Tom James: Wall Street got too leveraged
Wake up and good morning. After nearly 38 years at the helm of regional investment firm Raymond James Financial in St. Petersburg, CEO and chairman Tom James has some definite opinions on the massive and ongoing bailout package emerging to help major Wall Street firms weather the mortgage crisis. In an interview Monday, James especially lamented the loss of independence of Merrill Lynch, a firm he saw as an early role model for its focus on the consumer. He's also glad -- thank you, very much -- not to be dragged directly into the bailout mire (a theme reinforced in this Wall Street Journal story today), even though Raymond James took a 19-percent hit on its stock price on Monday alone.
Meanwhile, the bailout debate predictably is turning into a long-winded debate between the Bush administration and congressional leaders over the historic $700-billion rescue package. As reported in the New York Times, lawmakers in both parties voiced anger over the steep cost and even skepticism about the plan’s chances of success. Even Florida's own Sen. Mel Martinez, a Republican and a member of the banking committee, said that he would strongly support limiting the pay of executives whose firms seek government aid. But he will oppose any effort to change the bankruptcy laws.
On one topic of interest to weaker banks in search of fresh capital, the Federal Reserve loosened longstanding rules that had limited the ability of buyout firms and private investors to take big stakes in banks. One report shows private-equity firms have looked at investing in distressed banks, but often pulled back. This summer, several private equity firms including MatlinPatterson Global Advisers LLC and Fortress Investment Group looked at investing in Florida's BankUnited Financial Corp., a struggling Coral Gables banking firm with offices in the Tampa Bay area. Those private equity firms never pulled the trigger to invest.
On another note, Verizon is taking a big step with its wireless phone business by ending mandatory one- and two-year commitments in favor of month-to-month contracts. Verizon and rival AT&T faced criticism from lawmakers and consumers who said fees for canceling contracts early are too high. But the new plan may not appeal to many customers because they will need to pay significantly more for new phones, which are often offered in various models at reduced prices to customers willing to sign up anew for one or two years. Still, it's a breakthrough for consumers to now have a monthly option.
-- Robert Trigaux, Times Business Columnist
In an extensive interview Monday, Tom James, CEO and chairman of the Raymond James Financial investment firm in St. Petersburg, offered his views on the pending government rescue of various Wall Street firms and other financial institutions. Highlights appear in this column. Here are additional thoughts he offered on various topics:
On weak oversight of mortgage giants Fannie Mae and Freddie Mac (both bailed out by the government): "It was regulatory laxity, not a lack of knowledge, that led to Fannie and Freddie becoming so weak."
On offering a different description of the government bailout: "This is actually a free-enterprise type of transaction, but done by the government to give it a financial return for itself over the next couple of years. ... This is not money thrown away. The work week of employees at the Treasury and the Federal Reserve over the last six weeks are like 16 hours a day, seven days a week."
On the need to shut down short selling aimed at hundreds of companies: "This is not a luxury. You have to be proactive. Some people were taking advantage of this situation. From my perspective this was unacceptable. They (short sellers) would not be able to operate that way if the financial system is destroyed. So they would be profiting short term, but endangering their own ability to have a business."
On Merrill Lynch and its decision to sell out to Bank of America: "It was probably wise but, boy, did I hate to see that happen. I respected and admired that institution. Merrill operated in a much safer way limiting risk exposure and became massive in investment banking. Unfortunately, they did not follow that same strategy now. New management was more prone to make mistakes. I think it will turn out to be a great purchase for Bank of America. And some of the acquisitions by Barclay's of Lehman Brothers' assets will look like a real steal in two years."