One on One with Dick Bove of Punk, Zeigel and Company
Wednesday, November 14, 2007SUSIE GHARIB: Joining us now for more analysis, veteran banking analyst Dick Bove of Punk, Zeigel and Company. Hi Dick. How are you?
DICK BOVE, BANKING ANALYST, PUNK, ZIEGEL & CO.: Hi Susie.
GHARIB: Well, is John Thain the right man for Merrill Lynch?
BOVE: I think he is. I think that what he said or what you just said that one part of the company was broken and that's the risk management portion of the firm, he has expertise which was developed at the best risk management firm I think in the world, Goldman Sachs. So I think he has the knowledge base to solve the problems that Merrill needs solved.
GHARIB: What is the number one problem that he has to solve?
BOVE: I think there's a misunderstanding of what risk management really is at a brokerage firm. There's a feeling that, you know it's taking $1 billion and investing in Estonian currencies. It really isn't. It's a highly technological business which requires a wide amount of computing skill, the right computer language, in-depth databases that go back historically, right types of stress testing, PhD's who are running the process. So, you know, John Thain understands that because he helped build that at Goldman Sachs. That's what Merrill Lynch does not understand and therefore I think John can fix that.
GHARIB: One thing that John Thain said today was that at Merrill Lynch, the strategy is good. He acknowledged that. And he says that the problems there isn't a matter of deconstructing the firm. It just has to manage risks better. Do you agree with that?
BOVE: 100 percent. I never thought that Stan O'Neal should have been fired, even though he made this terrible error in risk management, because if you looked at Merrill Lynch five years ago when he took over and the enormous challenges that he had to change this company, I think you'd have to argue that he made the right decisions concerning investment banking, trading, going internationally. He made the right decision in building the retail sales force and he had a coup in terms of his sales and investment management division. So in many respects, this firm is not broken. It's actually a superb firm that's well run.
GHARIB: Let's talk about Thain as a leader. His management style is considered to be reserved but also no nonsense. How effective will he be in leading Merrill Lynch?
BOVE: That's the key question, because if you go back to the days when David Komansky ran Merrill Lynch, it's always been a firm led by salesmen because there are 16,000 sales people operating at that company so the net effect is, you would think that you needed a charismatic personality to run the business. But Stan O'Neal isn't charismatic which is probably one of the reasons why he got fired and John Thain is not charismatic. So that could be a problem.
GHARIB: Merrill Lynch stock is down something like 38 percent since summer time. Is it a "buy" now at $57?
BOVE: No, I don't think it is. I think that even though the company is well structured, even though it has a good management team, and even though I think John Thain is going to fix the problems, the overwhelming and overriding problem is that the core businesses which Merrill Lynch, Goldman, Morgan, all of these companies service, are contracting and until those businesses stop contracting and start to expand, I don't want to buy Merrill Lynch's stock.
GHARIB: So Thain's hire was pretty quick, just two weeks ago. Stanley O'Neal was out. Now Thain is already in the CEO job. What about at Citigroup? I know that you follow that bank as well. Do you think that we're going to be hearing an announcement there of a new CEO?
BOVE: I know the market would love to see that, but I hope not, because I think that all the names that have been advanced to this point do not seem to be right to be the new leader of Citigroup. Citigroup needs a man who is well versed in commercial banking. They need someone who has international relationships and none of the people who have been named up to this point have either one of those characteristics. So I think Citigroup has to spend a lot of time sifting through a lot of names before they find the right person to run that organization.
GHARIB: All right. Dick, thank you so much for coming on the program.
BOVE: Thank you, Susie.
GHARIB: My guest tonight, Dick Bove, banking analyst with Punk, Ziegel and Company.
