John Thain, the former CEO of Merrill Lynch, who found his reputation in tatters after Bank of America acquired Merrill in the midst of the financial crisis, has been given a second chance to revive his reputation.  Yesterday, CIT Group CIT (NYSE) announced that Thain would immediately become the new CEO and chairman of the small business lender.  CIT had gone into bankruptcy under the leadership of Jeffrey Peek who ultimately had to give up his leadership role of the firm.CIT has been a very important lender to small and mid-sized businesses.  It finds itself coming out of bankruptcy and hopes Thain can work wonders with the firm.   An article in Forbes summed up Thain’s situation with regard to the Bank of America acquisition of Merrill and how it impacted his reputation and firm.

As chairman and CEO of Merrill Lynch, Thain’s deal to sell Merrill was considered a lifesaving move for the company at the height of the financial crisis. But he then came under fire for having paid out $3.6 billion in bonuses to Merrill employees just before the deal closed, and for spending more than $1 million to redecorate his office at Merrill, despite its massive losses.

CIT announced yesterday, as the firm moves out of bankruptcy, that Thain would serve as the firm’s new CEO and chairman.  Thain replaces interim CEO Peter Tobin who will remain on the company’s board of directors.  The decision to select Thain may actually be a good fit.  Thain’s expertise could actually be very beneficial to CIT’s circumstances.

Gordon F. DuGan, President and Chief Executive Officer of W. P. Carey & Co. LLC (WPC), and CEO of its series of Corporate Property Associates (CPA) non-traded REIT funds, talked to the Wall Street Transcript about his company W. P. Carey & Co. LLC.  Click here to read the complete interview.

TWST: Please give our readers a brief history and overview of the company.

Mr. DuGan: W.P. Carey (WPC) is an interesting company in that we have been in existence for a long time. We were founded in 1973; we have a terrific 30-year track record, and we manage approaching $10 billion in assets - and not many people have heard of us. I attribute this to two things. One, we have kept a low profile and just gone about our business, and two, we’ve done a very good job for our investors of providing predictable income and managing their investments through various cycles. Generally it’s either the more spectacular winners in a good market and the more spectacular failures in a bad market that get all the press. We’ve been somewhere in between, just cranking through and providing steady, attractive returns for investors.

Wednesday of this week, PSS World Medical Inc. PSSI (NASDAQ), a medical distributor company, unexpectedly announced the immediate departure of its CEO and Chairman, David A. Smith.  Smith who had been with the firm since 1987 and was appointed CEO in 2002 and later his Chairman in 2007 has left the firm with virtually no comment.  The company selected Gary Corless, another long term employee and the current COO, to replace Smith as CEO.  The company also appointed Delores Kesler, a director since 1993, as the new chairman.Smith’s sudden and unexpected departure had an immediate negative impact on the company’s stock.  Smith’s departure comes according to Kimberly Morrison, a reporter for the Jacksonville Business Journal,

The management change comes on the heels of several strong quarters of financial performance for the company. Despite a difficult environment, the company’s fiscal 2010 earnings growth is expected to be more than 30 percent.

PSS World Medical, a Jacksonville-based distributor of medical products, reported net income for the nine months ended Jan. 1 was $52.9 million, a 40.3 percent increase from the same period the year before. Although the third quarter results were slightly below analyst expectations, Kreger said the confirmed guidance suggested accounting and financial performance was not behind the change.

Investors will continue to wonder what exactly was behind the sudden change at the firm.  Corless, the new CEO, worked quite closely with Smith and is likely to continue the policies Smith put in place.  Anyone interested in this sector or specific company needs to stay on top of ongoing events.  The reasons for Smith’s departure will more than likely come out.

In this excerpt from TWST’s interview with Tucker Grinnan, Regional Head of telecoms and media research, Asia-Pacific, for HSBC, discusses his favorite names in China’s Internet services sector as well as the domestic growth trends that are currently driving the industry.

TWST: What are the key growth drivers for the China Internet services space?
Mr. Grinnan: I think, again in a context of the broader Chinese market, China telco services, particularly wireless subscriber growth, has been the main growth driver for the industry as a whole. And investors have been positioned - particularly global investors - in a stock like China Mobile (CHL) because it’s consistently sort of a structural play on the expansion of telco services in China. That is no longer the case. Subscriber growth has slowed, usage has slowed, revenue growth has slowed, in particular now that Chinese telco companies are transitioning to 3G and there is a wave of cap ex. China is spending roughly $50 billion this year on telco cap ex, which is half of global cap ex. So an enormous expansion of the underlying telco network, both the fixed-line and the wireless portion. And the biggest beneficiaries of these are actually these China Internet service companies because their services are riding over top of this infrastructure, and you have an enormous expansion of the infrastructure at no direct cost to them. Overall, the Chinese Internet penetration rate today is around, let’s say on our numbers, 27% to 28%. We expect that to double over next three years. The China online services space is growing at something north of, let’s say, 30% a year compound annual growth rate in terms of revenues. Online gaming represents roughly 50% of that, and the other key areas are search, ad and e-commerce. The key point I’m trying to emphasize is that while we can talk about how all these companies are positioned within the China Internet space, and what the various advantages and disadvantages are, the underlying revenue base is growing explosively at roughly 30% a year. So not the rising tide that lifts all boats, but it makes it a lot easier to sail.

