Some Wall Street memoirs have more sizzle than bacon: They’re written by insiders who tell less than they know. Felix Rohatyn comes to mind.
Others have more bacon than sizzle, as Mike Mayo’s “Exile on Wall Street” illustrates.
Mayo has built a reputation as a blunt old-school bank analyst who understands how to finger slippery accounting, declining loan quality and indefensible executive paychecks. Yet in some ways he remains an outsider.
After 20 years at institutions ranging from Lehman Brothers Holdings Inc. (LEHMQ) to Deutsche Bank AG (DBK), he comes across as a scrappy kid pressing his nose against the tinted glass -- a guy with no Ivy League pedigree and a chip on his muscled shoulder.
His interloper status makes his book enlightening and frustrating by turns. Long on analytical insights and short on corner-office anecdotes, these pages hint at how little even a well-placed researcher could know about the toxic debt buried in dark crannies of Street balance sheets during the housing bubble.
Though famously bearish on banks, Mayo kept a “buy” rating on Lehman Brothers as it veered toward collapse. He was at Deutsche by then, and his reasoning was clear: Lehman’s stock was trading so far below core book value -- even after factoring in potential real-estate losses -- that the market price smacked of a chance to purchase dollar bills for 75 cents each, he says.
Megabanks are notoriously bad at communicating with investors and analysts, as Mayo shows. In one bizarre passage, he says that Dimon “sucker punched” him on the snowy day in 2004 when JPMorgan Chase & Co. and Bank One Corp. made a formal presentation about their merger. Mayo, who long maintained a negative rating on Bank One, had upgraded it to match his “buy” on JPMorgan on news of the deal.
Dimon, in high spirits, couldn’t resist taking a poke at Mayo: “The title of his next report should be ‘I Was Wrong,’” he told the packed room.
Given Dimon’s habit of shooting from the hip, it’s tempting to scoff at Mayo’s suggestion that his reputation as a stock picker had been impugned -- not once, but twice, when Dimon made a similar dig two years later. Yet you’ve got to marvel at how out of touch with the dignity of others bank executives can be.
Mayo isn’t ashamed of exposing his geeky side -- the photo of Alan Greenspan he pinned up in his apartment, his excessive sit-ups and push-ups, his bravado: “I was a warrior of capitalism again,” he crows. Yet what comes through above all is his stubborn honesty.
Mayo learned how to pick apart balance sheets as a regulator assessing hundreds of bank deals at the Federal Reserve in Washington in the late 1980s and early 1990s. The job imbued him with a sense of civic virtue, and no wonder: We the Taxpayers had just shambled through the savings-and-loan crisis.
By 1992, Mayo was ready for Wall Street. Inspired by both Paul Volcker and Gordon Gekko, he hoped to combine public service with making serious money. He wanted it both ways.
After much cold calling and many snubs, he snagged a job as a junior analyst at Union Bank of Switzerland. Two years later, he jumped to Lehman, where he made his mark with a 1994 report that put “buy” ratings on most of the banks he covered.
From Bull to Bear
Congress had struck down a rule that prevented most banks from operating in more than a single state; he correctly predicted that this would trigger consolidation, cost-cutting and higher stock prices. His bullishness was mocked -- until the Standard & Poor’s bank index began climbing.
Mayo’s next big stand came in 1999, when he went bearish on the whole industry in a 1,000-page report. This came at the height of the New Economy craze, when the ratio of analyst ratings was roughly 100 “buys” for every “sell,” Mayo says. As bank stocks began falling, the backlash was harsh. One trader, he recalls, put his photo on her bulletin board with the word “WANTED” scrawled across it.
His warnings included a prediction that aggressive increases in home-loan volumes could end in a cycle of “lower home prices and lower collateral.” Right call, though it took almost a decade to be proved right.
In late 2007, as the subprime crisis deepened, a Deutsche Bank sales rep begged him to meet a client at a little-known hedge fund: “It’s all he wants for his birthday,” he recalls her saying.
So he went along for a talk, which led to a job offer: “It would be very lucrative,” the man said. Mayo turned him down.
The client was John Paulson, whose firm made $15 billion that year betting against the housing bubble.
(James Pressley writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)
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