“Be Prepared”

I’ve been asked with increasing frequency, by veterans of certain institutional sectors of the Investment Industry, what they should be doing for the remaining ten, fifteen, maybe twenty years of their working life, now that their specific niche in the business has become economically extinct?

Now I don’t mind being a disseminator of free advice, since a lot of my ex-brothers and sisters from the Fixed Income world have become victims of skinnier and skinnier spreads. So I will. But one has to facilitate a re-making of your career several times, sometimes more than once or twice in a decade. This is not the same as being hit by the proverbial bus. It’s worse, because you live to fight your way through the loss of job with all the expense trajectory a highly paid financial professional has engineered into their life.

Heck, I got out of the business in the early 1990’s and I was LATE getting out of fixed income, because there were fewer and fewer players of significance on the West Coast, and less money to be made; the payouts were cut to the bone then. It’s hard to find one of the old “me” anymore. Taking a point markup on municipal bonds was acceptable in the 1980’s. It started getting skinny in the 1990’s--- and now the institutional bond business is conducted largely electronically.

I get these calls from sales people, traders, wholesalers, and managers who share resumes that have more stops than a New York metro bus, and they are hanging on for dear life for the next shoe to drop. They need to let go, and start flapping in a different direction. One should always be learning, and if it’s not intensive reading, it should be seeking a degree or specific credential that will help your marketability when the music stops.

All the stops on a resume have an explanation, but some people have had ten stops in ten years, all explained by “the company I joined got out of the business…” Which begs an explanation, what was the wise alternative after this happened for the third or fourth time in a row? The answer is, prepare, continue to learn, credentialize, and scheme yourself into a lucrative position, but do it well in advance, and allow flexibility in your location. Consider going back to school.

I know investment bankers who have become highly successful financial planners, and are loving the lack of daily pressure, compared to their prior lives. I know bond salesmen who have gone to become stockbrokers, (oh, sorry, “Financial Advisors”…) and others suitably, have left the business all together, and are happy for that, too.

But those of you who insist on “hanging on by your fingernails to an eclipsed business”, fixed income people are not alone. The institutional equity world has been jarred as well, by decimalization and further by the regulatory furor over conflicts of interest between research, and sales, and investment banking departments, the three legged stool of the old Equity Boutique model. We all remember Robbie Stephens, Montgomery Securities, Hambrecht & Quist, and a few others who have re-booted as retail investment firms. They have gone to the wayside, and the players have remade themselves or transitioned severely to another business model. Others have been merged into un-recognizable components of a larger entity.

Lastly, the search business has not been immune to the innovations of technology and electronic innovations in search. Job boards and electronic posting and the Monsters of the world, were a threat, so it was necessary to adjust, take advantage of the innovations and to remake ourselves, and we will continue to re-think our business model every two years to insure viability, just like everyone else! We have the intelligent choice of going to higher quality, more consultative sales where our personalities, and insight, and execution capabilities are worth paying for, and we are not just pushing a statistical volume of warm bodies through to clients, being considered in mass style.  

What comes to mind with these professional moments of clarity is the proverbial high tech industry lament, “you need to reinvent yourself every two to three years…” Well, that is a serious thing to do, and especially for dinosaurs who have momentum and habits going against them. It is easy to take the wise cracker’s approach and tell these guys to go start a restaurant, but seriously, with a California mortgage, kids in private school and college, the need for a decent vacation, a Porsche, along with other six figure expense items, there are changes that one needs to seriously prepare for, often years in advance, in this great service industry where technology advances could price you out of existence in a New York minute. This industry is also responsible for some of the highest income earners in the land, so find a few positions and prepare for someone to move your cheese, with no notice.

The best defense is to talk to people with an honest and sometimes brutally honest appraisal of the sector you’re in. Your specific niche in this industry could be more vulnerable than you think. There are a lot of candlemakers making light bulbs now, so if you are a professional with skills, simply learn to prepare and be ready for dramatic adjustments.

In this business, the retail guys seem to have won, but they are not impervious to the career eroding effects of technology. Consumers have a lot of choices when it comes to investing and finding an advisor. Although not an easy business, serving the “retail, mass affluent, high net worth, and ultra-high net worth” segments of our baby boomer soaked demographic could be a very strong sector of the investment industry and economy for many years. Maybe there’s a place for you to fit in, with a little training? 

