(Celebrity CEO article updated for CIT Group rating, MF Global trading)
NEW YORK (
) -- Is CEO star power a recipe for earnings power? The announcement of high-profile hires in the financial sector has the power to push troubled shares into a rally. The latest example was the hire of former New Jersey Governor and Goldman Sachs chairman John Corzine as CEO of derivatives broker
MF Global Holdings
When it emerged from bankruptcy,
also made a splash with its hire of former
and Merrill Lynch head honcho John Thain.
Both CIT Group and MF Global are on the comeback trail. In the case of CIT Group, the fact that it emerged from bankruptcy in January says it all.
In the case of MF Global, the derivatives broker was hit by multiple problems -- lower trading volumes and a low interest-rate environment that upped the leverage ante on its balance sheet.
Equity analysts say MF Global was also on the comeback trail under former CEO Bernie Dan, paying down $1 billion in debt since March 2008 and diversifying beyond foreign cash management business. However, MF Global remains unprofitable.
Some analysts are betting that Corzine's rolodex will accelerate that trend.
MF Global is paying Corzine at least $5 million this year in making its own bet on Corzine's star power.
MF Global shares hit a new 52-week high on Monday morning, at an intra-day price of $8.63. MF Global shares closed at $7.32 on March 23, the day on which Corzine's appointment was announced after the market close. On Monday at midday, MF Global shares were at $8.60.
The MF Global price spike -- the Corzine Effect -- was not a sustainable trading trend, even if Corzine's rolodex has barely started dialing its Wall Street contacts. On Wednesday, MF Global shares dropped 6.5%, or 56 cents to $8.07.
Wednesday saw a higher-than-normal level of trading in MF Global shares, with close to 7 million shares traded, versus an average volume of 3 million.
CIT Group shares also popped by more than $1 on the day after Thain was named CEO and chairman on Feb. 7, from $30.75 to an opening price of $31.76 the following day.
Since February, CIT Group shares have been climbing to new 52-week highs. Last Thursday, CIT Group shares hit $39.80. CIT Group's 10-K, reported on March 16, listed a book value of $39.67. On Monday at midday, CIT Group shares were trading at $38.74.
CIT Group is paying Thain $500,000 in cash salary, stock compensation of $5.5 million annually (subject to one- and three-year holding periods), and an incentive award of $1.5 million in 2010, not to mention a company-funded car and driver.
On Wednesday, as MF Global shares were falling, CIT Group received an initiation of coverage from Keefe, Bruyette & Woods. KBW started CIT Group coverage at market perform and with a price target of $44.
The $44 price target represented a 13% upside from CIT's current share price. KBW also forecast 2010 and 2011 GAAP earnings per share estimates of 60 cents and $2.45, respectively.
The Street view of CIT Group's earnings is 46 cents for 2010 earnings and $1.64 for 2011 -- though CIT was only covered by 3 analysts previous to the KBW initiation.
CIT shares were little changed on Wednesday.
The history of high-profile CEO replacements has its share of hits and misses. What's more, the hits and misses include high-profile hires from the outside world, and insiders getting the nod from outgoing CEO mentors.
Charles Price replaces Sandy Weill at
; he's ousted by 2007. Carly Fiorina takes over
; that high-profile hire led to the high-profile disaster merger with Compaq. Kevin Rollins take the reins from Michael Dell at
; Dell is back in the CEO slot today.
The financial sector has its own mix of hits and misses resulting from both inside plays and expensive celebrity CEO searches. Prince was Weill's man, at least, until he was run out of Citi. Citi decided to keep it in the family with Vikram Pandit -- though tapping an alternative investments whiz was outside the typical bank CEO model -- and Pandit has not exactly received a perfect score from investors or Wall Street peers.
Of course, Merrill decided to bring in Thain from the New York Stock Exchange, which had itself tapped Thain from Goldman Sachs.
Bank of America
decided to go the inside route after a very public CEO search for the replacement to Ken Lewis.
Bank of New York Mellon
CEO Robert Kelly was the much-rumored outside man on his way into Lewis' office, but it didn't happen. Consummate Bank of America insider and consumer banking chief Brian Moynihan moved into the CEO slot in December.
Bank of America's stock chart has moved up and down since Moynihan took over -- and, of course, insider Moynihan is still dealing with the ramifications of Street outsider CEO celebrity Thain's involvement in the infamous Merrill-Bank of America merger.
In light of all this, in the financial sector, does the inside hand-off make the most sense to execute on earnings power, or is star power and the celebrity CEO rolodex that gets results in the end?
In other words, will it be Thain, Corzine or Moynihan who delivers the biggest earnings power to investors? Take our poll below to learn what
has to say.
-- Reported by Eric Rosenbaum in New York.
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