Celebrating Incompetent Insider Stock Buys
The investor capacity to lie to themselves is truly an awesome thing to witness.
The most recent example is the rally in bank stocks ostensibly caused by CEO, Chairman and Board members buying shares.
It is nothing short of absurd.
Bank of America CEO Ken Lewis bought 200,000 shares ($1.2 million), while JPMorgan Chase CEO Jamie Dimon purchased 500,000 shares ($11.5 million). Six other BAC board members bought more than 500,000 common shares also.
The market celebration seems odd, when you consider that the poor strategic acquisitions, inept risk management, and otherwise errant policies that drove these stocks down 90% from their peaks were the brainchilds of these same insiders.
Given the past track record of their corporate investing acumen, the insider purchases by this group of ne’er-do-wells should hardly be cause for jubilation.
Then there is this additional tidbit: These insider purchases were made from the proceeds of ill-gotten gains — the vast sums of money that management has been overpaid for the fine job they did driving these companies into the dirt.
The thought process must have gone something like this: Now that we have been paid 100s of millions for turning our stock price into fertilizer, let’s take a few cents of that money and buy a few shares of stock.
The entire sordid episode is sickening, and hardly cause for investor appluase. Instead of buying stock, these incompetant corporate clowns should be falling on their own swords. If they don’t do so soon, it will be time for investors to start gathering pitchforks and torches, to chase the money losing managers out of town.
January 22nd, 2009 at 9:07 am
I notice that China has handed out two death sentences related to the tainted milk problems.
Just sayin’…
January 22nd, 2009 at 9:10 am
ok,
so much for the AAPL beat, MSFT just killed us for the day.
January 22nd, 2009 at 9:12 am
“Merrill Lynch took the unusual step of accelerating bonus payments by a month last year, doling out billions of dollars to employees just three days before the closing of its sale to Bank of America.
The timing is notable because the money was paid as Merrill’s losses were mounting and Ken Lewis, BofA’s chief executive, was seeking additional funds from the government’s troubled asset recovery programme to help close the deal.”
Yes Barry, these are ill gotten proceeds and this is sickening.
January 22nd, 2009 at 9:12 am
BR,
I sort of expected this to be your take. Ken Lewis doesn’t know how to buy anything.
My only hope is he did this on margin and he’ll get a call at some point soon, making the losses even worse for him.
How is he still CEO?
January 22nd, 2009 at 9:18 am
Ben22- Good point on the margin issue. One can hope that they are as skillful as Aubrey McClendon at insider buys.
January 22nd, 2009 at 9:18 am
Barry
is it not more sickening that Kenny Boy took the $20 Billion from the TARP he claimed was ESSENTIAL last week and used $15 Billion of it to pay Merrill bonuses?
BONUS!
this in the name of “talent retention”, as if these people have somewhere else to go!
heaven forbid that 20 bil should be used for , gasp…… making loans!
im disgusted
January 22nd, 2009 at 9:22 am
It has LONG passed the time to get the pitchforks! Just set back and let the tide flow in and out. We’re all sheep at this point because of disengaged Americans!
January 22nd, 2009 at 9:22 am
How did those Citi stock purchases work out for Pandit and Havens? Ken Thompson? Insider buying is no longer such a bullish signal. Insiders long ago figured out the trick and now use it to juice the stock.
January 22nd, 2009 at 9:35 am
Ken Lewis must have taken buying lessons from Ken Thompson.
January 22nd, 2009 at 9:40 am
Amen Barry. Amen indeed. This is utterly ridiculous but to be expected in today’s bizarro world we live in.
January 22nd, 2009 at 9:50 am
Same people who had there companies doing stock buy backs when the stock price was at all time highs.
With the news yesterday of UAL losing a ton of money on hedging mistakes coupled with the auto industry problems you have to wonder if there is anyone out there who knows how to run a company or have they all just been lucky up until now.
January 22nd, 2009 at 9:53 am
@SWMOD52: Luck and randomness play a FAR bigger role in our lives than anyone really wants to believe or admit.
January 22nd, 2009 at 9:56 am
CRITICS would call it expensive and futile PR, while FANS would call it a wise, buy-it-at-the-bottom investment.
January 22nd, 2009 at 10:01 am
It doesn’t seem like that big a deal. They are where they are, status- and results-wise, because they are fully committed to the alternate-reality groupthink of the financial industry. It’s not reasonable to expect them to suddenly get the hang of reality now.
January 22nd, 2009 at 10:02 am
Does John Borchers = Jamie Dimon?
January 22nd, 2009 at 10:25 am
For the General Welfare of Society, these people should be jailed – even if the thinnest of evidence is used to justify their incarceration pending indictment (not that there’s any doubt that plenty of criminal chicanery would be uncovered by the most cursory of investigations). Bernard Madoff is not the exception to the rule – he is typical, as is law enforcement’s and the courts’ kid-glove treatment of his nefarious business dealings. That we continue feeding them money boggles the mind.
January 22nd, 2009 at 10:29 am
I couldn’t agree more with this post.
January 22nd, 2009 at 10:35 am
Lewis holding an “emergency meeting” with Thain. How much you want to bet Thain becomes the fall guy and gets the boot and maybe $100MM in severance on his way out the door?
January 22nd, 2009 at 10:45 am
Ill Gotten Gain criminals include Financial Advisors (aka stockbrokers), Mutual Fund Companies who sponsor “investment education” programs to gain control of 401(k) assets, and, yes, Barry, even Investment Consultants who routinely spin the buy-hold yarn; the diversification pablum that allocation into foreign stocks insulates you from domestic economic woes; and the myriad of other financial pearls that cannot be supported by the facts of the situation.
If you made any fees / commissions from market gains during the preceding 15 years, you can climb atop your soap box AFTER you return them to your clients for having failed them.
January 22nd, 2009 at 10:49 am
Hey, at least they didn’t buy at the top.
January 22nd, 2009 at 11:08 am
These clowns pay themselves $100 million and then flash a few percent for the crowd. It’s a sucker bet. How about paying them 100% in stock that vests in quarterly increments for 20 years?
January 22nd, 2009 at 11:23 am
How much do you want to bet that the company loaned them the money to make the investment.
January 22nd, 2009 at 11:33 am
Trust in US banking system is DEAD !
January 22nd, 2009 at 11:38 am
I think this is another financial “axiom” that we can take to the burn pile:
“The only reason insiders buy is to make money”
change to:
“Insiders buy because it’s a legal way to try to paint the tape, and it doubles as an insurance policy against prosecution”
January 22nd, 2009 at 11:51 am
Thanks for promoting the truth. Wish there would be more like you.
This is the same in Canada. There is rarely a day that goes by without a news of some kind which results in us customers/shareholders getting screwed a bit and sometimes a lot more.
Would you believe they and our goverment are trying to make us believe that they are better managed than all the other banks in the world!
I suppose then that we are getting more screwed than the rest of you and most of us do not even feel it…
January 22nd, 2009 at 11:56 am
great analysis Barry. I think the troubled banks should be seized, common equity wiped out and management fired- what do you think?
January 22nd, 2009 at 12:04 pm
Meredith Whitney offers this counterpoint to the bozo’s buying their own stock with ill-gotten gains to give investors a false sense of confidence.
“One constant question I get from investors, who need somewhere to put their money, is: if I had to own something, what would it be? I am not very helpful to them at the moment as my answer is that I would own nothing. ”
Insider purchases offer investors more of the same false reassurances we got from these misleading executives in 2007-2008. This only provides another sense of false security and betrayal to the American Investor. Stick with what Whitney says!
January 22nd, 2009 at 12:08 pm
I’m not convinced that these CEO’s are buying because they’re bullish.
More likely they’re buying in order to convince everyone else that that they’re bullish.
January 22nd, 2009 at 12:13 pm
Italian Auto company re: Chrysler buyout offer to Cerberus:
“We’ll happily take Chrysler IF you’re citizens give us $11 billion to do so.”.
Alice, we are thru the looking glass……
January 22nd, 2009 at 12:14 pm
Marcus,
“these people should be jailed – even if the thinnest of evidence is used to justify their incarceration pending indictment (not that there’s any doubt that plenty of criminal chicanery would be uncovered by the most cursory of investigations)”
Maybe they can take the place of prisoners Obama is ordering the release of today: “President Barack Obama ordered closure of the U.S. prison camp for suspected terrorists at Guantanamo Bay, Cuba.”
January 22nd, 2009 at 12:17 pm
@DL: Nobody trusts these cretins anymore. That’s the issue. It’s all “guilt by association” at this point. They feathered their own nests. This was years, decades even, in the making. Without big changes in leadership to engender condifence going forward that our markets/economy aren’t rigged to favor only the elite, we’re nowhere.
January 22nd, 2009 at 12:19 pm
I bought BAC Monday-Tuesday. Average cost: $5.50 a share. In 5 years I could be -$5.50 or +$35.00. I like that payoff to risk ratio. Current BAC tangible book is about $9.80 a share.
