrisis levels.
Went butter factory last friday, and the queue there is horrible! But then, it was the 1st time that I drink until I got blackout and merlion-ed non stop!
Even Channel U and 早报 made some coverage on Celestial too:
市场谣传，一家大型中国银行可能成为拯救中资企业天圜营养集团(Celestial NutriFoods)的“白武士”，出资收购后者一批总值2亿3480万元的债券(convertible bonds)。
Link: http://www.zaobao.com/cs/cs090613_512.shtml
To translate that, it means there are rumours that there may be a big bank to buy over the bonds from Celestial. I guess there may be more trading done on Celestial and likely it may go below $0.165.
Putting that aside, governments are all trying to find ways to unwind the huge stimulus packages that they have put in place to fight inflation. Once the economy recovers, inflation will be shooting fast and furious. Remember the $150 oil? Oil is now at around $72, which is coming back to the precrisis levels.
Went butter factory last friday, and the queue there is horrible! But then, it was the 1st time that I drink until I got blackout and merlion-ed non stop!
I finally graduated!
My results are out and it has been confirmed! I finally completed my studies!
The first goal for this year has been achieved, and now for the second goal at the end of the year. Equities are still quite beaten down, and Celestial has been the hot topic of the week, especially when Friday is coming near. Will they survive this through rights issuance or will the bond holders decide to hold it till 2011? It has become so speculative that trading up and down is in at least 10-20%.
Other news to take note of:
The first goal for this year has been achieved, and now for the second goal at the end of the year. Equities are still quite beaten down, and Celestial has been the hot topic of the week, especially when Friday is coming near. Will they survive this through rights issuance or will the bond holders decide to hold it till 2011? It has become so speculative that trading up and down is in at least 10-20%.
Other news to take note of:
Citi and U.S. finalize deal - $58B stock swap
NEW YORK (Reuters) -- Citigroup Inc. on Wednesday began a long-delayed $58 billion stock swap that could leave the government with a 34% stake in the nation's third-largest bank.Citigroup (C, Fortune 500) plans to swap common stock for as much as $33 billion of preferred shares, and convert as much as $25 billion of preferred shares held by the U.S. Treasury into common stock.
Citigroup said the swap could make it one of the world's best-capitalized banks, adding up to $61 billion of tangible common equity and $64 billion of Tier-1 common equity. It had planned to begin the swap in April.
The exchange offer could result in the issuance of more than 17 billion new common shares, diluting the holdings of existing investors by 76%. The public exchange offers expire July 24.
Link: http://money.cnn.com/2009/06/10/news/companies/citigroup_stock_swap.reut/index.htm?postversion=2009061008End of an era
I guess you can see this all over the news, GM has finally declared bankruptcy after struggling for so long. Since January, it has asked for funds from government to keep it alive until March and still in the end, it didn't really helped much in its survival.
However, the markets didn't react badly to this news and in fact, the rally came once again. The other big news is with Citi and GM, being kicked out of the Dow composite.
General Motors and Citigroup were kicked out of the closely watched Dow Jones industrial average Monday, marking a historic fall from grace for two once venerable American corporations.
However, the markets didn't react badly to this news and in fact, the rally came once again. The other big news is with Citi and GM, being kicked out of the Dow composite.
General Motors and Citigroup were kicked out of the closely watched Dow Jones industrial average Monday, marking a historic fall from grace for two once venerable American corporations.
In a widely anticipated move, Dow Jones & Co said technology bellwether Cisco Systems Inc will replace GM, which filed for bankruptcy Monday morning. Travelers Co , a large home, auto and commercial insurer, will take the place of Citigroup due to the bank's restructuring and the government's "large and ongoing stake."
Sadly, Citi and AIG might be the next in line for the world to see how they tear down their walls and furniture to keep themselves afloat?
Banks Over-'Compensating' on Your Dime
An interesting article I received through email.
Some things just never change -- especially in the banking industry, where there's a whole lot of the "same old, same old" taking place once again.
The U.S. government is a major shareholder in the largest banks today -- financial institutions that came crawling to the U.S. government to be bailed out when they were injured.
The government has repeatedly commanded these institutions to stop excessive executive pay and bonuses. But, who listens to major shareholders anyway?
When Will the Banks Ever Learn?
Morgan Stanley (MS) actually announced that it was boosting executive salaries. Why? Because the government said that bonuses would not be tolerated. Clearly Morgan Stanley, the sixth-largest U.S. bank, does not get the picture. In fact, the company announced that it intends to double its CFO's pay.
Are they alone? Hmmmm ... hardly.
UBS AG (UBS), the European bank with the largest financial losses, plans to raise "senior banker" compensation by 50%. This equates to $811 million.
