Famed investor Jim Rogers has been down on the investment banking industry for some time, and thinks there is even more reason to be negative, as a Bloomberg story reports. However, I think George Soros would take exception to the characterization of Rogers as “co-founder” of Quantum. Rogers most assuredly worked for Soros.
Note that we have argued that investment banks are at risk of becoming sufficiently impaired to have larger consequences for the financial system. It takes a lesser degree of conviction to merely dislike their stocks.
Jim Rogers, co-founder of the Quantum Hedge Fund with billionaire George Soros, boosted his bets against U.S. securities firms because of their salary “excesses” and money-losing investments.
Rogers said he increased his year-old short positions in the past six weeks in U.S. investment banks, using exchange-traded funds and bets against individual companies he declined to name. Stocks in the industry, which pays too much in bonuses, may fall as much as 70 percent in a bear market, he said.
“You see 29-year-olds on Wall Street making $10 million to $20 million a year, and they think it’s normal,” Rogers, 65, said in an interview in London today. “There have been lots of excesses,” said Rogers, chairman of Beeland Interests Inc.
The top five U.S. securities firms will probably earn a combined $29.3 billion this year, according to analysts surveyed by Bloomberg, breaking a three-year record streak after Merrill Lynch & Co. reported a $2.2 billion third-quarter loss. Goldman Sachs Group Inc., Morgan Stanley, Merrill, Lehman Brothers Holdings Inc. and Bear Stearns Cos. earned $30.7 billion last year, three times more than their profit in 2002.
Goldman Sachs, Wall Street’s most-profitable securities firm, said Sept. 20 that it set aside $16.9 billion to pay salaries, benefits and bonuses in the first nine months of the year, topping the record amount for all of last year.
A month later, Merrill Lynch reported its biggest quarterly loss amid $8.4 billion of writedowns for subprime mortgages, asset-backed bonds and bad loans. The 12-member AMEX Securities Broker/Dealer Index has fallen 13 percent since the start of June, while the Standard & Poor’s 500 Index was little changed.
“Who knows how bad the balance sheets are,” Rogers said. “They took on gigantic amounts of bad paper.”….
Rogers said he made the investments using his own money. He declined to say how much he oversees.
The slump in the U.S. housing market “still has a long way to go” before recovering, he said. “Market excesses don’t clear themselves out in just four or five months; they take years.”
In keeping, Jeff Matthews gives us Stan O’Neal’s recent golf record.