Zacks Analyst Interview Highlights: Goldman Sachs, JP Morgan Chase, Bank of America, Citigroup and Wells Fargo

Business Wire, Oct 21, 2008

CHICAGO -- Zacks.com releases the latest Analyst Interview. Today's interview is with senior analyst Eric Rothmann, who discusses Goldman Sachs (NYSE: GS), JP Morgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Citigroup (NYSE: C) and Wells Fargo & Co. (NYSE: WFC).

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The investing public has had some time to absorb the ghastly economic situation we currently find ourselves in. What pearls of wisdom can you offer us?

Banks have been great lenders, but lousy as owners of real estate. While a "bailout" was inevitable, much like the "Brady Plan," it leaves much to be desired. Of the $250 billion to be invested in the financial institutions, approximately half goes to about nine big banks, among them Goldman Sachs (NYSE: GS), JP Morgan Chase (JPM, NYSE), Bank of America (NYSE: BAC), Citigroup (NYSE: C) and Wells Fargo & Co. (NYSE: WFC). One would think Hank Paulson (given his experience on Wall Street) could have gotten at least competitive terms (similar to Warren Buffett's) for the big fistful of money he was handing out.

So your verdict is that Buffett worked himself a better deal than did Secretary of the Treasury?

Paulson negotiations yielded preferred stock with a 5.0% dividend for five-years, rising to 9.0% in the sixth year and there after. While preferred dividends must be paid on this stock before common stock, appears to be no other dividend restriction. In addition, the government's preferred stock has no voting rights, unless the institution misses six straight quarters of payments. Buffett negotiations yielded preferred stock with a 10% dividend.

For Paulson, preferred stock may be redeemed at par after three years, or earlier if the bank is able to raise private capital. For Buffett, there is a 10% pre-payment penalty. In Paulson's deal, warrants equate to 15% of the par value of preferred stock, versus warrants equating to 100% of the par value of the preferred stock in the Buffett deal. Finally, for Paulson, all current executives can keep their jobs, but no golden parachutes. Beyond this, there are only minimal other restrictions on executive compensation.

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