TWST: Would you say investors basically can’t go wrong in this space right now?
Mr. Grinnan: In a way, I don’t think we can go wrong. In other words, I would say at an aggregate level, I’d be buying this whole space. What you notice is that there are three big companies, Tencent (0700.HK), Baidu (BIDU) and Alibaba (1688.HK), which are large cap and have their respective stakes. Tencent is our favorite name because it is the most diversified. But I like the Chinese online game space; I like the online ad space; I like the e-commerce space, and all of these segments are in the midst of a structural growth surge. And one of the key points is that there is no Chinese state-owned company that competes in this space. So this is a space that is exclusively for private companies. And given the dominance of the Chinese government in the overall economy, it’s very hard to find a big, fast-growing space that has national exposure, that is geared to meet a domestic consumption play story, which I think is - the best part of the Chinese market is the emergence of the middle class in China, that’s the big story from a macro perspective. And this sector is one of the most interesting ways, in our view, to play the China domestic consumption play space because it’s a big sector that generates huge returns. It’s not capital intensive and there is no government-owned company in the space.

As today’s growth investors search for pockets of innovation to drive stock performance, genomics is emerging as a growing market within the life sciences sector, offering attractive growth opportunities and products that will potentially change the field of research.

“You have companies like Illumina (ILMN), for example, who earlier this week launched a pretty impressive new DNA sequencer, the HiSeq 2000,” said Isaac Ro, an analyst who covers the life science tools and diagnostics sector for Leerink Swann & Company. This product has the potential to provide four times the amount of genetic information per experiment with improved performance in comparison to other products currently on the market.

“I just raised my price target for [Illumina] because I believe this company is innovating not only in genomics, but they actually also have an entree eventually into the diagnostics world as well,” Ro explained. “So there are a couple of things that, over the next couple of years, that are going to change the market and could take them well over $1 billion in revenues.”

Ro is also positive on Illumina’s efforts to bring genomic sequencing to the masses, lowering the cost of sequencing technology to a price that would enable all research labs to buy and use the company’s products.

“And so they’ve got a technology still in the stock works that potentially emerges later this year or early next called Avantome, and there’s very little known about it other than it’s going to be ultra low cost, relatively high throughput. It would be about the size of a microwave and could go in every research lab,” Ro said. “That’s something that would really expand the market again.”

In this excerpt from TWST’s interview with Daniel Ives, senior vice president and senior analyst in the technology, media and telecom research group of FBR Capital Markets & Co, Ives discusses the trends and growth drivers security software companies should expect to see in 2010.

TWST: Looking at your coverage universe, what type of growth do you expect among security software companies in 2010? What factors will drive that growth?
Mr. Ives: In 2010 we are looking for an improvement in spending, although I would believe modest. I think growth depends on which company you are talking about. I think in general, we will be looking at a 5% to 10% growth from most of the companies that we cover, although that can vary depending on economy and spending.

TWST: For the security software companies, what would you say will be the main drivers of the growth?
Mr. Ives: I think it’s a combination. I think security software is benefiting from being a defensive type of purchase in a tough spending environment. They have navigated the downturn, I think, better than many pockets of software. So I think they will benefit from a better spending environment. But in particular they are also benefiting from what I call “outdated security” - infrastructure out there that’s long overdue for an upgrade. So there is a really a massive upgrade cycle going on as well, which I think security benefits from.

TWST: If you are an investor who is new to the space, which key concepts do you must you understand before putting money into these companies?
Mr. Ives: I would focus on - there are a lot of technologies, but I think you have got to separate the legacy technologies versus some of the next-generation technologies as to where some of the companies are heading and more importantly where customers are buying. I think three big areas in the space for 2010 are going to be areas such as virtualization, WAN optimization as well as speech recognition technology. I think when you think about names that are beneficiaries from some of those trends, you have the Citrix (CTXS), EMC (EMC), Nuance (NUAN), Blue Coat (BCSI) and Riverbed (RVBD). Because 2009 was about survival, 2010 is going to be more about where technology is heading, who are the beneficiaries in the next cycle. So security vendors are extremely well positioned. But I think peeling away the onion, and trying to look at the subsectors and which companies benefit, I think that’s the key.

