Larry Fink of Blackrock (BLK) Criticizes "Luxurious" Trading Profits by Investment Banks

It is hard to like any top executive in the financial field nowadays, but I've long had an affinity for Blackrock's (BLK) Larry Fink. Before Mr. John Thain (he of $87,000 area rugs) [Jan 22, 2009: Merrill Lynch's John Thain Can Only Work on $87,000 Rugs] was chosen for Merrill Lynch (MER) to replace (you're fired! But here is $160M to see you out the door) Stan O'Neil [Oct 30, 2007: You're Fired! Now Here is $160M to Help Ease the Pain], Fink was considered.

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Do you realize how absurd everything I just wrote is? I could not make fiction up that was this outlandish. I watched "Wall Street" again this weekend and I was LAUGHING out loud how small the figures were in 1987 when the movie was made. Wow, let's do this crazy deal for and Bud Fox can make $800,000! What a sense of entitlement these characters (I mean the REAL life ones, not the movie ones) have. $160M pay packages to be "let go"; $87,000 rug man who was STILL fighting for his bonuses as he was trying to be brushed out the door by Bank of America after the government was the only reason his firm was alive; aides who worked for mere weeks at Merrill and got hundreds of millions [Sep 17, 2008: Thain's Aides May Get $200M for Weeks of Work]. And all that is paid for by us in the end. Nothing really has changed - that's the part that should scare you. Our politicians are captured by the oligarchs and financial infotainment TeeVee celebrates it while signaling *this* is a return to health. I only wish the greater peasantry had any clue of what was going on out here.

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Well as Fink was being considered for the head honcho role for Merrill, Larry - unlike John Thain - was less interested in future shower curtain and area rug choices, and more interested in actually knowing what he was getting into on the business side. He demanded to see the books of Merrill Lynch before accepting a role he WAS offered. [Nov 5, 2007: Merrill Offers Job to Blackrock CEO Fink] Merrill would not do it. So for that outrageous request, he was passed over. For Thain. Who apparently - with dollar signs in his eyes - could care less about fundamentals or looking at books. Which pretty much describes the way Wall Street works now - as long as a easy scheme is around to make some quick bucks who cares about the backstory.

You know how the story goes from there.

Anyhow, Blackrock (BLK) has now become the largest asset manager in America (well, the world actually) - and Fink has been the driving force from inception. Sure there has to be some favoritism somewhere along the line - its a major financial firm after all (they are managing some of the Fed's "assets" from this or that bailout or program) - but generally they are a conservative outfit of longer term thinkers. [Mar 24, 2008: Blackrock Continues to be Interesting] [May 8, 2008: Blackrock is Fix It Firm to Manage Risky Assets of Others in Distress] [Dec 6, 2007: Blackrock Swoops in to Help Florida] Fink speaks him mind, and says the truth. As a blog writer who does the same (or at least my version of the truth) I appreciate it. The company reported earnings this week, but since we don't own BLK anymore I did not break out the report on the site. You can see it's back in its role of out performer as it was early in the financial mess before anything related to "finance" was taken out and shot.


That said, a very interesting blurb in the FT.com from Fink. Remember all those "better" than expected earnings from Goldman (GS) and JPMorgan (JPM)? We have discussed how much is from "trading" (rather than "banking") especially for Goldman (i.e. we are now sponsoring a hedge fund with US explicit backstop via too big too fail) and both firms benefited from the lack of competition in so many of their markets as their peers are either extinct or weakened. And what happens when you have less competition? You know.

• Larry Fink, BlackRock’s founder and chief executive, on Tuesday took aim at the “luxurious” trading profits enjoyed by Wall Street banks, saying that they have taken advantage of reduced competition to charge their customers more for even basic trades.
• “There are fewer players. There is very little capital being committed by these dealers,” Mr Fink said. “They’re just taking the spread between the bid and the ask [the price gap between buyers and sellers] and they are making very luxurious returns,” he added.
• Mr Fink said that in the past investment managers including BlackRock “relied on Wall Street to be the safety guards to the capital markets. (note: never let foxes guard the hen house) And in many cases they have dropped that responsibility and now it is falling on some of the large investment management firms to make sure the securitisation market is being protected”.
• Mr Fink, who made his comments as BlackRock reported better-than-expected second-quarter results, added that he was looking at ways to reduce that spread to save his clients money. With the planned merger with Barclays Global Investors scheduled to close by the end of the year, BlackRock is set to become by far the largest money management firm in the world, with $2,700bn under management. Such scale should give Mr Fink even more clout as he seeks to reduce the cost of trades.
• Strong trading profits, especially in fixed income, interest rates and currencies, have been a lifesaver for Wall Street banks over the past six months. Helped by unusually large spreads between bid and offer, financial groups such as Goldman Sachs, JPMorgan Chase and even Citigroup, experienced record revenues in their investment banking businesses.
• Large banks have benefited from the demise of once fierce competitors such as Bear Stearns and Lehman Bros.