According to a story by Landon Thomas, Jr. in the New York Times on Jan. 27, 2008, which first reported on Wall Street’s reaction to the huge losses in the subprime debacle, many of Wall Street’s top executives who oversaw subprime investments at Merrill Lynch and Citigroup apparently have bright futures ahead of them.
The article specifically focused on Merrill Lynch’s Dow Kim and Thomas G. Maheras of Citigroup. Both men were top executives who built up a large position of subprime-related securities, which eventually led to $34 billion in losses last year. The fallout ultimately cost the chief executive officers at Merrill Lynch and Citgroup, Stan O’Neal and Charles Prince, their jobs. Dow Kim and Thomas G. Maheras, however, fared much better.
Kim, former co-president at Merrill Lynch with responsibility for trading and market operations, has been involved in raising money throughout the world for his new hedge fund, Diamond Lake Capital. Maheras, former co-president of Citigroup’s investment bank, is in discussions with several investment banks, including Bear Stearns, regarding a senior-level position. Several investments banks also have approached Maheras with offers to back him with up to $1 billion should he decide to start a hedge fund.
Wall Street apparently is wooing other subprime veterans, as well. Morgan Stanley co-president Zoe Cruz has reportedly been approached by investment banks, hedge funds, and private equity funds for a senior-level position. Cruz was forced to leave her job after the company suffered $10.8 billion of subprime losses.
These developments are a growing sign from Wall Street that it was the system that failed, not the people within the system. Then there are others who simply get more than one more chance. John Meriwether, who was fired from Salomon Brothers for his part in a bond trading scandal in 1991, went on to create the hedge fund, Long Term Capital Management. When the Fund nearly failed in 1998, it shook financial markets worldwide. Today, Meriwether has founded another hedge fund, JWM Partners, which has assets of approximately $3 billion.
Another case in point is Brian Hunter, the energy trader at Amaranth Advisors whose disastrous bets led to the disintegration of that $9 billion hedge fund. He is now advising a private equity fund on starting a new hedge fund. Of course, not everyone associated with the subprime contagion experiences such treatment. Rank and file employees from the merger and acquisition bankers at Bank of America to the sales executives at Citigroup’s hedge fund servicing business are seeing their jobs eliminated daily.
Morgan Stanley, is cutting 1,000 operational jobs; Merrill Lynch is also is expected to announce staff reductions Bank of America plans to cut more than 1,000 positions in its trading and investment banking operations, and Citigroup already has announced layoffs of investment bankers and plans to cut 4,200 jobs.
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