picking over LTCM

Doug Henwood dhenwood at panix.com
Thu Oct 1 19:06:31 PDT 1998

[from the entrails of the bond market...]

Long Term Capital Turns to the Magnificent Six

By Gregg Wirth Staff Reporter [TheStreet.com]


One week after instituting a rescue, Wall Street is parachuting in its own group of all stars to solve the Long Term Capital Management mess. And as Wall Street watches some of its biggest stars head up to Connecticut, whispers abound as to how the brokerage firms involved will solve a problem that still festers, even after last week's cash infusion.

Though Washington howled with indignation Thursday about the rescue, Long Term is not out of the woods. That's why the Magnificent Six is being eyed so carefully. They all bring needed talents, including block trading, fixed-income management, risk management and emerging markets. That agglomeration of aces, no longer battling each other, will now work together to bring Long Term back from the brink. Each member of the group was selected by his firm, but the group as a whole seems to fit together like a jigsaw puzzle with complementing skills that create a Dream Team of sorts to deal with a still-volatile situation.

The Magnificent Six, known in more dour publications as the oversight committee, has essential control of Long Term. The hedge fund used to be run by trading legend John Meriwether, but his missteps led to disaster. Now the Magnificent Six will have to fix things. The Six will implement investment strategy, make capital structure decisions and hire and fire as they see fit. The Six will theoretically work with Meriwether, but beyond directions to the loo, it's tough to see what he will offer. Street speculation is that Meriwether will soon leave the hedge fund.

The committee was created Tuesday by the 14-member board of Oversight Partner I, a consortium of the 14 financial institutions involved in the Long Term bailout. Each institution gets to name a representative board member. The board, as expected, also ratified the terms of the bailout at its meeting Tuesday, including the infusion of $3.63 billion.

The Six moved into the fund's Greenwich offices Tuesday, according to a press release. It is uncertain how long the Six will remain at Long Term. Its members' sudden departure from their duties at their respective firms left several company spokespeople tongue-tied as to when they'd be back or who was assuming their duties. A spokesman for Oversight Partner would not comment on the situation.

So, who makes up the Magnificent Six?

The Debt Merchant

Conrad Voldstad, Merrill Lynch (MER:NYSE): Voldstad was made co-head of global debt markets, along with Seth Waugh, in a massive restructuring of Merrill's fixed-income and private-client businesses in May 1997. A Merrill spokesman could not supply a biography of Voldstad, nor did he know who is assuming Voldstad's duties in the office or when he is expected to return.

The Executioner

David Rogers, Goldman Sachs: Need to move something big in a hurry? Rogers is the man to do it. The main block-trading specialist at Goldman, Rogers is used to executing big trades. As Goldman's head of equity trading, Rogers assembled a team of top stock traders, pushing the firm to the top of Wall Street's heap in block trading. Block trading, the buying and selling of massive amounts of shares in a single stock, is an especially dicey strategy and often involves substantial risk of the firm's own capital while the stock sits on its books. Rogers' inclusion in the Six indicates that the banks overseeing Long Term are ready to move big and fast if the opportunity presents itself. A Goldman spokesman wouldn't comment.

The Risk Masters

Brian Leach, Morgan Stanley Dean Witter (MWD:NYSE): Resident geniuses at Long Term found themselves suddenly less bright. Now Leach, the head of risk management for Morgan Stanley's fixed-income department, must show that he is a true master of the multifaceted world of derivatives. His job likely includes the deciphering of insanely complex derivative bets made by Long Term. Leach joined Morgan Stanley in 1981, then transferred to London in 1988 to build the firm's futures and options distribution group. A year later, he was made co-head of trading European government debt options -- a position he rode to become chairman of the firm's European fixed-income government operating committee. Leach returned to New York last year to head the risk-management group. A spokeswoman for Morgan Stanley said she was uncertain of the status of Leach's position, or who was assuming his duties.

Michael Allen, UBS: Allen is another risk-control pro, however, a UBS spokeswoman was incredibly tight-lipped, refusing even to confirm Allen's current position within the firm. (Adding to the confusion, the former head of UBS's debt syndication desk is also named Mike Allen. UBS said the two were not the same person.)

The Hunter

John Fullerton, J.P. Morgan (JPM:NYSE): Fullerton is the senior business strategist for the firm's global fixed-income group, which also includes derivatives. He assumed that position in March. Prior to that, Fullerton was a member of J.P. Morgan Capital, a proprietary investment fund that specializes in venture capital. He joined J.P. Morgan in 1982 and has held positions in commodities, swaps, equity trading and Asian markets. A J.P. Morgan spokesman said he did not know who was assuming Fullerton's duties or when he is expected to return to the firm.

The Operator

Richard Stuckey, Travelers Group (TRV:NYSE): Stuckey is head of the global fixed-income derivatives group of Traveler's investment banking subsidiary, Salomon Smith Barney -- a position he assumed in January. Coming from Sandy Weill's firm, he will have a powerful role in the Six. His unit also dealt with emerging-market situations, which should help in solving some of the stranger emerging-debt bets made by Long Term. Prior to joining the firm in 1983, Stuckey was an economist for Fannie Mae (FNM:NYSE). A Salomon spokeswoman said she did not know who was assuming Stuckey's duties.

Each committee member has been asked not to discuss the activities of the hedge fund with his employers -- an attempt to address early concerns that Long Term's bailout leaders might take advantage of the likely price movements that massive volume in trading in the fund's assets might produce. The board of Oversight Partner is scheduled to have another meeting next week.

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