You've heard of Webcasts and Podcasts...welcome to Cubecasts. From our cubicle to yours, here is the second edition of The Weekly Oasis, a newsletter in which Bankerella shares her views on market events, financial news, and things of interest to everyone from gorillas to prospective monkeys.
Last week we reported that many brokers currently at Bear Stearns would receive large retention bonuses and suggested that the handshake wouldn't be quite as golden for those in banking. We also asked you to let us know how the transition was treating you, and you did -- turns out that the message is "goodbye" rather than "welcome" for many of Bear's incoming analysts and associates. Check out members' responses here. As several experienced members pointed out, this is why it's not the end of the world if you have to reneg on an offer: at the end of the day, business is business.
You heard it here first.
Remember our comments last week ("Grounded!", Issue #1) on the potential for the return of Glass-Steagall-flavored regulations? Well, sometime over the weekend, it looks like Hank Paulson went from saying that permanent Fed oversight was unnecessary to calling for a sweeping regulatory overhaul... with the Fed, of course, playing top watchdog. Since we saw the writing on the wall last week, we weren't surprised when we opened the WSJ on Monday morning. What is surprising is that it didn't take long for the subtext to go from "This is just going to be temporary supervision," to "It's gonna take years to even get this thing off the ground." It's great to see that the Fed can be nimble and responsive, but the mixed messages can't be doing the market much good.
We're sorry we lost your money. Can we have some more?
UBS and Lehman have stumbled across an interesting solution to the sagging price of their stocks: issuing more of them. On Wednesday, the two banks announced they would raise additional capital despite the bumpy downhill ride their shareholders have experienced recently. Ironically, it worked: UBS and Lehman both experienced 15-18% surges in stock price. Now let's flash back to Corporate Finance 101: in a normal world and a normal market, unless a stock's fundamentals are rock solid and the market's strong, issuing more stock will typically exert a downwards pressure on the stock price. That downwards pressure would be magnified by downside risk involving the value of the stock... such as looming UBS writedowns and a shaky market. So why did Wall Street respond with this (dare we say irrational) exuberance? Your guess is as good as ours. But if anyone's got some extra capacity over the weekend, give us a call... we've got a bridge in Brooklyn we'd love to sell these shareholders, and clearly it doesn't take a very compelling pitchbook to get them to buy in.
Chemo for UBS?
UBS's investment banking business, which analysts have described as "a cancer that needs to be cut out" , has just been further trashed in a letter by former UBS president Luqman Arnold. He's got a $450m stake (0.7% of shares outstanding) invested in the firm and is calling for management to get rid of the investment bank. If you just look at Q1 numbers, that could be justified -- after all, the investment bank lost 18 billion Swiss francs last quarter, while the wealth management business (which UBS is trying hard to hang onto) made 2.1 billion francs. Of course, investment banking profits tend to be far more cyclical and volatile than wealth management, but when balance sheets are bleeding out at this rate, no shareholder wants to be told to take the bitter with the sweet. Shortsighted? Perhaps. Harsh? Definitely.
In related news, UBS is planning on cutting up to 10% of its workforce... and that's on top of 1,500 job cuts that have already been announced. Are you a UBS insider? We want to hear news from the cubicles. Tell us your story at WallStreetOasis.com.
Questions? Comments? Send an e-mail to Bankerella@WallStreetOasis.com or send a private message to her at WallStreetOasis.com
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