The Business Press Maven would like to emit some sort of secret radar beam to business journalists so that when companies in the same industry report earnings, they don't automatically (read: recklessly) build their story line around a direct comparison.
It's either the secret radar beam or the somewhat less subtle detonation of their entire body of work. Repeat after me: Making automatic comparisons between companies in the same industry leads too often to the sort of sloppy thought that misleads investors.
Take recent articles on the financial firms ... please!
The story line in a
piece, seen on the loose elsewhere too, was this:
Let's examine further, because a lot is at stake here. The sort of black-and-white comparisons that lead to misperceptions is especially fraught in the case of the big Wall Street banks. As the article itself intones: "Wall Street has been closely scrutinizing the financial sector results for signs about the scope of the subprime mortgage meltdown and larger credit crisis."
Well, maybe Wall Street has been doing some scrutinizing, but
wasn't. While Lehman was "surprisingly strong," Morgan was "vulnerable."
Before we get to the gold standard in reporting here, which does not run with a good girl/bad girl story line, let's review another (lame) effort by the
The lead linked Morgan Stanley and Lehman Brothers:"Morgan Stanley reported a 7 per cent fall in third-quarter profits yesterday after unexpectedly taking a relatively bigger hit from credit market turmoil than rival Lehman Brothers."
The lasting lesson for you investors? The item you should take away from the discrepancy? Morgan did not hedge its leveraged loans, we are told, while "in contrast" Lehman "partly" did.
You want the real scoop? I don't even have to give it to you myself today. All we have to do is head over to the
Breakingviews column in
The Wall Street Journal
. It also starts with a lead that contains both Morgan Stanley and Lehman Brothers. What, you ask? How can this be? I thought, wise and mighty Business Press Maven, you said the comparison was false. Easy -- here's the lead, which pointedly rejects the appropriateness of the good/bad, dark/light, day/night story line:
On the face of it, Morgan Stanley appears to be suffering more indigestion from its voracious appetite for financing leveraged buyouts than Lehman Brothers. The larger Wall Street firm's third-quarter earnings came in 11% under estimates, while its rival actually beat expectations. What's more, Morgan Stanley took a larger hit from writing down loans and securities. But these numbers are misleading.
You mean to tell me that the business media confused investors yet again by making facile comparisons of companies just because they are in the same sector? Of course. The Business Press Maven, always difficult to please, has a good deal of respect for this Breakingviews column. This one, by the way, was titled "Lehman's Bookkeeping Goulash Masks Hit From Loan Write-Downs."
It is my great pleasure to grant it this week's coveted Business Press Maven "Nod of Approval," as it pointed out in the second paragraph that Lehman's tax rate was much lower than usual and without it, the company would have missed estimates by a yawning 5 cents.
What about those "surprisingly strong" earnings we read about elsewhere, the vaunted "contrast" with Morgan? Eh, well, easy come, easy go.
Breakingviews then goes on to highlight the "real juice," which involves a difference in how each accounted for loans to leveraged deals. Accounting, of course, does not run standard across industries, which is a major reason why simple comparisons are so often wrong.
Said Breakingviews: "Lehman's number came replete with some funnies that massaged the headlines." On second thought, maybe I don't like Breakingviews so much. Dudes, much more work like this and I'm out of business.
Never mind. There will always be enough bad reporting to keep me in business, even staying in the same sector. Right after Lehman and Morgan were set beside each other,
Goldman was good and Bear was bad, a more apt assessment certainly. But look at how in writing about Goldman exceeding "far above expectations,"
does not see fit to even mention a $900 million one-time gain from the sale of a wind subsidiary. That's a lot of money -- more than I make in two entire years -- and it should be mentioned. Look at how
Joseph A. Giannone and Tim McLaughlin -- writing an otherwise appropriately positive article about Goldman called "Goldman tops view, Bear falls short amid turmoil" -- manage to mention it here.
And, finally, to my Jewish readers -- have a happy and healthy New Year and an easy fast.
At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.
A journalist with a background on Wall Street, Marek Fuchs has written the County Lines column for The New York Times for the past five years. He also contributes regular breaking news and feature stories to many of the paper's other sections, including Metro, National and Sports. Fuchs was the editor-in-chief of Fertilemind.net, a financial Web site twice named "Best of the Web" by Forbes Magazine. He was also a stockbroker with Shearson Lehman Brothers in Manhattan and a money manager. He is currently writing a chapter for a book coming out in early 2007 on a really embarrassing subject. He lives in a loud house with three children. Fuchs appreciates your feedback;
to send him an email.