Wednesday, April 1, 2009


A couple of people have asked me why Wagoner was removed but not any of the bank CEOs?

First of all, as usual, I have no inside knowledge. Second, as usual, I will comment anyway. In the Wagoner case, outside parties were put on a task force that was empowered to review the viability of GM's restructuring plan.

Clearly that task force came to the conclusion that the restructuring plan put forth by Wagoner was inadequate. The underlying operating assumptions were optimistic, the restructuring did not go far enough in cutting brands, plants, employees, dealers, costs etc. Moreover, the plan did not provide a capital structure that provided the platform for a viable company. At that point, I speculate that the task force concluded that Wagoner was not capable of producing and implementing a plan that cut the operations deep enough in a quick enough period of time. Therefore, the task force recommended to President Obama that Wagoner step down as a condition of any other financial assistance from the government.

Contrast that to the process used with the banking industry in general. Under a different administration, TARP funds were made available in order to stem a systemic run on the world-wide global financial industry which was ironically triggered by the refusal of the Fed and the Treasury to deal with Lehman Brothers in a more proactive manner.

There was no task force of outsiders empowered to review viability plans put forth by incumbent bank CEO's. There were no viability plans required at all. Sure new CEO's were put in at Fannie Mae and Freddie Mac. But these were two quasi-government entities anyway. I am ok with that initially. No one had the time to request and receive a viability plan from anyone.

However, now is a different story. But you have to look institution by institution. JP Morgan for instance is probably the strongest large financial institution. Jamie Dimon, CEO, is well-respected it is highly likely he only accepted TARP funds because he was forced to do so. Look for JPM to repay the TARP funds by June 30, 2009.

Ken Lewis, CEO of Bank of America, has come under attack. Some of it is warranted and some may not be. I have a suspicion that he would have walked from Country-Wide before closing if not for some helpful nudging from the government to carry through. I also believe that the government orchestrated the acquisition of Merrill by Bank of America at the same weekend meetings that Lehman was allowed to fail in a freefall. So, I suspect the government will be hard pressed to push Lewis too far.

Pandit at Citibank, may be a different case. Although he has been CEO for just over a year, he chose not to start selling pieces of Citi when he came on board. (See my previous posts on Pandit and Citi in the banking category). Also, not only did Citibank receive TARP funds, it also received an emergency funding, not once, but twice. I believe the Obama administration should now require Citibank to submit a viability plan which should be evaluated by a separate task force. Citibank should have its feet held to the fire and Pandit should be held accountable to produce an acceptable restructuring/divestiture plan to pay back the funds.

Hopefully as things calm down a little, the Citibank situation can be addressed.

Cheers, Mike

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