Fremont Execs Sold Shares Before Crash

Regulatory findings have found that seven executives, including Chief Executive Louis Rampino, from Santa Monica-based lender Fremont General Corp. sold nearly $9 million worth of stock in early January.  The 543,746 shares were sold on January 4th at $16.21, the closing price on December 29.  Shares have since nearly lost 50% and sat at $8.41 on April 18th.  A little over a month after selling the shares, the company announced its subprime mortgage business was in danger of going bankrupt.

The company announced on Monday, April 16th, that it would be selling its real estate business and about $2.9 billion in subprime residential mortgages to an undisclosed buyer.  Separate from this sale, earlier in the year, the company agreed to sell $4 billion worth of subprime loans, which will result in $140 million pretax loss.
Employees of Freemont General Corp. have filed a federal lawsuit against the company, claiming they lost millions of dollars on company stock in their retirement plan, while executives sold off millions of shares to stave off big losses.  The legal action took place after the company announced that it hired its third auditor in less than a year.

BofA Reassures U.S. Trust Clients

Seeking to quell rumors and retain the wealthy clients of U.S. Trusts, which Bank of America is acquiring from Charles Schwab for $3.3 billion, BofA CEO Ken Lewis and Charles Schwab sent letters to customers that dismissed recent critical media reports that suggested clients would pay higher fees and lose access to key research.  Customer defections could potentially undermine the deal, analysts have warned.  Rivals have seized upon the rumors to woo potentially disgruntled U.S. Trust clients.  BofA is also seeking to keep top U.S. Trusts’ workers from leaving with key clients. 

Others May Bid for ABN Amro

Royal Bank of Scotland, Fortis and Spain’s Santander have invited ABN Amro to start takeover talks, the Dutch bank said Friday, a move that could threaten its rival suitor Barclays.  British bank Barclays approached ABN about a $160 billion merger in March.

Korn/Ferry Appoints New CEO

Paul Reilly will remain as chairman of Korn/Ferry International, after the company announced that it would be separating the roles of chairman and chief executive effective July 1.  Chief executive duties have been turned over to the company’s Chief Financial Officer and Chief Operating Officer Gary Burnison.

New Century Files for Chapter 11

It’s the largest subprime lender ever to go bankrupt.  New Century will cut 3,200 jobs – 54% of staff as it seeks to sell its main unit.  New Century halted lending in early March as creditors cut off cash.  Also, M&T Bank fell 8.5% after saying it’ll miss Q1 views due to “alt-A” loan woes. 

Sallie Mae Agrees to $25 Billion Buyout

JPMorgan and Bank of America, along with 2 private buyers, bought the No.1 student lender Sallie Mae for $60 a share in cash.  It comes amid probes of student lender activities and calls to curb loan subsidies.

Unexpected Earnings for Indymac

First quarter earnings for one of the nations largest Alt-A lenders, IndyMac Bancorp, were better than expected.  Indymac reported first-quarter net income of $52 million (70 cents per share), a 34 percent slide from $80 million ($1.18) for the same period a year earlier.

Indymac also warned investors that it expects second quarter profit of 70 cents per share on revenues of $302 million, less than Wall Street’s forecast of 78 cents per share on revenue of $304 million, according to a Thomson Financial poll.

The bank was the nation’s largest Alt-A lender in 2006. Alt-A loans are given to borrowers with minor credit impairments. It also issued loans in the subprime sector to borrowers with significant credit impairment.

Charles Schwab: growth in line

The broker said its Q1 earnings rose 16% to 22 cents a share, in line with views.  Charles Schwab’s revenue increased 9% to $1.15 bil, just barely ahead of expectations.  This is the smallest, but 8th consecutive, quarter of double –digit earning growth.  The broker added $33.5 bil to its accounts during Q1, the most in a 3-month stretch since Q3 2000.  Shares fell 2.4% to 19.05.

Citigroup

Citigroup, the nation’s largest financial institution, raised 1st Quarter profit 6% to $1.18 a share.  Revenue jumped 15% to $25.5 billion.  Investment banking profit rose 35%. Total assets grew to $2.02 trillion.

First Fed

FirstFed Financial Corp. reported first-quarter net income of $32 million ($1.92 per share), a 5 percent jump from $31 million ($1.82) for the same period a year earlier.  Net interest income for the Santa Monica-based parent company of First Federal Bank of California also rose slightly to $75 million due to gains on the sale of loans. Total assets dipped 20 percent however, to $8.5 billion.

