TheStreet recaps Wall Street's most inane events of the year.
NEW YORK (TheStreet) -- Happy new year Five Dumbest fans, and may the coming year be as inane as the last one!
Yes, it's time to start looking ahead to 2012 and all the foolish wonders it will bring. To be honest, with all the unknowns still hanging over the market, we won't have to skip a beat when we crack open the new calendar.
Lucky for us, there is still a ton of unresolved stupidity out there, like whether Research In Motion or Netflix will still exist by the end of the year. Or, for that matter, if Europe will still be around.
And what will become of our good friend Jon Corzine in 2012? Will he catch the thieves that stole MF Global's millions? And what about Bank of America's Brian Moynihan? Will that poor guy ever catch a break?
Oh man! It's going to be a great year indeed!
Still, before we officially close the books on 2011, we here at the Five Dumbest Lab would like to take one last look back at all the craziness that brought us to this point.
And please, be sure to take the poll at the end of the story so we can get a consensus on which of these stories our faithful readers deemed the dumbest of the dumb in the past year.
So without further ado, here's our list of the Ten Dumbest Things On Wall Street in 2011. See you next year.
Bank stocks got bombarded in 2011, and few got hit harder than Bank of America. Things got so bad last year that CEO Brian Moynihan was even forced to raid the fridge and unload the bank's stake in Pizza Hut. Mama Mia Moynihan! Will Merrill Lynch be next? 10. Moynihan Gets Byrned -- published Nov. 11, 2011
Remember the Talking Heads video for Once in a Lifetime? The one where lead singer David Byrne bemoans his mid-life crisis by repeatedly smacking himself in the head while asking "How did I get here?"
Well, as the days go by, and Bank of America(:BAC) unloads each additional non-core asset from its bloated portfolio, it becomes progressively easier for us to imagine CEO Brian Moynihan behind closed doors flagellating himself in pretty much the same way.
The Charlotte, N.C.-based banking behemoth revealed Monday its plans to sell its stake in Pizza Hut franchisee NPC International to private equity firm Olympus Partners for $755 million, according to a filing with the Securities and Exchange Commission.
The largest U.S. bank by assets inherited the network of approximately 1,150 pizza restaurants when it purchased Merrill Lynch for $50 billion at the height of the financial crisis just over three years ago. Bank of America shares, down over 50% so far this year, took yet another pie to the face, falling close to 1% Monday even while all three major indexes finished higher.
As to how Mother Merrill got into the pizza business, well, the brokerage giant bought NPC for $615 million in 2006 and, believe it or not, actually fared pretty well as a pepperoni purveyor. The company, which owns roughly 20% of all Pizza Hut restaurants in the U.S. and has 28,000 employees in 28 states, actually posted a $3.5 million profit in its most recent quarter ended in September.
As to why Moynihan is selling it, well, let's just say he needs the dough. And he's going to need a lot more of it to boost his capital position if Bank of America gets stuck with more losses on its shaky mortgage portfolio. Also not helping Brian's blighted balance sheet was this Monday's decision by a federal judge to approve a $410 million settlement of a class-action lawsuit that accused Bank ofAmerica of overcharging 13.2 million customers for debit card overdrafts.
In fact, that's why he's not only selling Bank of America's slice of a pizza business, but yet another chunk of the bank's China Construction Bank(:CICHY.PK) holdings. The South China Morning Post reported Monday that Bank of America officials contacted CCB over the weekend to discuss selling part of its $9.2 billion stake in the Chinese bank.
And if such a transaction sounds eerily familiar, it's because a scant three months ago Bank of America unloaded $8.3 billion worth of CCB shares, which is why this latest scuttlebutt sent CCB shares down 3% in Hong Kong, once again hitting Moynihan squarely in the pocketbook.
Of course, Moynihan would far prefer to divest himself of all the ridiculous businesses that his predecessor Ken Lewis rolled up, whether they be Pizza Huts, subprime lenders or Chinese banks, than dilute his already watered-down share base by selling more stock.
But no, he's doing that too. Bank of America announced last week it would sell up to 400 million shares to retire $3 billion in preferred shares and callable debt, even after saying over and over again that it had no need to issue more equity.
