Today's Top Stories Also Noted: Spotlight On... CalPERS close to managed account with Blackstone News From the Fierce Network:
Today's Top News1. Facebook targets retail investors
Not too long ago, as people were debating the likelihood of a Facebook IPO, some held out hope that the company would offer some sort of "surprise" for loyal customers, one that would allow them to invest in the company perhaps via the Facebook site. That surprise never quite materialized, but that doesn't mean the company doesn't want retail investors, which are disadvantaged when trying to get their hands on hot IPOs, to own the stock. It most certainly does. DealBook reports that "there may be a sliver of hope. Facebook's executives and underwriters have discussed raising the number of shares that will go to retail investors, say people briefed on the matter who were not authorized to speak on the record. It is not known how much will eventually go to these mom-and-pop investors, but Wall Street executives estimate that the retail share could be as much as 20 to 25 percent of the offering. Some of that increase is likely to go to brokerage firms like TD Ameritrade or E*Trade, which cater to small investors." Retail investors in bull markets can be a powerful source of liquidity, and Facebook will no doubt be a very hot offering among the legions of Facebook users. Meanwhile, the company has established a price range of $28 and $35, which would value the company at $77 billion to $96 billion. My sense is that we'll see some tinkering on the upside. Underwriters will push the upper bound higher over the next few weeks. For more: Related articles: Read more about: IPO, retail brokerages 2. Private equity firms significantly undervalued?
It's no secret that private equity firms have been lackluster stocks. The recent IPO of Carlyle Group did little to dispel that bit of conventional wisdom. A lot is said about the conflicts of interest inherent in the business model, one that pits shareholders in the firm against limited partners of the funds operated by the firm. That might be one reason investors tend to be ambivalent. But what would it take for investors to get more excited about these companies? This in some ways is a reprise of the classic problem analysts had with investment banks. They were traditionally accorded a low P/E because the earnings were seen as relatively volatile and harder to model. When it comes to private equity stocks, most analysts tend to focus on management fees, which are much more predictable than performance fees, notes Fortune. "Private equity firm valuations have been almost entirely based on management fees, to the exclusion of performance fees. Just take a look at target prices for Blackstone stock today: In most cases, they are calculated by stripping out the value of investments and cash on hand, and then applying a comparable multiple to what's left (i.e., recurring management fees). In other words, the second revenue stream is being ignored." That's one reason why Oaktree generated a negative response to the idea that growth of assets under management is not the top priority. Fortune concludes that private equity firms are significantly undervalued. "Almost every fund manager I speak with believes that harvesting has already begun, and that 2013 will be a bumper crop. Some of them may just be talking their books, but a recent increase in private-equity-backed IPO activity gives credence to their claims." All that makes sense, but in the end, the actual returns to investors in the firm not in the firms' funds are relevant all over again. Much of the performance fees do not belong to stock holders. For more: Related articles: Read more about: Private Equity, Investment Banks 3. Interesting take on too big to fail
The too big to fail debate continues to rage, even as more banks appear to have turned a corner on the road to health. The general view from regulators is that the living wills that banks are required to submit in conjunction with the Dodd-Frank Orderly Liquidation Process will suffice in winding down large troubled banks (should they run into trouble) without taxpayer support. Beyond Washington, that answer has been vigorously questioned. Kevin Warsh, a former Fed governor, offers an interesting take. "Unfortunately, the Dodd-Frank Act has only reinforced the view that big and troubled banks will receive special government assistance," Mr. Warsh said in a speech noted by the New York Times. "By sanctioning some list of too big to fail firms — and treating them different than the rest — policy makers are signaling to markets that the government is vested in their survival." The idea that Dodd-Frank actually reinforces the too big to fail problem is novel, and not one that the law's supporters would want to hear. But Warsh does offer some solutions, notably better disclosure. "Disclosure practices by the largest financial firms remain lacking, and the periodic reporting overseen by the Securities and Exchange Commission tends to obfuscate as much as inform." In the end, we can't really know whether bailouts will be necessary in another financial crisis. We should do all we can to make sure a real-world hypothesis test is not going to happen. But that's easier said than done, which will keep the issue burning for a while longer. For more: Related articles:
Read more about: too big to fail 4. Small banks win with Durbin Amendment
In all the pre-enactment rancor over the Durbin Amendment, small banks made their voices heard, weighing in strongly in line with their big-bank brethren. While banks with $10 billion or less in assets and credit unions were given exemptions from reduced debit card interchange fees, they still fought the rule. The main argument was that they would be forced to essentially accept lower fees anyway. The theory was that the card networks, mainly Visa and MasterCard, would embrace separate interchanged tiers that would allow for merchants to favor big-bank debit cards. In order to compete, small banks would have to honor the lower fee. So far, however, the reality is that small banks have not been harmed by nearly as much as big banks. While the debit card interchange fee cut has significantly into revenue (to the tune of $8 billion a year) at big banks, small banks continue to enjoy roughly the same fee as before, though they will collectively suffer losses of a relatively minor $330 million per year, according to one analysis. Bloomberg BusinessWeek suggests some banks are consciously staying below the $10 billion threshold to main their interchange fee advantage. But overall, the status quo is hardly cause for celebration by the small banks. They maintain that distinct interchange fees based on the size of banks are simply not sustainable over the long-term. Many would tend to agree. For more: Related articles:
Read more about: small banks, Debit Cards 5. CEO pay surges at regional banks
CEO pay at the big six banks--JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley--fell to $85.4 million for 2011, from $147.8 million for 2007, according to Bloomberg. Average pay dropped 42 percent to $14.2 million. Meanwhile, CEO pay at next five largest banks--U.S. Bancorp, PNC, Capital One, SunTrust and BB&T--rose to $52.6 million from $46.4 million for 2007. Average pay increased 13 percent to $10.5 million. The pay gap is narrowing. Indeed, the second highest paid bank CEO was Richard Fairbank, CEO of Capital One, made $19.2 million for his work in 2011, more than any other bank CEO except Jamie Dimon, who made $23 million. It's worth noting that Fairbanks' pay was completely in stock options and restricted stock. He hasn't taken a salary or bonus since 1997. His compensation mix just might shield him from critics. What really matters to shareholders these days is not so much the size of the total award but the extent to which the pay is aligned with shareholder interests. Whether gargantuan stock and options awards achieve such an alignment is a debate for another day. In any case, I do not expect a lot of say-on-pay drama at regional banks this year. Executive pay in general may trend even higher in the next few years, as core retail banking continues to improve, which lifts share prices. So far this year, regional banks have posted stock price gains comparable to the big banks. For more: Related articles: Read more about: ceo pay, regional banks Also NotedSPOTLIGHT ON... CalPERS close to managed account with Blackstone Managed accounts have gained traction in the pension arena, as a superior alternative to more traditional investments in alternatives. It's for good reason: Investors have more control and generally get a break on fees. Bloomberg reports CalPERS is close to a deal that would call for Blackstone to manage such an account on its behalf. An announcement is expected soon. It would be nice to see more such arrangements. Article Company News: Industry News: And Finally… Man lives completely without money. Article
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Monday, May 7, 2012
| 05.07.12 | Facebook targets retail investors
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