Subprime Investments Explode But Many Of Those Responsible Land On Their Feet
In a front-page story of the January 27, 2008, Sunday Business Section of the New York Times, Landon Thomas, Jr., reported on a peculiarity of Wall Street and its reaction to the huge losses in the subprime contagion. In most industries, if you lose billions of dollars, you are fired and are lucky if you ever work in that field again. Not so for some of the Wall Street executives who oversaw subprime investments at Merrill Lynch and Citigroup.
The article focused on Dow Kim of Merrill Lynch and Thomas G. Maheras of Citigroup. They were high-level executives at their respective firms who built up large position of subprime-related securities that led to $34 billion in losses last year. Those losses in the subprime contagion humbled these giant financial firms and forced their respective chief executive officers – Stan O’Neal and Charles Prince – to lose their jobs. The losses may not be over yet; both Merrill and Citigroup may report further losses in the months ahead.
Yet Mr. Kim and Mr. Maheras appear to have bright futures ahead of them.
Mr. Maheras, the former co-president of Citigroup’s investment bank who left after he was demoted, has had discussions with several investment banks, including Bear Stearns, about taking on a top management job. He has also been approached by several investment banks willing to back him with up to $1 billion if he decides to start a hedge fund.
Mr. Kim, who was co-president at Merrill Lynch with oversight of trading and market operations, has been raising money all over the world for his new hedge fund, Diamond Lake Capital.
They are not the only subprime veterans being wooed by Wall Street. Zoe Cruz, the Morgan Stanley co-president who was forced to leave her job after the firm suffered $10.8 billion of subprime losses, has also reportedly been approached by investment banks, hedge funds, and private equity funds for a senior management role.
These developments are indicative of an attitude held by many on Wall Street that it was the system that failed and not the individuals. It was just bad luck so they deserve at least another chance.
Of course, some people get more than one more chance. John Meriwether was fired from Salomon Brothers for his part in a bond trading scandal in 1991. He went on to found the hedge fund Long Term Capital Management, which shook financial markets worldwide when it nearly failed in 1998. Today, Meriwether has founded another hedge fund, JWM Partners, with assets of approximately $3 billion. Brian Hunter, the energy trader at Amaranth Advisors whose disastrous bets led to the disintegration of that $9 billion hedge fund, is now advising a private equity fund on starting a hedge fund.
Not everyone, however, gets such treatment – certainly not the hundreds of investment bankers who have been fired in January 2008. While senior movers and shakers often land on their feet no matter how much money they lose, the rank and file from the merger and acquisition bankers at Bank of America to the sales executives at Citigroup’s hedge fund servicing business see their jobs eliminated.
More bad news is on the way on the employment front. Bank of America will cut more than 1,000 positions in its trading and investment banking operations. Citigroup has already announced the layoffs of investment bankers and will cut 4,200 jobs, with more expected to follow. Morgan Stanley is cutting 1,000 operational jobs, and Merrill Lynch is also expected to announce staff reductions.
Many of those losing their jobs had nothing to do with the subprime contagion – except to work for investment banks whose leaders lost billions of dollars.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in counseling investors regarding their subprime investment problems and have brought claims for investors with losses relating to subprimes. The firm also has an active practice in representing individuals in employment disputes with brokerage firms. The firm is currently involved in representing several brokers in such disputes. For further information, please contact us.