Yep, Moynihan may be an entirely different type of Talking Head, but Bank of America remains just like the song says: "Same as it ever was".
One can only imagine what HP's founders would be thinking about what happened to their beloved company over the past year. Bill Hewlett and Dave Packard must be turning over in their garage about Leo Apotheker's failed strategy initiatives - and his severance package! 9. Lucky Leo Cashes Out -- published Sept. 30, 2011
Honestly, we can't think of a better job in the world than getting fired as CEO of Hewlett-Packard(:HPQ). Can you?
Check this out. HP stock was trading at $42 a share on Sept. 30, 2010 when Leo Apotheker replaced the scandal-tarred Mark Hurd as CEO. Fast forward to Sept. 22, 2011 and the shares were barely above $22 when the company formally announced Meg Whitman would be replacing Apotheker in the company's top job.
Yep, the once-iconic technology company lost nearly half its market value in barely a year under Leo's astute stewardship. So how much is he likely to walk away with for all his success? Over $25 million, according to some sources, after adding up his annual salary, signing bonus, relocation assistance, severance pay and stock grants that vest immediately upon his departure.
Lucky Leo is in line to pocket all that dough for wrecking a company and getting ousted. Damn, that sure is good work if you can get it.
And because HP is so screwed up, Leo is not even the first guy -- or gal -- to snag a serious payday from HP's board before being sent packing. In fact, that pretty much is the protocol at the printer maker. (Wait! Do they still make printers anymore? Or did they drop that business with the tablets? Oh, who knows anymore? Who cares anymore?)
Mark Hurd, who left in a cloud of sex and shame, received a cash severance payment of $12.2 million before jumping to an executive job at Oracle(:ORCL). HP CFO Cathie Lesjak filled in as CEO after Hurd took off, bridging the gap between Hurd and Apotheker. She was granted a $1 million cash bonus and $2.6 million in stock grants for her three months of "exceptional service." And Carly Fiorina, who left as CEO in 2005, was given a $21.4 million cash severance in addition to another $21.1 million in stock grants.
All-in HP has spent the better part of $80 million, conservatively speaking, on exit packages for its past four CEOs, including Lesjack's brief stint. Meanwhile, shareholders have seen the value of their holdings decimated.
To which we say, congratulations Meg. Good luck with your new gig. Here's hoping you get canned as soon as possible.
European leaders keep kicking the can down the road, refusing to enact a solution to their debt crisis. Nevertheless, the Italian electorate did end the political career of Prime Minister Silvio Berlusconi who provided us all with comic relief when things got especially tense. 8. Berlusconi's Bull -- published July 15, 2011
Sorry Silvio, but blaming speculators for the implosion of Italian banks is a whole lot of bunga bunga.
Italy's two largest banks, UniCredit and Intesa Sanpaolo SpA, this week fell to lows not seen since the period following the collapse of Lehman Brothers in 2008. The lenders saw heavy selling over concerns that Italy would be the next victim of the European debt crisis.
To stem the pressure, Italy's market regulator Consob moved to curb short selling on Monday by forcing short sellers to reveal their positions when they reach 0.2% or more of a company's capital and then make new filings for each additional 0.1%.
Paolo Bonaiuti, an aide to Prime Minister Silvio Berlusconi, said the new regulations would unite Italy "in blocking the effort of speculators."
Bonaiuti, of course, was simply following Berlusconi's lead in blaming the entire crisis on the sliver of investors betting against Italy's faltering banks. Back in late June, Berlusconi lashed out at "the locusts of international speculation" for attacking Italian bank stocks, as well as the rating agencies for speaking ill of the country's debt, which, as luck would have it, is heavily owned by those sinking banks. UniCredit and Intesa held a total of $325 billion of government debt as of the end of April.
Come on folks. Let's be fair to locusts! If there are any slimy insects eroding the stability of the Italian -- and potentially European -- financial system, its Berlusconi and his ragazzi.
Clearly Rome is burning. Italy's public debt load amounts to about 120% of gross domestic product. Italy's economy grew a mere .1% in the first quarter. And more than 28% of Italian 15-to-24 year-olds are unemployed.
