Today's Top Stories Also Noted: Kaseya News From the Fierce Network:
Today's Top News1. Plenty of doubt about Philip Schulze's Best Buy offer
It was big news when the founder of Best Buy went public with an offer to take the firm private, in order to save it. It had all the elements of a feel-good story, a founder bent on rescuing his company from the clutches of powerful Internet companies and questionable leadership--the kind of story one would read in Fortune. But it hasn't turned out like that. Skepticism reigns and questions abound among analysts right now. Deal Journal notes that, "Analysts have raised questions about Schulze's proposed investment, given he currently owns more than $1.7 billion of Best Buy. Some analysts said it appeared he would be taking a profit from the remaining portion of his stake. Bernstein called it 'interesting' that he would sell about 42% of his stake (the about $700 million), though offered no theories." Jefferies also noted that, though they have "no supporting evidence" for it, it may be that that by reducing his stake in the new company by putting forward $1 billion, Schulze "may be appeasing potential private-equity investors." The analysts also "estimate that private equity would contribute $3 billion on top of Schulze's $1 billion, leaving him in control of a quarter of the company. If he held his whole stake, Jefferies estimates he'd hold about 44%, which may be scary to private-equity firms." What is needed is more information, but Schulze is somewhat constrained by Minnesota law, which is not exactly takeover friendly. The board would appear to have the upper hand at this point. For more: Related articles: Read more about: Private Equity, mergers
2. Goldman Sachs: No CDO charges by SEC
Back in February, the SEC informed Goldman Sachs that it intended to bring civil charges against the bank over yet another subprime mortgage deal. This one concerned a deal known as Fremont Home Loan Trust 2006-E, which was marketed in 2006. The news rekindled memories of the ABACUS CDO deal that proved to be such a nightmare for the bank. The bank eventually settled that case for $550 million, the largest civil fine at the time. Only one Goldman Sachs executive, Fabrice Tourre, was charged. As it turns out, the bank will be spared a replay. DealBook notes that in a filing Goldman said that it had been "notified by the S.E.C. staff that the investigation into this offering has been completed" and that "the staff does not intend to recommend any enforcement action." But the firm still faces some liability due to the Freemont deal. Last year, Fannie and Freddie filed sued 17 financial firms that sold the big GSEs nearly $200 billion in MBS that blew up. The motion against Goldman cited the Fremont deal. It's unclear what sparked the government's move. Some might see this as a sign that the investigation into blown-up CDO deals may be winding down. Others might see the jury decision not to convict a Citigroup executive in a separate CDO case as a sign of the times in terms of the evidence at the commission's disposal. You do have to wonder if the SEC will bring any more charges related to CDO fraud at all. The imperatives may have shifted at the resource-strapped commission. For more: Read more about: Goldman Sachs, enforcement 3. JPMorgan increases share buyback delays
In the wake of the London Whale "hedging" fiasco, which has cost it $5.8 million so far, JPMorgan was forced to suspend its share buyback program. CEO Jamie Dimon said at the time that he hoped the bank would resume purchasing shares in the fourth quarter, but those hopes have proven to be mere wishful thinking. In a filing, the company said it now intends to resume the program in the first quarter of 2013. The bank must still resubmit its capital plan to the Federal Reserve, notes Deal Journal. There are no guarantees as to how the Fed will react, so the buyback program may lie fallow for even longer. It depends in part on the on-going internal investigation into the key CIO issues, which involve trades that ostensibly were hidden to minimize their impact. The original $15 million buyback plan was unusually aggressive and cheered by the banks investors, which helped keep the stock trading at a higher multiple to book value than its main peers. The bank's dividend remains safe, however, according to the company. For more: Related articles:
Read more about: capital, Dividends 4. Big banks see huge margins on mortgage loans
Mortgage rates are low. In fact, some have never been lower, and that has sparked a revival of mortgage origination at many banks. The brightest spot for the big diversified banks in the second quarter was on the mortgage side, which was able to offset losses on the trading and investment banking side. But while rates are low, DealBook notes that they could be so much lower. Bank have chosen to increase their profit margin on each loan to historic highs. One way to interpret this is as a win-win. The consumer gets a historically low rate, while the banks enjoy super high margins. The reality for the big consumer banks right now is that they sorely need the added revenue. Other consumer business units have not fared as well as mortgage units. The Durbin Amendment has taken revenue from debit card swipe fees down several notches. Reforms that led many banks to stop ordering checks by size also threatens revenue at some banks. The big question all along has been how consumer banks would offset these losses. Now they have a partial answer. They can bundle loans more profitably than ever; spreads are as wide as ever. The MBS market is hot right now, especially if you're selling to GSEs. The magic of low rates to the rescue. It's unclear how long this low-rate environment will last, and at some banks the decline in rates present other NIM challenges. For more: Related articles: Read more about: mortgages 5. Knight Capital suffered another glitch
The massive software glitch at Knight Capital, which cost the firm $440 million, wasn't the only costly glitch suffered by the firm recently. FOX Business reports that, "A day before the firm's massive computerized trading error, a Knight trader on the floor of the New York Stock Exchange flubbed an order for the stock Ensco PLC (ESV), that cost Knight nearly $1 million." It's unclear exactly what the problem with the trade was. Was it a fat-fingered trade? Was it a software problem? That's all unknown, but it certainly suggests the company is sorely lacking discipline and internal controls of any kind. "People close to the firm say it's still significant: It may wipe out the year's profits of Knight's NYSE 'specialist' unit and, given the firm's post-error financial condition, could imperil its NYSE trading division, one of the few remaining on the floor of the Big Board. One of the problems with even such a relatively small loss is that it is still nearly half of Knight's 'value at risk' or VAR, a measurement of how much the firm expects to lose in any given trading day." With Getco as a new owner, there may be some changes ahead for the Knight Capital specialist unit. For more: Related articles: Read more about: Knight Capital Also Noted
SPOTLIGHT ON... JPMorgan admits material weakness JPMorgan Chase has said in a filing that it detected a material weakness in its internal financial controls, which resulted in the need to restate first quarter earnings. Recall that when the company issued its second quarter results, it restated first-quarter profit of $4.92 billion, down $459 million from the original release. The reason was the ill-fated "hedges" that have caused $5.8 million in losses so far. The bank says that it has remediated the lack of controls and that it continues to look into the issues. Article Company News:
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Friday, August 10, 2012
| 08.10.12 | Goldman Sachs: No CDO charges by SEC
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