5 Dumbest Things on Wall Street: Oct. 16


CIT Boss Says, See Ya!

Pity those poor CIT Group (Stock Quote: CIT) shortsellers. Pretty soon they won't have CEO Jeff Peek around to make them rich anymore.

The small business lender, struggling to avoid bankruptcy, said Tuesday that Peek would resign at the end of the year. Peek joined CIT in 2003 and took over as CEO in July 2004 when the stock was trading above $35 a share. Shares of the company fell as much as 19% on Tuesday's announcement, closing the day at 92 cents per share.

Amazing, even on the way out Peek is making CIT bears money. Boy, are those guys going to miss him.

And you know what? They are not alone. We here at the Five Dumbest Lab are going to miss you too, Jeff.

After posting billions in losses because of bad loans, CIT is currently in the middle of its second debt restructuring in recent months as it looks to reduce costs to remain in business. Last year, CIT was bailed out with $2.3 billion in federal money during the height of the financial crisis, and this summer it was granted a stay of execution again when it received a $3 billion emergency loan from some of its largest bondholders.

The news of Peek's departure comes with CIT bondholders still pondering a broad restructuring plan disclosed on Oct. 1 that would clear about $5.7 billion from the company's balance sheet and allow it to avoid filing for bankruptcy protection. The holders of roughly $10 billion in CIT debt have already indicated they plan to support the swap, which will give current debt holders new equity and essentially wipe out current holders of the common stock. CIT has also put in place a prepackaged bankruptcy reorganization plan for bondholders to consider.

The debt exchange offer expires on Oct. 29. So, move fast all you CIT bears. If Jeff Peek is leaving the building, then you don't want to leave money on the table.

Dumb-o-meter score: 95 -- A quick peek at the CIT chart under Peek's tenure may blind anyone long the stock.



Pepsi's App-ology

Pepsi (Stock Quote: PEP) needs to man up, instead of apologizing for the company's energy drink ad-campaign.

Pepsi apologized this week to critics who say its Amp Energy drink's Apple (Stock Quote: AAPL) iPhone application objectifies women. The app, which was released last Friday and carries the tag-line "Amp Up Before You Score," boasts it can help men pick up any one of 24 types of women including the "sorority girl," "cougar" and "treehugger."

The app also allows users to add the names and notes about hook-ups to a "brag list," which can be shared on social networking sites like Facebook and Twitter, as well as some rather lewd pick-up line suggestions. We'd reprint them here, but even the Five Dumbest Labs has some taste and decorum.

Even lamer than the pick-up lines is Pepsi's contrition in the form of a Twitter feed: "Our app tried 2 show the humorous lengths guys go 2 pick up women. We apologize if it's in bad taste & appreciate your feedback."

Please Pepsi, don't revamp your Amp app! Show some guts. Who cares if Adfreak.com is running articles asking, "Does anyone not dislike Amp's iPhone app?" Certainly your target market doesn't give a hoot about your overly sensitive detractors.

Seems like we need to remind you that your goal is to sell an energy drink to a bunch of horny teenage boys, so your ad campaign is pitch perfect. All you are doing by apologizing is sacrificing Amp's street cred.

And without that, all that's left is an overpriced can full of caffeine, sugar, amino acids and fizzy water.

Dumb-o-meter score: 90 -- If the treehuggers don't like it, let them drink Coke.



AIG's Kitchen Confidential

Even as it was being bailed out by taxpayers, insurance giant AIG (Stock Quote: AIG) paid tens of millions of dollars in retention bonuses to a few hundred employees at its financial products division. Among those cashing in was a kitchen assistant, who pocketed a cool $7,700.

Boy, that kitchen assistant must have be one heckuva cook.

In total, the flailing insurer paid more than $168 million to 300 to 400 employees in its financial products unit earlier this year, with senior executives raking in as much as $4 million, according to a report prepared by Neil Barofsky, the special inspector general for the U.S. government's $700 billion troubled assets relief program. The bonuses were paid out between December 2008 and March 2009, after AIG received its massive $80 billion bailout loan.

In testimony before the House Committee on Oversight and Government Reform, Barofsky laid much of the blame for the oversized payments at the feet of the Treasury Department saying it "outsourced its oversight" to other agencies.

"They didn't think it was that big a deal -- $168 million was a drop in the bucket," said Mr. Barofsky. "Their concern was paying back the debt. The Federal Reserve was looking at this as a creditor."

Oh, come on, Neil. Stop being such a fuddy duddy. Maybe they were too busy to track the money. Maybe they had some shopping to do. And what's a few extra million of taxpayer dollars between friends anyway?