And even more clearly, the Italian government is fiddling. Instead of spending his time battling the problems afflicting his country's economy, Berlusconi is currently fighting legal charges over wild "bunga bunga" sex parties, as well as tax fraud allegations.
He's also locking horns with his own finance minister, Giulio Tremonti, who he trashed in an Italian newspaper, saying, "he's the only one who is not a team player."
As for Tremonti, he is involved in a scandal in his own right for living rent free in an apartment owned by parliament member Marco Milanese, who was arrested on accusations of accepting bribes. Speculation over Tremonti's future is not helping Italian bonds, now trading at their widest spreads to German bunds since the launch of the euro.
Perhaps the only member of Berlusconi's cronies that's hard at work trying to keep the country afloat is Mara Carfagna, the former topless model who Berlusconi tapped to be Italy's equal opportunities minister.
Carfagna obviously believes in transparency, at least when it comes to her clothing. And that's more than you can say for Berlusconi, who is trying to hide his own ineptitude by redirecting the spotlight on shortsellers, a group that evidently sees the prime minister for what he is: An Italian version of Lehman CEO Dick Fuld right before the investment bank went arrivederci.
2011 will go down as the year that the monthly nonfarm payroll report was officially renamed the "all-important jobs number." But despite all the hype, traders almost always forgot about this huge piece of economic data about two minutes after the opening bell. 7. Jobs Number Jive -- published July 15, 2011
President Harry Truman famously asked for a "one-handed economist" when his advisers gave him contrasting opinions. Frankly, after last week's June jobs data debacle, we would settle for a Wall Street economist with just one brain.
The U.S. economy only added 18,000 jobs in June after gaining 25,000 jobs in May, according to last Friday's Labor Department report. Wall Street's consensus estimate was 105,000, according to Bloomberg. The private sector officially added 57,000 payrolls for the month, missing projected additions of 132,000. The unemployment rate was also disappointing, rising to 9.2%, even though economists pegged it to hold steady at 9.1%.
Um, excuse us for asking, but as they say in cyberspace...WTF?
We understand last Thursday's better than expected ADP employment report showed payrolls adding 157,000 positions, up from 36,000 the prior month. And we know the recent batch of economic data has been encouraging.
But to miss the headline number by a factor of five is just ridiculous. And we won't even talk about Wall Street's much higher "whisper" number because it makes us want to shout at the top of our lungs: HOW DO THESE WHIFFERS KEEP THEIR HIGH PAYING JOBS WHEN EVERYBODY ELSE IN AMERICA IS LOSING THEIRS?
Whew. Sorry, but we had to get that off our chest.
Anyway, here's the reality as we see it. About 20% of Wall Street's dismal scientists, aka economists, jacked up their forecasts by about 25,000 or more jobs after last Thursday's scorching ADP report, according to a note by Citigroup(:C) strategist Steve Englander. That means a whole lot of lemmings were worried about being left behind if Friday's number was a huge upside surprise, which it clearly wasn't.
Citigroup, by the way, predicted a headline number of 100,000. The golden boys at Goldman Sachs(:GS) clocked in at 125,000. Deutsche Bank was dead wrong at 175,000. Just to name a few of the brainiacs who blew it.
We could go on, but we would need at least an eight-handed economist to count them all.
Perhaps no other CEO went from hero to zero in 2011 as dramatically as Netflix boss Reed Hastings. And while we would like to say that Reed has no place to go but up in 2012, you never can tell with that guy -- he's so full of surprises. 6. Reed's Mea Culpa Mess -- published Sept. 23, 2011
Has Netflix(:NFLX) CEO Reed Hastings been blogging under the influence of the movies his company provides? And if so, which ones? Because that's the only explanation we can come up with for his wacked-out apology to customers Sunday night.
Here's the nuttiness that Netflix subscribers woke up to on Monday morning, a missive straight from Reed that started: "I messed up. I owe everyone an explanation."
First of all, can you think of a worse way to start a letter? The guy sounds more like a teenager who just crashed the family car than a CEO detailing a new business plan. Right from the beginning this whole letter is disturbing. Did anybody from the Netflix PR staff take the time to review this message? Or, did Reed post this poppycock in the middle of a Jerry Maguire moment?
And it only gets worse from there.