Unlike most of the posters here, I have no problem with Dimon or Lewis.
January 22nd, 2009 at 12:24 pm
@ Broken
but then again the government could nationalize the troubled banks and you know what that means
January 22nd, 2009 at 12:25 pm
@Broken: You will if the stock goes to zero and your “investment” is wiped out.
January 22nd, 2009 at 12:28 pm
@Broken: How in the world can you calculate BAC’s true “tangible book value” when we have NO IDEA what’s in that block box of theirs?
January 22nd, 2009 at 12:50 pm
I know what’s in their black box! Goodwill from Countrywide and ML!
January 22nd, 2009 at 12:51 pm
@Thisson: And taxpayer money.
January 22nd, 2009 at 12:56 pm
Mannwhich & ahab:
Like I said, I could be -$5.50 (BAC nationalized) or +$35.00 (BAC recovers to pre-crash valuations in 5 years).
@Mannwhich: $9.80 book is the number BAC claims as of Dec 31. Obviously a moving target.
What we have here is a race between BAC’s cash-generating engine ($10 billion+/quarter) vs the bleeding (roughly the same). If you believe the bleeding eventually slows, the cash engine wins. The Gov just removed their exposure to ~$120 billion of the really nasty stuff.
I realize this is “Buy-and-Hold” thinking, not much use to traders.
January 22nd, 2009 at 1:05 pm
I hear you, Broken. At these levels, I’m tempted to jump on BAC or JPM as well but the whole thing just makes me a bit ill thinking about it. Can’t bring myself to do it, at least not yet.
January 22nd, 2009 at 1:43 pm
Mannwich @ 12:17
“Nobody trusts these cretins anymore”
Yes, but the question is, does Obama trust them, i.e., is he going to throw hundreds of billions of dollars at them like Paulson did?
We shall see.
January 22nd, 2009 at 1:51 pm
@Mannwhich:
I also started positions with WFC and JPM. I wager all three banks will drop still lower, at which point I will increase my positions. Current valuations are so low, two out of three banks could be nationalized and I still win.
January 22nd, 2009 at 1:55 pm
@DL: I really hope not. That’s not going to fix the problem.
@Broken: I owned BAC and WFC a while back for a quick trade/profit. Owned WAMU too for a couple of days and sold for a quick profit but I don’t like to own these financials for too long. Might be OK for a trade but they’re certainly not “investments” in my book.
January 22nd, 2009 at 2:20 pm
@Mannwich:
I am buy and hold. If the banks spike upward by some unreasonable amount, I will become a trader. Otherwise, I will buy lower unless fundamentals change.
Glad to see Thain go. A true asshole. I see his breed as the real problem, not the Lewis-types.
January 22nd, 2009 at 2:51 pm
It seems like a brilliant move to acquire some cheap protection from prosecution. After all, by pointing to the fact that they threw this money on ill timed purchasers the CEOs can claim to have been misinformed or simply incompetent rather than dishonest.
January 22nd, 2009 at 4:39 pm
MSFT really needs to give a free license and DVD of Windows 7 to every Vista owner, at least with OS X the first upgrade (X.0 to X.1) was free…
11 year lows ftw.. Couldn’t happen to a nicer dancing monkey…
January 22nd, 2009 at 5:20 pm
Merrell executives accelerated their bonuses after learning of the B of A acquisition:
http://www.nakedcapitalism.com/2009/01/merrill-execs-pay-selves-bonuses-ahead.html
They of course knew how much trash they had on the books.
January 22nd, 2009 at 8:36 pm
I suppose everyone here has a better crystal ball than mine, but I would wait at least 6 months before jumping into BAC or Citi or …
In the 80’s when Continental Bank got crushed during the energy crisis aftermath collapse I bought in super cheap believing the Continental was too big, too important, to well connected to be allowed to fail.
Guess what. A loud flushing noise.
The big boys are going to push things where they want them. And they love sucking other people in first.
January 22nd, 2009 at 8:36 pm
Hear! Hear!
I’d like to see some sword falling on (literally) myself.
January 24th, 2009 at 6:42 pm
It is past due time for ALL SENIOR BANK MANAGERS TO GET THE AX.
Then, the government should go after the bonuses paid to all these bank managers. They were paid bonuses when their firm had to be paid TENS OF BILLION DOLLARS by US TAXPAYERS.
In Merrill Lynch’s case, their bonuses were down 6% from last year. Hard to believe.
All these bonuses should be left as CAPITAL in the banks and ANY UPSIDE, if any, should belong to TAXPAYERS. Anything less is a GIFT to them.