Barofsky's audit concluded that the bonus contracts were binding. However, he said both AIG and Congress lost opportunities to demand renegotiation of the contracts, particularly when the company received additional bailout funds from the government.

"Just because it was a legally binding contract didn't mean there weren't other alternatives," said Barofsky, adding that the government is pursuing other options before AIG's next round of scheduled payments -- totaling $198 million -- in March 2010.

Let's see if Obama administration pay czar Kenneth Feinberg can slice off some of those retention bonuses this time around. If not, we know where to find a high-priced kitchen assistant with the cutlery to help him out.


Dumb-o-meter score: 85 -- We can only imagine what the kitchen assistant's bonus would be if he or she was skilled in cooking the books.



Goldman's Bonus Babies

We here at the Five Dumbest Lab don't begrudge Goldman Sachs (Stock Quote: GS) employees their millions. May they spend, save or roll around naked in it, in good health.

But somebody needs to tell those bonus babies to stop their incessant whining.

Goldman proved once again this week that the firm knows how to mint money like no other player on Wall Street. The company reported earnings of $3.2 billion, or $5.25 per share, beyond even the most bullish analyst estimate of $4.75 per share. The average estimate was for a profit of $4.24 per share.

Of course, the reduced competition helped quite a bit. No longer does Goldman have to worry about former rivals Lehman Brothers or Bear Stearns taking a piece of the action. And the firm surely owes a huge debt to its friends -- and former employees -- down in the nation's capital for helping them snap back from last year's depths. Who knows, maybe if Lehman sent more of its alums to Washington as opposed to East Hampton, then maybe the government would have saved it as well?

That said, Goldman survived the crisis, returned its TARP loan and now can rightfully pay its employees as much as it pleases, however ghastly the sums.

And boy, are they ghastly and getting ghastlier. Goldman has set aside $16.7 billion so far for employee compensation, meaning it is on track to pay out $22.27 billion in 2009, or more than $700,000 for each of the 31,700 employees it listed at the end of the quarter.

In an attempt to mollify the potential backlash for writing such huge checks when the national unemployment rate hovers near 10% percent, Goldman trumpeted its plan Thursday to contribute $200 million to its charitable foundation, which promotes education. This donation is only the latest in a number of public relations ploys designed to prevent the proletariat from storming the barricades at 85 Broad Street. Other lame spin attempts have included CEO Lloyd Blankfein's reminisces last month of his first job selling peanuts at Yankee Stadium, and his own father's bout with unemployment.

To which we say, 'Enough Lloyd!' You made $67 million in 2007, so please stop crying about a poverty that occurred decades ago. And from our vantage point, which is right down the block, we don't see anybody except Michael Moore badgering your employees about their bonuses on their way home. (And we expect he'll be heading home soon, too. Or perhaps to Oslo to accept a Nobel prize for economics.)

Quite simply, Goldman Sachs is not AIG. The rabble-rousers will not follow you back to Greenwich or Great Neck to protest your hefty paychecks, deserved or not.

So please stop acting contrite. You made your gold-plated crib, now stop crying in it.


Dumb-o-meter score: 80 -- If we never hear about Goldman's pay again, it will be too soon.



Ford Catches Fire

Apparently Ford's (Stock Quote: F) stock is not the only thing catching fire this year.

The carmaker, whose shares are up over 240% since January, said Tuesday it plans to add 4.5 million older-model vehicles to its growing list of recalled models due to a defective cruise control switch that potentially could ignite. Ford said 1.1 million of its Windstar minivans will be recalled for repairs due to a small risk of fires and another 3.4 million Ford, Lincoln and Mercury vehicles with the same switches will be recalled as well, even though there have been no reports of fires with them.

In total, the recalls cover a total of 14.3 million vehicles, all made between 1992 and 2003. A Ford spokesman confirmed this is Ford's seventh recall due to the Texas Instruments speed control switches.

Forgive our quick interjection here, but we considered cruise control to be a danger to motorists well before it caused cars to burst into flames. Seriously folks, if you are too tired or lazy to keep a foot on the gas pedal, then take a nap, not the express lane.


Anyway, the carmaker, which had been on such a roll even as the rest of Detroit sputtered, will start notifying vehicle owners of the recall by mail starting at the end of the month.

Of course, Ford is hardly alone in its struggles with defective automobiles. Last month Toyota announced a smaller recall of 3.8 million vehicles, including its bestselling hybrid Prius, in the U.S. to address problems with a removable floor mat that was causing accelerators to get stuck and leading to crashes.

Ford should look at it from the bright side. It finally caught up to its Japanese competitor.

Dumb-o-meter score: 75 -- This is just one more reason the global warming set will go for a Prius over a Ford -- can you imagine the greenhouse gases emitted by a burning Escort?



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