So You Just Squandered Billions . . . Take Another Whack at It

By Steven Pearlstein
Wednesday, September 2, 2009

You've probably never heard of Jay Levine, Chris Ricciardi, John Costas or Stanford Kurland, but they are charter members of Wall Street's Mulligan Club.

Back during the heyday of the credit bubble, they were the financiers who earned huge bonuses for creating, trading and investing other people's money in those complex securities that resulted in trillions of dollars in losses and brought global financial markets to their knees. And now they're out there again hustling for investors and hoping to make another score buying and trading the same securities.

Like golfers who treat themselves to a second drive after hooking the first one deep into the woods, these guys play on without apology or penalty. The maddening thing is that they're getting away with it and nobody seems to care.

Consider the case of Jay Levine, once the co-chief-executive of RBS Greenwich Capital, the American investment banking arm of the Royal Bank of Scotland. Under Levine's direction, RBS Greenwich went from the bottom of the "league tables" in terms of issuance of asset-backed securities to a perch near the top -- right up there, one industry publication wrote at the time, with Bear Stearns and Lehman Brothers as one of the "best mortgage-backed houses" in the business.

At the height of the mortgage frenzy, Levine's group generated more than $350 million in profit annually for RBS and Levine was reportedly RBS's highest paid employee, earning more than $60 million during the three years before his departure at the end of 2007.

Now, two years later, RBS is a financial ward of the British government, which has had to put in more than $30 billion to keep it from collapsing. RBS's biggest mistake was an ill-timed and overpriced purchase of a Dutch bank, but there were also tens of billions of dollars in U.S. credit losses, many of them attributable to RBS Greenwich.

Levine, meanwhile, left RBS at the end of 2007 to take the top job at Capmark Financial Group, a spinoff of GMAC that had become one of the country's biggest commercial real estate lenders. Since then, of course, things have only gone from bad to worse in the world of commercial real estate finance, forcing Capmark to post more than $2 billion in operating losses before it stopped filing public reports this spring. Its biggest shareholder, the buyout firm KKR, has now written off its entire investment in the company. Levine volunteered to reduce his base salary from $5 million to $4 million.

But don't shed too many tears for Jay. Even while remaining at Capmark, he's reassembled some of the old team from RBS Greenwich at a new firm, CRT Capital Group, a small trading house in Stamford, Conn., that he bought in July with former RBS Greenwich co-chief-executive Ben Carpenter and Ron Kripalani, who once headed the capital markets group at none other than Countrywide Financial. In a statement announcing the purchase, the new managers suggested that with so much of Wall Street operating under government-imposed pay caps, it was a perfect time to lure away the industry's "best producers."

Then there is Chris Ricciardi. In the world of finance, nothing has proven more toxic than collateralized debt obligations, or CDOs, and no one did more to expand their reach than Ricciardi. He pioneered them at Credit Suisse First Boston, then was lured away to Merrill Lynch, where he expanded the CDO business from less than $4 billion in new issues underwritten in 2003 to $28 billion in just the first half of 2007. That's when the music stopped and the venerable brokerage house found itself with $41 billion in CDOs and nobody to buy them.

By then, however, Ricciardi had already left Merrill and an $8 million-a-year pay package for what looked to be even better opportunities at Cohen & Co., a big Merrill client. Under Ricciardi as chief executive, it became a big CDO issuer in its own right, pumping out $25 billion of the stuff before the market collapsed.

Cohen & Co. is still limping along, but the publicly traded real estate investment trust that it manages -- and with which it merged -- now trades as a penny stock after its holdings lost more than $5 billion in value. Last month, its auditors cited material weaknesses in the company's internal controls.

There was a time when Swiss banks were known as much for their conservative investment strategy as for their secrecy and discretion. But that was before John Costas showed UBS how to turn its small American investment bank into one of the five biggest on Wall Street, and the source of nearly half of its profits.

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