Remember that UBS, under the direction of "senior bankers," amassed the biggest loss in the bank's corporate history in just one year, 2008. Why raise salaries? Because the Swiss government, like the U.S. government, bailed out UBS and said "no more executive bonuses." Increased salaries come from the same pool of money as bonuses, even if accounting rules put them in another category. It's the old "robbing Peter to pay Paul syndrum."
Royal Bank of Scotland's (RBS) executive pay has increased dramatically with the rise in value of the bank shares just over the last two months. Now RBS is under pressure because its executive pay scale has not been made transparent.
Like UBS, RBS is nearly wholly owned by the Swiss government. Yet, the company continues to talk about raising executive pay levels ... despite the fact that RBS' losses in 2008 were nearly $42 billion.
Bank of America (BAC) said the company is boosting salaries for senior executives. How much? By as much as 70% for its investment bankers.
Remember, B-of-A received $45 billion in taxpayer bailout money. After the infamous "bank stress tests," B-of-A needs to raise $34 billion in private equity. So, what would its salaries look like after the pay raise? Managing directors' salaries would increase to $300,000 from $180,000. Less-senior directors would receive $250,000, up from $150,000.
But it's "OK," because bonuses would become "smaller," said Brian Moynihan, B-of-A's president of investment banking and wealth management. “We believe it is responsible, and consistent with the emerging public consensus, that a greater percentage of overall compensation come from fixed base salary.”
Citigroup (C) expects to raise base salaries in compensation for reduced bonuses as well. Why? To deflect key employee resignations. But aren't these the same investment bankers who were the masterminds of Citi's $8.29 billion loss in Q4 2008, along with another $966 million in Q1 2009?
And isn't it Citigroup that desperately needed $45 billion in bailout funds, while simultaneously purchasing a $50 million, 12-seat plane for these same senior investment bankers?
And let's not forget Goldman Sachs (GS). Remember them? Didn't they borrow a cool $12 billion from taxpayers and receive an additional $12.9 billion from AIG (that was also bailout-funded)? Goldman just announced that 50% of its revenue is now set aside for salaries, bonuses and benefits -- up 48% from one year ago. The amount: $4.7 billion ($168,000 per employee).
Goldman reps have repeatedly talked about the company's "duty" to repay the bailout money. Why? Is it really because of a sense of "duty" or because bailout money gives the U.S. government the right to oversee/restrict executive pay?
The company's seven top execs were required to give up their multimillion-dollar compensation bonus packages. Once the money is repaid, however, government control of bonuses is over.
But does it really matter? Since when does Goldman Sachs kowtow to the likes of the U.S. government? The U.S. is now a major shareholder in Goldman and still the company is planning to spend $4.7 billion in executive pay increases.
Here's the rub for U.S. taxpayers. We were forced to bail out investment bankers and brokers who caused the collapse of the stock market in 2008. Only a few of them lost their jobs for what they did. Now they are actually demanding pay increases.
To get what they want, these bankers/brokers need to repay the bailout funds -- thus removing government oversight restrictions. But if the government allows the bankers to repay the bailout funds, (now that they are doing better and able to raise private equity), the taxpayers once again get squeezed. Why? Because they would be returning the funds at below-market prices.
Governments that bailed out banks/brokerages received warrants from the banks in exchange for the original loan. Those warrants gave the governments the option to buy bank/brokerage stocks at a set price over 10 years.
In just a few months, stock values have more than doubled -- adding significant value to those warrants. Now the banks want to repay the loans and, in so doing, buy back their warrants. It was Treasury Secretary Tim Geithner who sold the U.S. taxpayers on bailing out the banks because he said that once the banks recovered, taxpayers would benefit from long-term stock gains.
Now, it seems that several of the banks will be allowed to return their funds as early as June 2009, including Goldman Sachs, JPMorgan (JPM) and Morgan Stanley. When asked about why they should be allowed to buy back their warrants, they said that, because of the stock market's March/April/May recovery, the value of the warrants have increased beyond a level that the bankers feel they are worth.
They quickly forgot about crawling on their hands and knees, begging for bailout. Citi and B-of-A in particualr quickly forgot that they were nearly dismantled. Perhaps they need a reminder that that, if it were not for the taxpayers, those warrants would not be worth the paper they were printed on.
Amazing how some things just never change.
How come I don't see myself getting a pay hike?? Opps, I forgot I am not a key executive of the bank and just another joe in this cruel industry where pay hikes are frozen. Sad, but cruelly true.
Some things just never change -- especially in the banking industry, where there's a whole lot of the "same old, same old" taking place once again.
The U.S. government is a major shareholder in the largest banks today -- financial institutions that came crawling to the U.S. government to be bailed out when they were injured.
The government has repeatedly commanded these institutions to stop excessive executive pay and bonuses. But, who listens to major shareholders anyway?
When Will the Banks Ever Learn?
