I did some poking around and can’t find anything that suggests that the CMO problems played a major role in Kidder’s sale. In fact, the acquisition had been an ongoing embarrassment for GE, starting with Mary Seigel’s conviction for insider trading. GE had been shopping the firm for some time and had had a deal with Primerica fall through in 1992.

I can’t judge how big a role the CMO debacle played, but Kidder reported losses of only $25 million related to Askins, while the Jett-related reversals of phantom profits were $350 million (the lower number I found above may have been the after tax effect).

Keep in mind that the loss of CMO underwriting volume would represent a very large reduction in profit. In 1994, most underwritings, except for “bought deals,” which were generally restricted to big name, highly rated corporate bond issues, were pre-sold during a “book building” period.

I also recall, but couldn’t find any links to support it, that Kidder was very highly geared in those days. That would make sense if it had had a period of underperformance and trying to goose its returns via leverage. The article link above does say there were rumors of fixed income losses that Kidder denied, and it’s much easier to get into trouble if you are using tons of leverage.

My reading it that the Jett affair was the straw that broke the camel’s back, and induced GE to be more willing to lower its price expectations for a Kidder sale.