Are banks really too big?

The linked video is an interesting and controversial one.

Interesting presentation, but he provided no real solutions to bring to lawmakers. Maybe it was the way he made it sound, but telling a company you are too big or too powerful seems socialist in nature, assuming they have not broken any anti-trust laws (which none of these banks currently have).

Competition is still alive and well right now in the financial marketplace. He claims that the banks have gotten bigger due to risk-taking, but in reality, the ability to purchase cheaper, undervalued assets has contributed to higher earnings. In conjunction, the Fed's maintenance of all-time low interest rates allows them to borrow for cheaper than they can lend, in a sensible way.

If people want to support the breakup of Goldman, then why not other large corporations such as Walmart? Also, this seems to become a slippery slope. Who decides or distinguishes what banks or corporations are too big to fail?

Goldman actually sold off one of its key trading divisions to KKR not long ago. I suspect other banks will follow.

The speaker was dead on about the poor compensation structure, however. It's not necessarily the size of the bonuses, as how they are obtained (i.e. reward for risk). If employees of any corporation are properly compensated with decisions that favor long-term sustainability and growth of the organization, then reward amounts and bonuses are not going to be a major issue in the future.

I'll step off the soapbox now.

Should Orbitz go public?

Blackstone group, one of the famed private equity firms, recently announced they are taking Orbitz Worldwide Inc. public. This seems like an odd time to do so considering the high level of competition among online travel agencies, price wars between the airlines and rising costs due to elevated fuel prices.

Orbitz reported an increase in bookings of 38% last year, along with revenue of $752 Million. Looking at those numbers, one might be inclined to buy this IPO. However, if you look at the net income, Orbitz claimed a loss of $146 Million. This makes me question how the company derived that $752 Million in revenues; Orbitz makes profit by taking money off the top of flights, hotels, and cars other companies provide. If that revenue amount included the actual total flight, hotel, and rental costs, Orbitz might be cheating itself by going public at this juncture. Perhaps, investors are the ones who will get cheated if they fail to look at these numbers closer.

Even if Orbitz generated that $752M in revenue solely from its commissions, where do these high costs come from that created a net loss of more then 1/7 of these revenues? It makes you wonder if the costs can be cut or controlled, especially once full disclosure of financials is needed. In addition, revenue may slump this summer if fuel prices remain high and are built into plane ticket or car rental prices.

It isn't usually smart to go against Blackstone and underwriters such as Morgan Stanley, Goldman Sachs, and UBS, but I will be searching for more information before I jump on this IPO bandwagon.