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Commentary: Investors should look out for Wall Street's tricks
By David Weidner, MarketWatch
Last update: 12:01 a.m. EDT April 1, 2008
NEW YORK (MarketWatch) -- This is no joke. On e-Bay you can buy a new Bear Stearns Cos. golf shoe tote bag for $32, a Bear Stearns T-shirt for $20, or a hat for $51. Fleece blankets are going for $20, a pewter statue of the investment bank's tower on Madison Avenue is $172, and a Bear Stearns teddy bear is $24.50.
My personal favorite: the Bear Stearns "wine stopper set," which was going for $75.
There were more than 330 Bear Stearns (BSC) items on the auction site as recently at Monday. Almost all of the tchotchkes were going for more than the $10 a share the investment bank sold for, and that's even after the price was renegotiated with J.P. Morgan Chase & Co. (JPM).
That a ball cap is more valuable than a stake in the company whose name is stitched above the brim is just the latest example of how Wall Street's best and brightest have snookered us.
April Fool's Day? We've had six months of it on Wall Street, and it's only become worse in recent weeks.
For instance, we were told it was a single rogue trader who brought $7 billion in losses at Societe Generale (SCGLY) . The chief suspect has since been released from custody without charges and there's evidence that others were involved in the trading scandal.
Lehman Brothers Holdings Inc. (LEH) also had us duped. After its executives pledged that the firm was on solid footing, Lehman was the target of several bearish puts in the options market last week. The rumor was that Lehman was the next Bear Stearns.
Then, Lehman sued a Japanese brokerage, which Lehman claims bilked it out of $350 million, an amount just less than half of Lehman's fourth-quarter profit. See full story.
Bear, SocGen and Lehman fooled us once, but we can and should learn from our mistakes. Here are a few tricks to look out for in the coming months.
Paulson's plan
It looks harmless enough, but Treasury Secretary Hank Paulson's plan for sweeping regulatory reform is little more than talk. Though Paulson acknowledged that the plan would take years to implement, it's unlikely that enthusiasm for changes will carry over into the next administration.
Paulson also faces some obvious hurdles. For instance, his plan to combine the Securities and Exchange Commission with the Commodity Futures Trading Commission is sure to create a turf battle in Washington. Although the industry might welcome a single regulator, the CFTC and SEC report to different committees in Congress, and the CFTC probably won't become part of the larger SEC without a fight.
Don't be fooled: Paulson's reforms, love 'em or hate 'em, are unlikely to come to fruition.
Citi restructuring
Citigroup Inc. (C) is restructuring by putting its credit-card business into a single unit. Company officials say it's not for sale.
Don't be fooled: After exhausting the world's sovereign funds to the tune of $20 billion, everything at Citigroup is for sale.
Redemption
It seems to be reunion tour time on Wall Street. This time we're celebrating the scoundrel's era famous for hot Internet stocks. Frank Quattrone, the oft-prosecuted but never convicted former Credit Suisse investment banker, has returned as an adviser.
Quattrone's new firm is Qatalyst Group, which will offer mergers and acquisitions advice to the technology industry.
Henry Blodget, the disgraced analyst who misled investors when he worked at Merrill Lynch & Co., recently received a "buy" rating from BusinessWeek writer Roben Farzad who wrote: "I now admire Henry Blodget -- for his audacious reincarnation as a tech and media blogger and author. I find his work indispensably frank, stuff you see all too rarely from an ex-insider."
Don't be fooled: There are better bankers and analysts to take advice from.
Write-downs are over
Sure, there have been so many write-downs at the banks and other financial firms, how could there be more? On March 13, Standard & Poor's wondered that question aloud when it issued a report suggesting that banks would eventually write down $285 billion in mortgage-related securities.
"The positive news is that, in our opinion, the global financial sector appears to have already disclosed the majority of valuation write-downs of subprime" asset-backed securities, S&P said.
The stock market rallied after the report came out. The next day Bear Stearns was on the brink of collapse, and since then UBS AG (UBSUBS Ag
UBS) is reportedly looking for as much as $15 billion in investments to offset $21 billion in expected write-downs. There's also concern about the balance sheet at Merrill Lynch & Co. (MER).
Don't be fooled: Until banks have gone a year without taking big write-downs, it ain't over. In fact, you might want to hang on to your Merrill Lynch hats and UBS wine openers.
They could be your best investment.
