The Cayne Discount
It appears Jimmy Cayne’s storied career will go out with a whimper rather than a bang. He is now trolling China, looking for partners who will allow him to remain in charge and Bear to remain independent. It is a sad turn of events for a man that used to inspire fear and respect all over the Street.
While he might not have been directly responsible for some of the decisions that have led to Bear’s problems, it happened on his watch. Money talks, and BS walks. And as long as Jimmy stays, Bear shareholders will continue to suffer.
``The stock is the ultimate arbiter of how well management has responded, and the stock is saying they have not responded well,’’ said Michael Holland, who helps manage $4 billion for Holland & Co. in New York. ``This most recent episode was so out of character with respect to the firm’s history that the penalty is 1.2 times book.’’
Shares of Goldman are trading at an industry-leading multiple of 2.2 times book value, reflecting the appeal of the firm’s diverse sources of revenue and giving CEO Lloyd Blankfein the biggest advantage over Cayne with investors since 2001. In the debt market, the risk premium on Goldman bonds is 35 percent less than Bear Stearns, the fifth-biggest U.S. securities firm.
Some investors are steering clear of investment banks altogether until the shakeout is over. The average price-to-book ratio for the five largest Wall Street firms—Goldman, Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns—has dropped to about 1.6 from 2.1 a month ago.
The stock might pop if he retires for a life of golf, and sooner or later the people at Bear just might ask him to do so, given his continued presence might be hitting them right in the wallet. The stock will always trade at a discount, and Jimmy might be clipping the stock on the order of, say, $20- $40 a share?
Of course, his recent management shake up strengthened his grip. But at age 73, that grip will continue to weaken.
Blankfein-Cayne Spread Widens to ‘01 High in Flight to Quality
Bloomberg
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. no position BSC
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