"It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming, and the price changes. That was certainly not our intent, and I offer my sincere apology."
Now he sounds like he's been watching too much Kramer vs. Kramer. Dude, get a grip. You are splitting up your company, not a nuclear family.
Here's the deal about Reed's condescending, borderline-creepy, confession.
Netflix is going to rebrand its DVD-by-mail service as "Qwikster," as it separates those operations from the streaming content business. The company plans to keep the name "Netflix" for streaming. According to Reed, Netflix has no plans to roll back the price hikes that caused so much consternation this summer because the streaming and DVD-by-mail are becoming two quite different businesses, "with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently."
Put it all together and you can see why his customers are revolting and his stock is getting smashed, down 36% in the last month alone. Quite simply, Reed's subscribers are being walloped with a triple whammy: higher fees, fewer movies and now less convenience. To quote Network, they are "mad as hell" and "not going to take this anymore!"
So what does the former rock star Reed say?
"Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions."
Oy. What drivel! Maybe he was watching political movies like Citizen Kane, A Face in the Crowd or The Candidate when he wrote that note.
Wait! Scratch that. We've got the movie that inspired Reed. It must have been The Jerk.
For those that may have forgotten - or perhaps purposefully blocked it from memory - Summer 2011 was dominated by the debt ceiling debate. Like you, we would prefer not to relive that experience, so here once again is our modest proposal to fix the country's credit standing. 5. More Debt Ceiling Stupidity -- published August 5, 2011
Now that President Obama has put pen to paper and raised the debt ceiling, thereby averting a catastrophic (at least that's what he told us) downgrade of U.S. credit, we have a suggestion for our representatives in Washington to nullify this issue the next time it arises (and trust us, it certainly will): Bribe the ratings agencies to keep America's AAA rating.
Hey, it worked for Wall Street!
Moody's Investors Service(:MCO) and Fitch Ratings affirmed their top-notch AAA credit ratings for the United States on Tuesday. The ratings agencies did warn, however, that downgrades were possible if the government failed to follow through on its debt reduction measures and the economy weakens. Moody's currently lists the outlook for U.S. Treasury debt as negative.
The compromise "is a positive step toward reducing the future path of the deficit and the debt levels," Steven Hess, senior credit officer at Moody's in New York, told Bloomberg.
"Although the agreement is a good first step in adjusting the fiscal challenges that the U.S. faces, it is just a first step," said David Riley, Fitch's London-based head of sovereign ratings, also to Bloomberg.
Thanks for the advice guys and we promise to step-to-it. But before we do, would somebody please remind us when exactly our entire government started taking marching orders from these clowns? If memory serves, aren't these the same so-called analysts who, along with Standard & Poor's, a unit of McGraw-Hill(:MHP), were not too long ago excoriated by Congress for giving solid gold ratings to the toxic mortgage bonds which caused a real, not hypothetical, meltdown?
Damn straight. And payback sure is a bitch. Or, perhaps in this case, a potential B+ grade for our Treasuries since the ratings agencies are calling the shots now.
Let's reminisce for a second, shall we? It was just this April when Sen. Carl Levin (D., Mich.) released his final report on the financial collapse, which accused the ratings agencies of engaging in a "race to the bottom" to win Wall Street's business. According to the report, "Investment bankers who complained about rating methodologies, criteria, or decisions were often able to obtain exceptions or other favorable treatment."
So if Wall Street "fat cats" -- to borrow the President's term -- can get special treatment by paying off the ratings agencies, why not the even fatter cats in Washington? The government has all the money it can print if it wants to pay for inflated grades. And you know those greedy graders won't pass up a shot at some cheap, easy greenbacks.
The big question is whether China's Dagong Global Credit Rating Co. will be as easily bought off. China's rating agency cut its credit rating for the U.S. this week to A from A+ with a negative outlook.
And when it comes to our debt dilemma, our creditors in China are the fattest cats of all, so we better step lively. Or soon we'll be walking the plank.
Shares of Research In Motion steadily sank over the course of 2011 as Apple continued to grab market share from the BlackBerry maker. Not helping the company's fortunes was the stumbling and bumbling of its co-CEOs who made every conference call a winner -- for us at least. 4. RIM's Terrible Twos -- published July 29, 2011
Grab your life vests everybody. The brass at Research In Motion(:RIMM) is rearranging the deck chairs on Noah's Ark.
