Our Treasury Secretary Speaks
If Tim Geithner actually believed his "Financial Stability Plan" was going to calm anybody, we'd hate to hear his ideas on how he would wreak true terror.
Stocks in New York sold off sharply Tuesday after the Treasury secretary unveiled his much-hyped plan. (The fact that he called it a financial stability plan is an oxymoron, italics intended.) In short, Geithner's $1.5 trillion program aims to combat the financial crisis through a collaboration of public and private investments and a consumer and business lending initiative.
In prepared remarks released ahead of his press conference, Geithner offered his plans for deploying the second half of the $700 billion Troubled Asset Relief Program, or TARP, to banks that can pass "stress tests" to prove their worthiness. And in order to ensure more transparency and accountability, the plan requires firms to show how government assistance will expand lending and mitigate mortgage foreclosures.
Additionally, banks will be required to restrict dividend payments, stock repurchases and acquisitions. Executive compensation, of course, will be limited.
Geithner referred to the Financial Stability Plan as a "comprehensive strategy" that "will cost money, involve risk and take time."
Well, he was two-thirds right on that prediction. His risky plan cost investors a lot of money, but it didn't take much time.
When the dust settled from Geithner's big day, the Dow Jones Industrial Average fell 381.99 points, or 4.6%, the S&P 500 fell 42.73 points, or 4.9%. The Nasdaq was lower by 66.83, or 4.2%.
Wall Street's misgivings were primarily motivated by Geithner's failure to address whether banks overburdened with toxic debt will be forced to fail, how illiquid assets will be excised from bank balance sheets, and perhaps most importantly, how the plan will stem plunging home prices and rising foreclosures.
To be fair, the market's dissatisfaction may not have been purely of Geithner's making. In his first evening press conference on Monday, President Obama raised Wall Street expectations by saying his Treasury secretary was going to announce "some very clear and specific plans" for loosening up credit in the system.
In the end, Geithner offered neither clarity, nor specificity, and stocks sold off. And we here at The Five Dumbest Lab know one thing is for sure: The market's not stupid.
Dumb-o-meter score: 95 -- Time for TARP III?
Wells Fargo's Guilt Trip
Wells Fargo (WFC) would rather send the press on a guilt trip than send its employees on well-deserved vacations.
After scrapping an employee outing to Las Vegas last week in response to public furor over excessive spending by government-backed banks, Wells Fargo CEO John Stumpf (Stock Quote: WFC) attacked the press in full-page advertisements in Sunday's New York Times and Monday's Wall Street Journal.
(WFC) "The problem is many media stories on this subject have been deliberately misleading," says Stumpf in the ads. "These one-sided stories lead you to believe every employee-recognition event is a junket, a boondoggle, a waste, or that it's for highly paid executives. Nonsense!"
Stumpf goes on to say in the ad that the funds to pay for "recognition events" come from profits, not from the government. And since the company is not thanking its award winners with all-expenses-paid vacations this year, Stumpf says that "we'll have to do it this way."
First of all, Wells Fargo reported a fourth-quarter loss of $2.55 billion, or 79 cents a share, so please don't even hint—much less say—that the price for these getaways was to be paid by company profits. Dude, you don't have any profit.
One more thing: If you believe that your enemies are taking potshots at you, then don't be a fool and buy them ammunition.
Drugmakers Erect Defenses
Something is up in Switzerland.
A panel from the Swiss Competition Commission, a market regulator, recommended sanctions Tuesday against a trio of pharmaceutical giants as well as drug distributors suspected of price fixing anti-impotence treatments.
The Swiss authorities said they began investigating the prices charged for erectile dysfunction drugs Viagra from Pfizer (PFE) (Stock Quote: PFE), Cialis from Eli Lilly (LLY) (Stock Quote: LLY) and Levitra from Bayer, in 2006. None of the drugs are reimbursed by Swiss insurers.
The panel said in a statement that by maintaining a recommended public selling price for the drugs, the pharma giants were engaging in "illegal vertical collusion" with their distributors.
Meanwhile, the companies are in full defense mode.
A Lilly spokeswoman said, "We are confident that the public price recommendations for Cialis do not constitute an illicit vertical agreement..."
Our advice to Pfizer, Lilly and Bayer is to consult a spin doctor if this public relations headache persists. Otherwise, you will only increase your chances of dizziness, nausea and other side effects resulting from intense government regulation.
NetApp's Ranking Rancor
A few weeks ago, Network Appliance (NTAP) (Stock Quote: NTAP) was being lauded as a wonderful company to work for. Unfortunately, the privilege of working for NetApp is about to become an even more cherished experience, even for the folks who clock in there now.
Shares of NetApp plunged more than 8% in Tuesday's trading, a day after the storage company announced plans to cut nearly 500 employees, or nearly 6% of its workforce. NetApp's troubles continued Wednesday when the company missed Wall Street's third-quarter revenue targets and announced a $75 million loss, as its customers slowed their tech spending.
"Employee enthusiasm for the legendary egalitarian culture helped catapult NetApp to No. 1 after six years on our list," says Fortune, which listed the company at number 14 last year.
The irony was inescapable even to NetApp CEO Dan Warmenhoven, who apologized for the ugly timing of the layoffs Wednesday, calling them "especially disappointing" in light of the company's recent Fortune ranking.
You fit in much better on our Five Dumbest list anyway.( NTAP) ( GOOG) Dumb-o-meter score: 90 -- NetApp employees had quite the reversal of Fortune this week.
Fertilizer Fibber Found Out
The president of Intrepid Potash (IPI) has paid the price for shoveling the wrong kind of manure.
Fertilizer firm Intrepid Potash (Stock Quote: IPI) on Wednesday announced the resignation of its President and chief operating officer, Patrick Avery. His departure stemmed from errors on his resume about his education, and apparent lack thereof. Shares of the company closed down $1.05 Wednesday, at $22.
(IPI) Avery, who joined the firm in 2007, had previously claimed he had degrees from the University of Colorado and Loyola Marymount University. Although Avery did spend time at both institutions, he received neither the B.A. or M.S. diplomas he had boasted.
Intrepid Potash said it intends to keep Avery on in a consulting role as it searches for a new president and COO. In the meantime, the company's co-founder, chairman and CEO Robert Jornayvaz III will assume the role of president.