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Banking ‘Talent’ Has Nowhere to Go

By Rick Ackerman Posted on October 23, 2009, 1:47 am EDT Last Updated October 23, 2009, 7:02 am EDT

With draconian pay cuts looming in the banking industry, the last thing we’ll have to worry about is mass defections of talent. In fact, the financial sector is deflating these days as fast as the Heene’s balloon, causing the number of job openings for “financial products” specialists to shrink by the hour. How times have changed! Just a few short years ago, Ken Lewis, Bank of America’s recently deposed CEO, might have taken his whole team of traders and MBAs and started a new bank. These days, though, they’re a glut on the market. About the only place the leverageurs are getting sympathy is on the op-ed page of the Wall Street Journal — the last sanctuary in America for the crackpot belief that a company needs to offer $50 million in salary and bonuses to get the right person for the job.

Lewis

Some might argue that these guys are worth every penny of it, since a well-run company can increase in value by far more than $50 million a year. But this ignores the fact that the stock market’s cyclical ups and downs are a far more powerful force in driving share prices than a company’s actual performance.  Looking back at the collapse of the technology bubble earlier in the decade, and the more recent collapse of financial stocks, one might infer that the higher a company’s share price, the more recklessly the firm was run.

If and when the banks recover, we can only hope their shares trade at the kind of earnings multiples that have obtained in, say, the fast-food sector.  After all, why should banks be growing so much faster than McDonald’s or Taco Bell?  If banks must leverage their capital 30-to-1 to turn an impressive profit, the incentives will always verge on insanity — or criminality.    

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  • chet olson October 24, 2009, 8:26 pm

    The Mayans (Guatamalan Council) perdict a pole shift soon, pehaps as soon as May. Scientists say one is over due, so that’s not a stretch. Don’t worry, be happy. Live in the moment. It will soon all be over.

    &&&&&

    Here in Colorado, Chet, well within the 1000-mile instant-kill radius of the Yellowstone dome, we’ve been living on borrowed time anyway for the last 50,000 or so years. RA

  • Chris T. October 23, 2009, 9:36 pm

    Rick,

    “one might infer that the higher a company’s share price, the more recklessly the firm was run.”

    I think you can almost go beyond “infer” and state this with certainty.

    At least since Michael Lewis showed us how they always risked other people’s money (back then dumping junk on local po-dunk S+Ls), this is so.

    But they got away with producing income off the commissions, IPOs stakes, M+A fees, etc, that hubris finally got them to retain some of the risk, placing their own firms in the fire. BUT, it was still other people’s money, the shareholders. They still had theirs high and dry, by cashing in the short term gain through bonuses, and leaving the longer term problem for their firm’s owners.

    If anything, all of Wall Street seems to have been run on the model: how can we produce the most short term gains by using the most reckless practices, while making it pay for us personally without risk? Even Bear’s large bonus recipients, (the ones not dumb enough to leave it all in Bear), are still rich today.

    Step one was jettisoning the unlimited partnership and finding dupes to become “owners” instead, and so on.

  • Rich October 23, 2009, 9:16 pm

    Aloha All

    Some ideas to share before the close:

    MYY above 45.23, VXX above 41.16, REW above 25.49.

    Have a nice weekend.

    Regards*Rich

    PS This is the weekend all hell is supposed to break loose say some…

  • Rich October 23, 2009, 8:05 pm

    So what’s different now?

    http://www.cnbc.com/id/15840232?video=1303945984&play=1 4:44

  • Senor Cuidado October 23, 2009, 7:42 pm

    Rick, another sharp dollar rally is coming. The yen and euro are going to take a beating.

    Finally people are waking up to the awful financial reality of Japan. Krugman is a mindless Keynesian who has been pwned by Mish, but he is undoubtedly influential.

    http://krugman.blogs.nytimes.com/2009/10/21/is-japan-on-the-fiscal-brink/

    Einhorn sees Japan for what it actually is: a total disaster in the making. Their USA exports just crashed another 30%.

    A dollar crash from this level is impossible from a trade flow stand point. Europe is freaking out right now. Dollar crash = WWIII and we are still a few years away from that.

    Euro bears will be in the green shortly:

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6389779/Euro-at-1.50-is-disaster–for-Europe.html

    PS Denninger smells credit dislocation.

    &&&&&

    My downside target for NYBOT U.S. Dollar Index (DXY) is unchanged at 72.93. RA

  • ricecake October 23, 2009, 7:04 pm

    You need the dull honest hard working guys there to watch your money. Not the immoral greedy smart guys. We have gotten it very wrong for too wrong for our own greedy desire and false hope that the smart greedy guys will make us rich. No. They are getting rich but we are ripped off

  • Rich October 23, 2009, 4:09 pm

    Neither Mad Max nor Terminator scenario satisfying.

    Guess we will have to defend and protect our Constitution after all:

    President Obama violated Article 1 Section 9 of the US Constitution by seating himself at the head of United Nations’ Security Council, thus becoming the first US president to chair the world body.

    http://www.usconstitution.net/const.html#A1Sec9

    http://www.youtube.com/watch?v=3u5Nd9i1UiA 3:13

    Just to remind US why we’re all trading….

  • Ryan October 23, 2009, 2:55 pm

    Then *AND* now, I find it hard to believe that there’s a shortage of talent that would be willing to run a huge company for $5M or less. There’s A LOT of sharp guys out there making “only” 6 figures that could run anything you put in front of them.

  • bill October 23, 2009, 2:28 pm

    Yeah… Tom Paine, bankers are far more likely to become targets of opportunity rather then objects of sympathy.
    As for the “distractions” they seem to be working so far…but another six months or so of what is looking more and more like a controlled demolition of our economy and that could also change. By then our intrepid politicos will have plenty of freshly painted F.E.M.A. camp buses prowling the streets to collect the fall out. G.M. is probably making those buses as we speak.

    —

  • Balce October 23, 2009, 12:53 pm

    Bonus issue is additional shares given by the company to its existing shareholders. By doing so, the company is able to reinvest the dividend cash for better earnings growth.Best Penny Stock

  • shawn October 23, 2009, 7:50 am

    Ups and downs? We(you) used to say, ‘never down again’…

  • Ben October 23, 2009, 7:41 am

    Great! Now when do government budget cuts begin? Or I should say continue. I forgot about all those states that went bankrupt because the stories just went away in a hurry.

  • Tom Paine October 23, 2009, 4:13 am

    Good little essay Rick. I couldn’t agree more with what you are saying. This is an age of moral hazard leveraged to the point hysteria. If the public wasn’t sated on welfare, porn and tawdry celebrity spectacles, there would be blood in the streets. Frankly, I am almost thankful for the weapons of mass distraction as it is better than being caught in a crossfire between survivalist militias, National Guardsmen, Xe Services mercenaries and/or whomever. Imagine having Predator drones stalking in your neighborhood. It could happen, but I hope to high heaven the hopeless hope that somehow we’ll muddle through without a total disintegration of what is left of civility in this country.


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