NEW YORK - Investment bank stocks soared yesterday after
But the good news from two of the industry's top names hardly put investment banks in the clear, and their executives are learning to accept more openness in Wall Street's secretive culture.
"It is no longer OK to be in a black box," Lehman chief financial officer Erin Callan said. "There will be a lot more honesty from us as an industry, and it is painfully obvious this will be the biggest change."
Investors were bolstered not just by the investment bank earnings but by the Federal Reserve's move to cut interest rates. They responded by sending brokerages and investment banks to their best finish since 2001, lifting the Dow Jones industrials more than 420 points.
Investment banks are notorious for being tight-lipped about trading positions, tactics, and the contents of their multibillion dollar portfolios. That information could give rivals an edge and cost billions of dollars in a split-second trade.
Those days might have ended when Bear Stearns chief executive Alan Schwartz assured investors last week that the fifth-largest US investment bank had a strong balance sheet with plenty of cash. He gave few other details - and full-fledged panic ensued.
Clients rushed for the exits, decimating the stock price.
By the weekend, Schwartz was forced to sell his company for just $2 a share to JPMorgan Chase & Co. to avoid bankruptcy.
The rest of Wall Street paid attention.
Yesterday, Lehman Brothers Holdings Inc. provided much more information about its balance sheet and operations than in past quarters. Callan spent almost an hour - instead of the usual 20 minutes or so - briefing analysts on a conference call before taking almost an hour's worth of questions.
Goldman Sachs chief financial officer David Viniar did much the same. He gave details about the company's proprietary trading desk, which the firm typically doesn't reveal much about, and made a point of specifying how much cash is on the balance sheet.
The strategy appeared to pay off.
"What we saw from the investment banks was the best we've seen so far," said Matthew Albrecht, an equity analyst who follows investment banking for Standard & Poor's.
"Investors are requiring more information," he said. "And when it comes down to it, they don't want to own what they don't understand. The best way for that to happen is when transparency trickles down to the common investor."