Frank the Fiduciary Massachusetts
Congressman and House Committee on Financial Services Chairman Barney Frank really knows his business—and his business is banking. He recently urged the White House to accept TARP payback from banks that can afford it, saying it’s nothing less than a sterling opportunity for the American people. In an interview with the Financial Times, Frank said the Obama administration was missing a chance to showcase the timely repayment of taxpayer money.
“Geithner says: ‘I worry about it from the political standpoint’,” Frank said. “It’s the one argument for which I have no sympathy…some people are taller than other people. Of course there are different levels of strength between the banks.” He further stated that what banks did with their money once they liberated themselves from government handouts was their business: “If you have a purely private company and they want a private plane, what do I care?”
GM – Government Motors
President Reagan drove the Soviets to adopt perestroika, so perhaps President Obama does the unthinkable—he adopts policies that help create perestroika with automotive management and labor by giving them what each wants. Management is looking for labor accountability in the areas of wages, benefits, and workload flexibility; labor wants management to be on the same page in terms of pay and benefit sacrifice and it wants to be in line for long-term gains.
Moving out former General Motors CEO Rick Wagoner may have been a necessary, if unfortunate, decision in order to bring labor to the table for the hard dealing ahead. But so far, this looks like the best chance the American automotive industry has had to regain its relevance. Under newly appointed CEO Fritz Henderson, a restructuring plan was announced that will give the government a 50 percent share ownership as a repayment for half of the $15-billion loan that GM received. GM proposes giving the union health care trust fund about a 40 percent stake, instead of $10 billion in cash. Further, investors exchange $27 billion of unsecured debt for a 10-percent equity stake. The plan also calls for the closure of 2,641 dealers and a reduction of workers from 61,000 to 40,000. This will achieve a break-even business model at only 10 million units sold per year. Chrysler and GM have been woeful underperformers and are now the weakest players on the global stage. This could open the way for new investment, new development, and a return to something resembling the auto industry’s former glory days. With energy and regulation constant threats to complacency, we never needed a fresh start more. Thanks, Mr. President.
Ken Lewis’ Diligence
Many things have been said about Bank of America’s CEO, Ken Lewis. The one that causes him the most angst is that he underperformed during the credit crisis and did a cursory due diligence on the Merrill acquisition. Nothing could be more untrue. While the Merrill “deal” was, as they say, consummated over a weekend due to legitimate economic pressures and political strong-arming from the Fed and Treasury, this executive, who prides himself rightly on his operational savvy, moved swiftly and decisively. Who says? Noted author William Cohan writes in his must-read bestseller, House of Cards that Bank of America advisor J.C. Flowers had just completed its lengthy and intensive Bear Stearns diligence and had already pored over the Merrill balance sheet in excruciating detail, as did Ken’s own shopkeepers, who are the best in the business at merger diligence. As he said, referring to the deal with Merrill, his primary goal was to acquire a world-class business franchise that would further the long-term interests of his shareholders: “My decision and the board’s to go ahead with the merger was not about a selfish desire to keep our jobs.” This formidable chief may be having his share of issues lately, but soon his shareholders will relent and reprieve as the numbers start to rise to the top.