Monday, June 02, 2008
Ken Thompson Fired At Wachovia
Well, it's official. At least one commercial banker has gotten the axe for his boneheaded 'leadership.'
CEO of Wachovia Kennedy "Ken" Thompson's forcible resignation was announced this morning.
As the nearby Yahoo price chart illustrates, Thompson's Wachovia (WB) hasn't really delivered for shareholders for the past five years.
Wachovia barely tracked the S&P until early last year, when the bank's stock price went flat, while the index rose, and then plunged precipitously while the index flattened.
Guess buying Golden West, the California mortgage bank, in 2006, at the top of its value, wasn't so smart after all, eh, Ken?
Of course, the other Charlotte-based "Ken," Lewis, about whose bank I wrote here recently, has had his share of problems, as well, as depicted in the chart.
While Thompson's Wachovia actually lost about 25% of its value in five years, Lewis' BofA barely managed to stay above the flat line. Neither, at their best in the past half-decade, ever showed signs of out-performing the S&P.
In Lewis' case, the purchase of Countrywide, another California-based mortgage lender, hasn't helped BofA. The early purchase of an interest in the real estate financial firm, to help shore it up, looked expensive by the time Countrywide collapsed and offered the rest of itself to BofA at a much lower price.
Isn't it ironic that the two one-time North Carolina regional powerhouses, NCNB and First Union, by virtue of astute risk management in the 1990s, managed to scoop up the west coast money center titan, BankAmerica, and assorted other US bank chains. Then, in the latter half of this decade, squandered their shareholders' value by returning to..where else?....California to buy mortgage lenders which subsequently caused large loan losses.
Almost seems like some sort of revenge of California finance on the North Carolina banks worthy of a Greek tragedy, doesn't it?
Now Thompson's out, and Lewis is looking less and less effective.
This morning, on CNBC, Dick Bove, a long-time commercial bank analyst, opined that both franchises lost their focus and moved out of basic deposit-taking and lending, thus damaging themselves with mortgage banking.
As I wrote here last October,
"Quite simply, as a group, US commercial bank CEOs are typically less-broadly experienced and, frankly, less 'smart,' in a business sense, than their investment banking CEO counterparts.
Stretching back to the 1970s, I think only David Rockefeller and Walter Wriston were, among commercial bank CEOs, possibly on a par with their investment bank peers in terms of vision and business acumen. Even then, these two were encumbered by the inherent obligation, as leaders of large US banks, to act to protect the banking system, rather than focus primarily on their shareholders' interests."
Further on in that post, I noted,
"As I consider the M-LEC and its supporters, I can't help but see it as essentially an attempt by the less-savvy commercial bank CEOs to stave off a fire sale of fixed income assets which they abetted by their operation of various SIVs. Meanwhile, the savvier investment bank, hedge fund and private equity CEOs circle, like sharks in the water, waiting for the inevitable disgorgement of SIV assets to begin. They will wait for near-bottom prices, buy and hold and, eventually, realize tremendous profits for their risk taking."
Among the investment banks operating when I wrote that post, Bear Stearns is gone. Lehman is teetering, as it attempts to outlast liquidity concerns amidst weak performance. Merrill has been run for decades more akin to a money center bank than an investment bank.
To me, the pecking order of smart management in financial services begins with the best private equity and hedge funds. After them would come Goldman Sachs. Then.....well..I don't know if there is anyone else thereafter.
What Thompson, Lewis, and perhaps even Dimon, seem to forget is that commercial banking really only grows without excessive risk in two ways: with market demand, or by expanding geographically without overpaying for acquisitions. Typically, moving into new businesses, such as mortgage banking and capital markets, brings disaster.
It has for Wachovia and Thomson via Golden West. Lewis has capital markets losses and the specter of Countrywide's losses with which to contend.
It's too early yet to discern whether Chase has really bought anything worthwhile by scooping up the remains of Bear Stearns.
Commercial bank CEO's rarely learn the lesson of long term risk management vis a vis growth. Each large bank CEO wants their bank to be the largest, their asset and income growth to be the fastest.
To their shareholders continuing regret.