Exile on Wall Street

210 Pages·2011·1.02 MB·English

by  Mayo, Mike

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Exile on Wall
Street
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Exile on Wall
Street
One Analyst’s Fight to
Save the Big Banks from
Themselves
Mike Mayo
John Wiley & Sons, Inc.
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Copyright © 2012 by Mike Mayo. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
ISBN 978-1-118-11546-6; ISBN 978-1-118-20364-4 (ebk);
ISBN 978-1-118-20365-1 (ebk); ISBN 978-1-118-20366-8 (ebk)
Printed in the United States of America
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Contents
Introduction Watering Down the Wine 1
Chapter 1 “God’s Work” at the Fed 9
Chapter 2 The Big Time—or Something Like It 25
Chapter 3 Exile . . . and Redemption 45
Chapter 4 The Professional Gets Personal 67
Chapter 5 The Crisis 81
Chapter 6 The Vortex 97
Chapter 7 Citi, Part I: A Long, Sad Saga 111
Chapter 8 Citi, Part II: The Plot Sickens 131
Chapter 9 A Better Version of Capitalism 145
Chapter 10 The Meaning of Life 165
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vi CONTENTS
Acknowledgments 177
About the Author 179
Notes 181
Index 193
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Introduction
Watering Down
the Wine
I
had an epiphany not long ago. It took place during a dinner conver-
sation at a massive investors’ conference in Hong Kong. Over the course
of fi ve days, some 1,300 investors showed up, along with another
500 top corporate executives. The former president of Pakistan, Pervez
Musharraf, spoke about his country’s role in the global economy. Historian
Simon Schama discussed the United States’ current position in the
world, and fi lm director Francis Ford Coppola fl ew in to talk about the
importance of narrative. Asia’s economy was sizzling, with a growth
rate three times than that of the United States, creating a billion more
middle-class citizens—and this event was at the epicenter of that
growth. Evidence as to why China would likely overtake the United
States as the largest economy within a decade was on full display. Perhaps
this was why my daughter was being offered the chance to learn Mandarin
in her New York City school.
1
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2 INTRODUCTION
But what really stood out for me was something someone said over
dinner on the fi rst night I arrived. I had just come off a sixteen-hour fl ight
from New York to Hong Kong, one of the longest nonstop fl ights in the
world, and was dining with about a dozen bank analysts from major Asian
countries. We were at the Dynasty restaurant, which has a Michelin star
and spectacular views of Victoria Harbour, though I was too jet-lagged to
appreciate the scenery.
Over the ten-course meal, we went around the table and discussed
the current prospects for banks in our specifi c markets. This was the real
point of the meal—to share information—and in this way, we were act-
ing as unoffi cial ambassadors for our home countries.
The Japanese bank analyst talked about how that government’s poli-
cies had allowed banks to continue lending to corporate borrowers even
though those companies, and many of the banks themselves, should have
folded years ago. They were zombies, the walking dead. The Chinese ana-
lyst talked about how his country still had tremendous room for growth.
Consumer credit in China, as a percentage of the overall economy, was
only about one-fi fth the level in the United States. The ride would be
bumpy for investors in Chinese bank stocks, but the long-term prospects
were very promising. Next, the bank analyst from Korea spoke, then
Thailand, Indonesia, and so on.
I knew my turn was approaching, and I started thinking about
what I would say. At the time, I was in the middle of a very public dis-
pute with Citigroup over some of its accounting practices. Citi didn’t
like what I had been saying and had adopted a shoot-the-messenger
approach. For the past several months, I had been airing my concerns
in the media, through outlets like CNBC and the Wall Street Journal, and
the company either ignored the issues I raised or sniped back at me in the
press. It would all come to a head a few weeks after that conference, but
in the meantime, the fi nancial community had been following it closely.
This kind of fi ght was not new to me. I’ve worked as a bank ana-
lyst for the past twenty years, where my job is to study publicly traded
fi nancial fi rms and decide which ones would make the best investments.
My research goes out to institutional investors: mutual fund compa-
nies, university endowments, public-employee retirement funds, hedge
funds, private pensions, and other organizations with large amounts of
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