In his recommendations to investors, Analyst Dan Leonard says some of his top life sciences picks are those companies with the most exposure to government and academic research.

“Right now I am more predisposed to recommending stocks that have a good amount of exposure to academic and government-sponsored research in the tool space because I think that’s a good growth trend worldwide currently,” said Leonard, vice president at First Analysis Corporation. With a more favorable spending environment forecasted for 2010, such public grants and research could make up for sparse R&D budgets coming off of 2009.

“Academic and government-sponsored research support could be improving worldwide. You not only have the NIH stimulus in the U.S., but you have some science stimulus programs happening around the world in places like France and Germany,” he said. “And it looks like the Japanese science spending is actually improving a bit and showing the first signs of life in a long time.”

Other important trends Leonard emphasized to investors are molecular diagnostics, next-generation sequencing and companion diagnostics. Among these three areas he highlights companies Hologic (HOLX), Gen-Probe (GPRO),  Qiagen (QGEN) and Illumina (ILMN).

Lisa Kasenaar wrote an on-point piece for Bloomberg on the problems associated with high executive compensation at the top banks and the frequent failure for those firms to properly plan for succession.  Kasenaar wrote,

The global credit crunch and economic collapse of the past two years exposed pivotal management mistakes at the biggest U.S. banks — from slack risk oversight to multimillion-dollar bonuses for bankers chasing short-term profit.

Lewis’s (refers to Ken Lewis of Bank of America) exit highlights another kind of poor bank stewardship: the failure of CEOs and boards of directors to plan for an orderly succession when it’s time for the top person to leave.

Inadequate planning derails a company’s strategy and destroys employee morale, former executives, investors, recruiters and leadership consultants say. In the past four years, disorganized transitions cracked the foundations under some of the world’s biggest financial institutions, including Citigroup, Merrill Lynch & Co., insurance giant American International Group Inc. and Zurich-based UBS AG.

Anyone interested in compensation or succession planning must read the piece.

Borders Group BGP (NYSE), the struggling book retailer,  announced today that its CEO, Ron Marshall, has resigned as CEO and director of the firm effective immediately.  Marshall was appointed CEO just over a year ago.  Borders has been struggling for some time and has been facing increasing pressure from activist investors (Pershing Square Capital).   At the same time the company has appointed EVP and Chief Merchandising Officer, Michael J. Edwards, as the interim CEO.  According to a story by Mark Clothier for Bloomberg,

Borders… last reported an annual profit in 2006, has seen revenue drop for the past three years as consumers spent less on books and non-essential items amid declining home values and rising unemployment.

Marshall’s resignation comes after the company announced very disappointing sales news.  According to a blog story in The New York Times,

Last week, the company announced a nearly 14 percent decline in sales over the 11-week holiday period ending Jan. 16, compared with same period last year. The company was also forced to issue a statement denying rumors that it had extended the time it took to pay bills to small publishers.

Rumors abound that Marshall’s comes as he is about to take a new CEO position.The interim CEO has a very difficult task ahead of him.  Edwards has extensive retail experience but he has never faced a more daunting task than the problems currently faced by Borders.   The search for a new CEO will need to find a possible miracle worker.

Cloud computing will be one of three major trends in the IT services space for 2010, along with mobile computing, and offshoring and outsourcing, according to Global Equities Research Co-founder Trip Chowdhry. The thread connecting all three of these initiatives is simple: the Internet.

“The underlying building block is going to be Internet. When I talk about Internet, it means universal access from any device, anywhere, anytime, always on, always available,” Chowdhry said. “That is the difference in 2010, I would say, between the next decade and the prior decade.”

The analyst’s forecasts also include a new segmentation of the IT services market, which he says will develop a “consumer-centric” model and an “enterprise-centric” model, feeding into another 2010 trend: the consumerization of the enterprise.

“What [this] means is the best technologies, the best products, the best innovations that are happening in the consumer side of the technology would find their way into the enterprise. For example, technology similar to social networking will emerge into what they will call an ‘enterprise networking’ or ‘enterprise partner management,’” said Chowdhry, who also cites Twitter as another technology that will be used to manage enterprise knowledge. “And then technologies like smartphones will find their way into the enterprise. So there will be a very exciting time in 2010, but the players will be different.”

Who will be at the forefront of this movement? For the cloud application delivery, Chowdhry cites Google (GOOG), VMware (VMW), Salesforce.com (CRM) and Microsoft (MSFT) as the probably leaders. Meanwhile, Sybase (SY) will most likely lead the mobile enterprise subcategory.