|  | | 2007 News and Press Releases | | |
HEADLINE NEWS:
The Year Of Puncturing Wall Street Orthodoxy
Jenny Anderson
International Herald Tribune. December 21, 2007
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EXCERPT: NEVER in the history of Wall Street have so many who are so senior fallen so fast. And it's no wonder. Citigroup, Merrill Lynch, Morgan Stanley and UBS have all lost billions of dollars as the crisis that began in the subprime mortgage market has ripped through the financial markets. There is enough finger-pointing at most major banks to cause carpal tunnel syndrome. This year the leaders of some of the world's most respected financial institutions — leaders who are paid first and foremost to manage risk — have been caught either unaware or uninformed about giant risks their companies took. Their financial engineers concocted securities so complex that even the brainiacs cannot figure out what those investments are worth. And the few banks that got it right, like Goldman Sachs, now face a sobering question: Will they be so agile next time? The landscape on Wall Street is already changing drastically. Firms once known for their savvy risk managers, like Bear Stearns, or for their conservative stockbrokers, like Merrill Lynch, have been crippled by the credit squeeze. Meantime, other firms that have run into trouble in the past, such as Credit Suisse, have emerged relatively unscathed and are now angling for clients and market share. The credit bubble that is now bursting, like the dot-com implosion before it, was fueled by the fantasy of easy money. Everyone knew the music would stop, but as Charles Prince, the former Citigroup chief executive, famously said, until it stopped, the bank would keep dancing. Any smart trader knows that challenging the conventional wisdom is often a sure bet. Here are 10 bits of well-worn Wall Street defenses that many must wish they had questioned this year. High Pay Means Low Risks Wall Street chief executives are paid princely sums to manage risks. But not only did these executives pile into tricky, hard-to-value assets, they also seemed incapable of keeping track of their falling value. And those ranks are packed with the best and brightest. As one chief executive after another was shown the door, it began to feel like a Wall Street version of "And Then There Were None." The scramble to replace top executives at Citigroup, Merrill Lynch and UBS laid bare the dearth of talent on the Street. Many rising stars have left big Wall Street banks to join hedge funds and private equity firms. Power-hungry chiefs failed to set up solid succession plans. |
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