Bank of America

The No. 2 U.S. bank by assets, Bank of America, said its Q1 earnings rose 8% to $1.17 a share. Revenue climbed 3% to $18.42 billion, below expectations.  Service fee income, mortgage banking income and equity investment gains helped the quarter.  Profit fell in its three main business lines, however investment banking rose 35%.

Wachovia

Wachovia raised profits 7.1% during Q1 to $1.20 a share.  Revenues grew 17% to $8.24 billion, while operating expenses climbed 8% to $4.59 billion.  Revenues fell 4% from Q4 to Q1, but costs declined 7%. 

Not a Bad Payday

Chairman and Chief Executive of Countrywide Executive Corp., Angelo Mozilo, is taking a pay cut in an effort to lessen criticism of his compensation, the Wall Street Journal reports.

Countrywide states Mr. Mozilo’s base salary, performance-based bonus and equity-incentive pay would be down between 48-62% this year, depending on company performance.  Last year, those items totaled about $42 million, the company said.

Mozilo states that the compensation move represents an attempt “to be responsive to the environment we’re in today” of scrutiny of executive compensation, rather than indicating he is being overpaid.  Countrywide defends that Mozilo’s generous pay has resulted in excellent results; shareholders received a nearly sevenfold return in the 10 years ended December 31.

Mr. Mozilo’s pay cut won’t leave him suffering.  He continues to receive equity grants under a long-term incentive plan and to benefit from past stock-option awards.  Last year, he appreciated $72.2 million from exercising options.

Unemployment

The unemployment rose slightly but is in a far better state than most countries. The unemployment rate is currently at 4.5%, previously at 4.4%. The Financial Services sector lost 11,000 jobs.

Top Hedge Fund Salaries Soaring

Average pay for the top 25 hedge fund managers rose 57% in 2006 versus 2005 to $570 million, Alpha magazine reports.  Three managers earned more than $1 billion last year: James Simons of Renaissance Technologies ($1.7 bil), Ken Griffin of Citadel Investment Group ($1.4 bil), and Edward Lampert of ESL Investments ($1.3 bil).

L.A. Ranks Low in Legal Business Climate

A survey of 1,600 senior attorneys from across the nation showed that California is among the bottom tier of states for its business legal climate, ranked 45th in 2006.  Los Angeles was again deemed the least fair litigation environment of any metropolitan area, according to an annual ranking conducted by the Institute for Legal Reform and the Harris Interactive polling firm.

Text Message Boom

Text Messaging topped mobile telephone calls in a JD Power survey of British telephone users. Text messages rose sharply from 32 to 46 per week, which may be driven by the relatively high per minute rates in Europe vs. “texting”.

Food Safety

China has been traced as the source of pet food contamination in wheat gluten, but food safety policies are being reviewed overall, due to pesticides and chemicals being used in excess, harmful antibiotics used in seafood and livestock, and industrial pollution putting heavy metals into the food chain.

Socialize medicine?

Over 50% of British doctors said morale in the profession is poor to terrible, and nearly 70% would not recommend a career in medicine to friends, according to a Hospital Doctor. Factors behind the results include cost-cutting, changing workloads, and government moves to centralize hospitals.  

Wealth Increase Phenomenon

Net Wealth, the amount people would have after paying off their debts, has swelled $15.2 Trillion, or 38%, to a total of $55 Trillion. The five year gain is more than the total wealth amassed in the first 210 years of the existence of the United States.

Overweight Pets

Obesity in pets is mirroring their owners, according to a study in the Journal of American Veterinary research.  Researchers found that a third of dogs are overweight and the study found a similar result in cats.  The usual culprits were noted: sedentary lifestyle and unhealthy food.

Learning:

Learn as though you would never be able to master it; hold it as though you would be in fear of losing it. 
-Confucius, philosopher

Authenticity:

Be who you are and say what you feel, because those who mind don’t matter, and those who matter don’t mind.
-Dr. Seuss, author

Obstacles:

The rock that is an obstacle in the path of one person becomes a stepping stone in the path of another.
-Author Unknown

Expectations:

You only get back what you expect, and if (your expectations are) low you’ll end low.
-Colin Powell, secretary of the state

Initiative:

The people who get on in this world are the ones who get up and look for the circumstances they want and, if they can’t find them, make them.
-George Bernard Shaw, playwright

Money:

Make money your god and it will plague you like the devil.
-Henry Fielding, dramatist

Being Resourceful:

A successful man is one who can lay a firm foundation with the bricks others have thrown at him.
-David Brinkley, journalist