Forgive me for a little bit of cynicism regarding today’s announcements from Citi and Merrill Lynch. I have seen all of this so many times it is not funny. Having been in banks when this happens the story internally is that before the CEO leaves or is pushed the emphasis on staff is to minimise losses – “take an optimistic view”. New CEO comes in, the view is to “take the pain” or “look at the position conservatively” or “make a prudent provision”*.

The script usually seems to go like this:

  1. Company does something silly;
  2. CEO, Chairman of the Board and sundry other executives or senior officers leave;
  3. New CEO appointed;
  4. New CEO announces massive losses and uses words like “pain”, “unacceptable”, “crisis” etc.;
  5. Rescue package announced (optional for added effect);
  6. New CEO announces large cuts / restructuring / divisional sales / redundancies;
  7. Next quarter CEO announces big improvements;
  8. Full year report shows big turnaround, losses almost all / all made good;
  9. New CEO is big hero and acclaimed a turnaround expert.

Seems we are at step 5 so far – step 6 will come in a few weeks

My guess is that today’s dip might be a good buying opportunity in advance of step 7.

* Note that I am not alleging any form of illegal or unethical behaviour by anyone at all – it is just the way that the “tone from the top

comes down.