Thursday, July 02, 2009
This Just In: Hunter S. Thompson Now Working for Credit Suisse!
We were somewhere around Barstow on the edge of the desert when the drugs began to take hold….
—From “Fear and Loathing in Las Vegas” by Hunter S. Thompson.
So begins the best opening line to a book since…well, if there’s a better one, I can’t remember it.
And while the link between the musings of a drug-addled, gun-crazy journalist and that of Wall Street’s Finest might seem weak at best, we here at NotMakingThisUp nominate the following headline (from the indispensible Briefing.com) as Exhibit A in the Case that Hunter S. Thompson did not shoot himself dead, but is in fact working at Credit Suisse:
Credit Suisse says strong case to be made that both GS and MS are overcapitalized…
Seems that certain research minds at Credit Suisse are making a call that Goldman Sachs (GS is the ticker) and Morgan Stanley (MS) might have too much capital.
Why would anybody in their right minds suggest—after what we’ve been through—that two of the remaining U.S. brokerage firms-turned-banks have too much money?
Let’s look at the story:
Credit Suisse notes that it was fewer than nine months ago that many questioned the sustainability of U.S. brokerage business models and only earlier this year that many doubted the notion that investment banking business models could generate adequate returns over the cycle.
So far, so good. It was indeed not long ago that the world seemed ready to implode and nobody in the investment business expected to live to see the next up-cycle.
This, however, is as far as rational thought took the Credit Suisse folks.
Then the drugs kicked in:
The firm now sees a strong case to be made that both GS and MS are overcapitalized. They estimate GS currently holds $6.6-8.6 billion of excess capital, equal in size to a buyback program for 8-11% of the co. They believe MS has the potential to repurchase up to $1.5 billion of its common stock (3% shares outstanding) with that opportunity materially expanding…
It is true that Morgan Stanley and Goldman Sachs have shrunk their asset base from Bubble-era peaks of 33-times equity and 22-times equity, respectively, to a low-teens multiple of equity.
That's a far more manageable chunk of leverage, and far less likely to require the Fed’s support down the road.
But given what we’ve just been through—i.e. the End of the World as We Knew It, to paraphrase R.E.M.—isn’t it a decade or two too soon for Wall Street’s Finest to be calling for the kind of mindless, capital-destroying, Returning-Value-To-Shareholders nonsense that got us into the crisis in the first place?
We here at NotMakingThisUp think so.
But not the normally sober folk at Credit Suisse—whose only excuse, as far as we can tell, is that the spirit of Hunter S. Thompson is alive and well and living among Wall Street’s Finest.
I Am Not Making This Up
© 2009 NotMakingThisUp, LLC
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Posted by Jeff Matthews at 8:50 AM