Sorry for the mixed metaphor, but our mixed-up friends behind the BlackBerry once again bewildered Wall Street Monday when they announced plans to pair up more senior officers while slashing staff on the sinking ship by roughly 10%, or 2,000 workers. RIM said the intention is "to focus on areas that offer the highest growth opportunities and alignment with RIM's strategic objectives." Shares of the company did anything but grow in response to the plan, contracting over 3% on news of the restructuring.
Wait! Sorry again. We forgot that RIM's co-CEOs don't want to refer to this as a "restructuring" or "reorganization." Michael Lazaridis and James Balsillie declared back in June that these layoffs are an attempt to "streamline" and "realign" the company's operations as part of a greater "cost optimization program."
Boy, if this pair could only come up with a sales strategy as easily as euphemisms for canning people then maybe they wouldn't be in all this trouble.
Sadly, that's not the case. And what's worse, according to the company's press release, the less-than-dynamic duo is expanding its silly strategy of doubling up employees in key C-Level roles. Thorsten Heins will be now taking on the expanded the role of COO, product and sales. And Jim Rowan will be assuming the expanded role of COO, operations, responsible for RIM's manufacturing, global supply chain and repair services.
Furthermore, a host of other RIM executives will be mixed and matched as part of the company's overhaul, including Patrick Spence, who has been promoted to Managing Director, global sales and regional marketing, while Robin Bienfait will be maintain her current position of CIO, but will also take on responsibility for RIM's crucial enterprise business unit.
Look, we have nothing against all the motion going on at RIM as they try to turn this boat around. But it did not take a lot of research for us to figure out that two heads are not always better than one at the company.
We simply looked at the twosome at the top.
News. Corp. CEO Rupert Murdoch got hit in the face with a pie. Nuff said. 3. Rupert Pays The Pie-per -- published July 22, 2011
Dear readers, in all seriousness, it's not always easy finding Dumbest items to fill our list every week. We know it sounds crazy considering the sheer amount of silliness that emanates from Wall Street, but there are indeed periods in which nothing out-of-the-ordinary occurs and as a result we are often forced to dig deep for material.
On the other hand, sometimes the stupidity just hits you -- or in this case, News Corp.(:NWSA) CEO Rupert Murdoch -- like a pie in the face.
For those cave-dwellers or orbiting astronauts who missed it, a comedian who goes by the name of Johnnie Marbles slapped the beleaguered media mogul in the face with a shaving cream pie while he was testifying about phone-hacking in front of a Culture, Media and Sport Committee hearing in London on Tuesday. Murdoch's wife Wendi Deng Murdoch stood up and tried to protect her husband from the man, who was then escorted out of the room by police officers.
"Mr. Murdoch, your wife has a very good left hook," said Labour lawmaker Tom Watson before returning the proceedings to order.
Yes, that actually happened. And no, we could not make it up such foolishness even if we were so hard-pressed for content that we had to.
Clearly, the episode was a career highlight (or perhaps lowlight) for Marbles who tweeted before the attack that "it is a far better thing that I do now than I have ever done before #splat".
Having never seen Mr. Marbles's comedy act, we can't confirm or deny that this was his best work to date. But we can safely say that his insane outburst sure made our work this week a whole lot easier and for this we thank him.
Don't you just hate it when you misplace a billion dollars? Yeah, call it a pet peeve, but that totally annoys us too. So imagine how the folks at UBS felt when they woke up to find that a rogue trader had lost more than two billion bucks! 2. UBS CEO's Strange Sense of Responsibility -- published Sept. 23, 2011
Things are not always as dumb as they seem, which, in case you were wondering, was the reason why UBS(:UBS) did not top our list last week after news hit about a rogue trader allegedly racking up $2 billion in losses at the Swiss bank. You see, before we can officially label something as "dumb," we need all the facts and when the UBS story broke there were still too many holes in it for our comfort.
For example, we didn't know whether the alleged rogue trader Kweku Adoboli acted alone or if he had help. We also didn't know whether it was an "honest" mistake. (Hey, we've all heard about fat finger trades. Maybe this guy had a huge freaking finger.) And in the end, we felt it best to wait until more specifics about this massive screw-up were revealed.
