When times are good, it’s awfully hard to tell the knuckleheads from the geniuses in the financial-services business. That’s because bad loans and bad investments tend to look just as profitable as good ones–and sometimes even more so–until trouble hits.
Lots of trouble has been hitting lately, with private-equity loans turning sour, AAA-rated subprime mortgage securities turning into junk, and all manner of other bets going bad. This ought to make it easier to figure out just who in the money business knows what he’s doing. Which explains why the just-completed earnings-reporting season for banks and other financial firms was the most informative in years. Not to mention entertaining, especially during the usually soporific conference calls with analysts in which executives discuss their results.
There was Bank of America chief Ken Lewis, who, after reporting setbacks in his attempts to turn the bank into a major force on Wall Street, declared, “I’ve had all the fun I can stand in investment banking at the moment.” And after Citigroup announced a nearly 60% drop in earnings, Deutsche Bank analyst Mike Mayo more or less asked CEO Chuck Prince why he hadn’t been fired. Prince’s response: “If you look at the strategic plan that we are executing on, I think any fair-minded person would say that strategic plan is working.” Read more.
The column was mostly written at the Fair Trade Coffee House in Madison on Monday afternoon, and sent to the printer Tuesday night, so I couldn’t include any of the juicy details on Merrill’s horrible Wednesday earnings report or the fact that Stan O’Neal has replaced Prince as the most on-the-spot financial industry CEO. Which already makes the column seem slightly dated. Dontcha just hate dead-tree journalism?
However, the piece does end with the timeless wisdom of Dick Kovacevich, the chairman of Wells Fargo. If I get my act together I may post some more of my Q&A with Kovacevich here next week.