Morgan Stanley (MS) actually announced that it was boosting executive salaries. Why? Because the government said that bonuses would not be tolerated. Clearly Morgan Stanley, the sixth-largest U.S. bank, does not get the picture. In fact, the company announced that it intends to double its CFO's pay.
Are they alone? Hmmmm ... hardly.
UBS AG (UBS), the European bank with the largest financial losses, plans to raise "senior banker" compensation by 50%. This equates to $811 million.
Remember that UBS, under the direction of "senior bankers," amassed the biggest loss in the bank's corporate history in just one year, 2008. Why raise salaries? Because the Swiss government, like the U.S. government, bailed out UBS and said "no more executive bonuses." Increased salaries come from the same pool of money as bonuses, even if accounting rules put them in another category. It's the old "robbing Peter to pay Paul syndrum."
Royal Bank of Scotland's (RBS) executive pay has increased dramatically with the rise in value of the bank shares just over the last two months. Now RBS is under pressure because its executive pay scale has not been made transparent.
Like UBS, RBS is nearly wholly owned by the Swiss government. Yet, the company continues to talk about raising executive pay levels ... despite the fact that RBS' losses in 2008 were nearly $42 billion.
Bank of America (BAC) said the company is boosting salaries for senior executives. How much? By as much as 70% for its investment bankers.
Remember, B-of-A received $45 billion in taxpayer bailout money. After the infamous "bank stress tests," B-of-A needs to raise $34 billion in private equity. So, what would its salaries look like after the pay raise? Managing directors' salaries would increase to $300,000 from $180,000. Less-senior directors would receive $250,000, up from $150,000.
But it's "OK," because bonuses would become "smaller," said Brian Moynihan, B-of-A's president of investment banking and wealth management. “We believe it is responsible, and consistent with the emerging public consensus, that a greater percentage of overall compensation come from fixed base salary.”
Citigroup (C) expects to raise base salaries in compensation for reduced bonuses as well. Why? To deflect key employee resignations. But aren't these the same investment bankers who were the masterminds of Citi's $8.29 billion loss in Q4 2008, along with another $966 million in Q1 2009?
And isn't it Citigroup that desperately needed $45 billion in bailout funds, while simultaneously purchasing a $50 million, 12-seat plane for these same senior investment bankers?
And let's not forget Goldman Sachs (GS). Remember them? Didn't they borrow a cool $12 billion from taxpayers and receive an additional $12.9 billion from AIG (that was also bailout-funded)? Goldman just announced that 50% of its revenue is now set aside for salaries, bonuses and benefits -- up 48% from one year ago. The amount: $4.7 billion ($168,000 per employee).
Goldman reps have repeatedly talked about the company's "duty" to repay the bailout money. Why? Is it really because of a sense of "duty" or because bailout money gives the U.S. government the right to oversee/restrict executive pay?
The company's seven top execs were required to give up their multimillion-dollar compensation bonus packages. Once the money is repaid, however, government control of bonuses is over.
But does it really matter? Since when does Goldman Sachs kowtow to the likes of the U.S. government? The U.S. is now a major shareholder in Goldman and still the company is planning to spend $4.7 billion in executive pay increases.
Here's the rub for U.S. taxpayers. We were forced to bail out investment bankers and brokers who caused the collapse of the stock market in 2008. Only a few of them lost their jobs for what they did. Now they are actually demanding pay increases.
To get what they want, these bankers/brokers need to repay the bailout funds -- thus removing government oversight restrictions. But if the government allows the bankers to repay the bailout funds, (now that they are doing better and able to raise private equity), the taxpayers once again get squeezed. Why? Because they would be returning the funds at below-market prices.
Governments that bailed out banks/brokerages received warrants from the banks in exchange for the original loan. Those warrants gave the governments the option to buy bank/brokerage stocks at a set price over 10 years.
In just a few months, stock values have more than doubled -- adding significant value to those warrants. Now the banks want to repay the loans and, in so doing, buy back their warrants. It was Treasury Secretary Tim Geithner who sold the U.S. taxpayers on bailing out the banks because he said that once the banks recovered, taxpayers would benefit from long-term stock gains.
Now, it seems that several of the banks will be allowed to return their funds as early as June 2009, including Goldman Sachs, JPMorgan (JPM) and Morgan Stanley. When asked about why they should be allowed to buy back their warrants, they said that, because of the stock market's March/April/May recovery, the value of the warrants have increased beyond a level that the bankers feel they are worth.
They quickly forgot about crawling on their hands and knees, begging for bailout. Citi and B-of-A in particualr quickly forgot that they were nearly dismantled. Perhaps they need a reminder that that, if it were not for the taxpayers, those warrants would not be worth the paper they were printed on.
Amazing how some things just never change.
How come I don't see myself getting a pay hike?? Opps, I forgot I am not a key executive of the bank and just another joe in this cruel industry where pay hikes are frozen. Sad, but cruelly true.
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