Now that a week has passed and more pieces have been added to the puzzle, we feel even more confident that our decision to hold off was the right one.
Yes, it is true that things are not always as dumb as they seem, because in this case they were $300 million dumber! In the week since the scandal first broke, the Swiss banking giant has raised its estimated loss to $2.3 billion. Apparently, a $2 billion loss was not embarrassing enough for UBS so they topped it off.
And what is even more humiliating for the bank is that Oswald Gruebel, the chief executive of UBS, has dismissed calls for his resignation as politically motivated. Gruebel told a Swiss newspaper, "I'm responsible for everything that happens at the bank. But if you ask me whether I feel guilty, then I would say no."
Oswald, you have got to be kidding us! Politics are not the reason why you should consider stepping aside. You should consider resigning because you have no clue what's going on in your bank.
On your watch, some back office nebbish-turned-ETF trader lost 2 billion, sorry, 2.3 billion bucks! We're not blaming you for the bad trades, but come on! You've got to feel a little guilty about something, especially after you told analysts back in June that "we have no undue risk in our positions... I'm pretty convinced that we have one of the best risk managements in the industry."
And what we've also learned since last week is that the London-based Adoboli has been falsifying trades for more than three years. That means this funny business has been going on since Gruebel came out of retirement in 2009 to stamp out risky business practices at the bank after it was forced to take a $60 billion bailout from the Swiss government in the wake of the financial crisis.
In other words, the majority of this massive trading oversight has come on Gruebel's watch, so he's linked to this scandal -- and our Dumbest list -- whether he likes it or not.
Back when he was a Senator, well before he ran MF Global into the ground, Jon Corzine used to grill Congressional witnesses appearing before him. In a stunningly stupid turn of events, Corzine was back on Capitol Hill, but this time he was in the hot seat. And boy did he sweat! 1. The Gift Of Corzine -- published December 16, 2011
Forgive us for smiling so much lately, but Christmas came early here at The Five Dumbest Lab this year. Yep, the bearded guy fell out of the sky and blessed us with the greatest gift of all.
Wait. We're talking about Jon Corzine. Who were you thinking about?
The former MF Global CEO was back on Capitol Hill Tuesday, testifying in front of the Senate Agriculture Committee about what took place in the final days of the doomed brokerage house. His latest appearance comes only a week after he told a similar panel on the House side that he has no idea what happened to the missing $1.2 billion in MF client money. And while he once again pleaded ignorance as to the whereabouts of misplaced cash, Corzine did clear up some of his most intriguing testimony from the prior hearing, the part in which he said he "never intended" to break rules to save the firm.
"I want to be clear -- I never gave any instructions to misuse customer funds, I never intended anyone at MF Global to misuse customer funds," said the former Goldman Sachs(:GS) turned Senator turned Governor turned pariah.
Fine Jon. We believe you didn't order the metaphorical Code Red and steal comingled monies. And we'll grant you that things got hectic in those final days at MF, as they usually do during bank runs. Tis the season for charity and goodwill towards men, so please accept our holiday tidings even in the midst of your own personal tidal wave.
All that said, while you may not be a thief, you are still an absolute moron for bringing this entire unseemly episode, not just on the farmers whose cash you lost, but on yourself. In fact, we cannot even recall the last time we saw such a stupid Congressional witness as you and we've been doing this for years.
The auto executives who flew to Washington D.C. in private jets to beg Congress for a bailout - not as dumb as you. The ratings agencies who gave Triple-A grades to toxic mortgage bonds - not as dumb as you. The Securities and Exchange Commission agents who could not explain to Congress how Bernie Madoff eluded them despite repeated warnings -- not as dumb as you.
And so on. And so on.
Here's the difference Jon. You had it all and lost it because of your extreme hubris. None of those other witnesses before you had risen as high, and as a result, none of those other losers could fall so low. And while we appreciate the gift of dumbness that you have given us, we would much prefer you giving those farmers their money back, even if you have to dig into your own deep pockets to do so.
Now that would be a Christmas miracle.
Written by Gregg Greenberg in New York.