Today's Top Stories Also Noted: Spotlight On... Merrill Lynch Squawk Box conviction overturned News From the Fierce Network: Today's Top News1. Knight Capital fights for survival
Can Knight Capital survive? Its prospects appear bleak, and it might be too hard to find a White Knight in this environment, especially as market structure regulatory issues remain cloudy. Other issues include exchanges preparing for a massive offensive to wrestle away retail market share, and overall weak trading volume. The company's capital position was already weakened by the environment Deal Journal notes that "private equity investors are pulling out of some investments in the sector...Some have sold out of trading firm Liquidnet, which has revealed it is facing investigations by the SEC about customer disclosures. Following that issue, Summit Partners and Technology Crossover Ventures sold their combined 15 percent stake, reported Financial News and Dow Jones. Some technology growth investors have also put a hold on investments in Flow Traders and FXall." The best bet for the firm may be to sell out at rock-bottom prices to an existing market maker, perhaps even a high-frequency trading oriented market maker. As of right now, sans a deal, a bankruptcy court filing is a distinct possibility. CLSA analyst Rob Rutschow told clients that, "We believe Knight is at risk of bankruptcy…. The $440 million is roughly 40 percent of Knight's tangible book value, and would seem to exhaust the cash balance on the balance sheet. We believe the company's best option at this point is a sale." For more Related articles:
Read more about: Market Makers, Knight Capital
2. Knight Capital pegs losses at $440 million
From the perspective of market maker Knight Capital, the Facebook IPO scandal suddenly looks like small beans. The software disaster that wreaked havoc on so many Big Board stocks this week will cost the firm up to $440 million in pre-tax losses. These losses, which were much bigger than expected, threaten the viability of the New Jersey company. The stock plunged nearly 60 percent to about $3 a share in the wake of the fiasco. The company says it is "actively pursuing its strategic and financing alternatives to strengthen its capital base." Although the company says its capital base has been "severely impacted," the company's broker/dealer subsidiaries remain "in full compliance with their net capital requirements." Knight said it would continue its trading and market making activities at the commencement of trading. This issue was related to Knight's "installation of trading software and resulted in Knight sending numerous erroneous orders in This is surely fodder for the many critics of our current market structure who contend that technology has run amuck, with lots of snafus with systemic impacts. This isn't quite as bad as the Flash Crash in terms of system-wide effects, but it's much worse for the market maker itself. For more: Related articles: Read more about: Flash Crash, Market Makers 3. Ex-Wells Fargo CEO weighs in on break-ups
In the wake of Citigroup CEO Sanford "Sandy" Weill, who said on national television that he now thinks big breaks would be better broken up, ex-Wells Fargo CEO Richard Kovacevich has weighed in on the issue. In an interview with Deal Journal, he said that, "Investment bankers are risky, not investment banking," which seems to be a play on the old line from the gun control debates that guns aren't dangerous -- people are. Wells Fargo was never the universal bank that Citigroup was. It had avoided investment banking in general until it bought Wachovia, which had a small mid-market-oriented investment-banking operation. Still, Kovacevich's views are worth airing. "The only reason Citi is still alive is because it had a bank. As a stand-alone investment bank, it would have collapsed under the weight of ill-conceived risks, he said–risks that came from products far astray from traditional investment banking that helps businesses customers meet their capital needs. What is the risk of underwriting debt, underwriting equity, and providing [merger and acquisition] advise? There is no risk. Do you know how risky commercial lending is? Traditional investment banking is less risky than commercial and consumer lending. Exclamation point." In addition, Kovacevich noted that, "investment banking was a business that paid employees 'significantly' more for 'less skills' than commercial banking, and 'it was ethically challenged.' " And the kicker was his obversation that, "Now, the worst of the people, the worst of the companies are gone…we now believe we can operate this business without either excessive compensation" or compromising ethics. This certainly adds to the bank break up debate. For more: Related articles: Read more about: Bank break ups 4. Goldman Sachs to issue "social bonds" for NYC
Goldman Sachs is embarking on an interesting financing experiment with New York City to create "social bonds" in the form of a $9.6 million loan for a program to reduce recidivism rates of prisoners. The New York Times explains that the loan proceeds will go to MDRC, a social services provider, to run the program. If the program reduces recidivism by 10 percent, the bank would be repaid the entire $9.6 million. If recidivism drops more, Goldman could make as much as $2.1 million in profit. If recidivism fails to fall by at least 10 percent, Goldman would lose as much as $2.4 million. Central to the plan is the move by Mayor Michael Bloomberg to use his personal foundation, Bloomberg Philanthropies, to provide a $7.2 million loan guarantee to MDRC. "If the jail program does not succeed, MDRC can use the Bloomberg money to repay Goldman a portion of its loan; if the program does succeed, Goldman will be paid by the city's Department of Correction, and MDRC may use the Bloomberg money for other social impact bonds." You can't blame Goldman Sachs for wanting to burnish its reputation by doing good in its backyard, and you can hardly fault it for putting its financial acumen to work in interesting ways. But setting forth financial incentives for social programs will not sit well with everyone. There could always be some unintended consequences. With that said, Mayor Bloomberg is a financially savvy ex-executive. He knows what he's buying. Then again, lots of savvy people pushed cities into interest rates swaps that proved disastrous to all. For more: Read more about: Goldman Sachs, Social Bonds 5. Private equity industry aims to burnish image
At a time when private equity firms have been pushed into the political spotlight, the industry is no longer willing to sit back and take the barbs from the right and the left. Recall that Republican contenders went so far as to call the private equity model "immoral," and the Democrats have also made hay with this issue. DealBook says that "private equity is on a mission to convince the public that they create jobs. In its latest installment of a months-long campaign, the industry is highlighting Thoma Bravo, which invested in a Cleveland-based software company called Hyland Software in 2007. In the five years since, the company's headcount has doubled, said the Private Equity Growth Capital Council." You certainly cannot blame the industry for wanting to burnish its image, but you do have to wonder if this might not be the best tactic right now. The reality is that the sour economy has led to the sort of populist anger that always dissipates quickly once the good times return. Any damage to the industry's image will be only temporary. If the likes of Goldman Sachs and Bank of America have proven anything, it's that the big banks can withstand these sorts of PR hits. The pain is real but it is also short-term. The danger in coming out swinging is that the industry ratchets the controversy to the next level, forcing a public debate on more controversial issues, such as the industry's favorable tax carried interest treatment, the use of the PBGC and, perhaps the most difficult practice to defend, the use of special dividends to pay investors and themselves hundreds of millions at a time when portfolio companies can least afford it. How easy would it be to be perceived as defensive in such a climate? For more: Related articles: Read more about: Private Equity, Pr Also NotedSPOTLIGHT ON... Merrill Lynch Squawk Box conviction overturned A group of Merrill Lynch brokers were convicted not too long ago of illegally allowing day traders at another firm listen in on the Squawk Box. The day trading firm then paid the brokers with so-called wash trades that generated huge commissions. An appeals court has vacated the conviction due to a procedural error on behalf of the prosecution. Article
Company News:
©2012 FierceMarkets This email was sent to kumaresan.selva.blogger@gmail.com as part of the FierceFinance email list which is administered by FierceMarkets, 1900 L Street NW, Suite 400, Washington, DC 20036, (202) 628-8778. Contact Us Editor: Jim Kim Advertise Advertising: Jack Fordi or call 202.824.5040 Email Management Unsubscribe from FierceFinance Explore our network of publications: | ||||||||||||||||||||||||||||||
Friday, August 3, 2012
| 08.03.12 | Ex-Wells Fargo CEO weighs in on break-ups
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment