Today's Top Stories Also Noted: Spotlight On... Raj Rajaratnam bids to get out of jail News From the Fierce Network:
Today's Top News1. Corzine was right: European debt soars
Jon Corzine may be disgraced right now, given that MFGlobal remains mired in bankruptcy court, but the former CEO of the ill-fated brokerage was onto something--something big. He had correctly identified an amazing opportunity in the sovereign debt of European countries. His reasoning all along was that central bank at some point wouldn't allow companies to default en masse, and he was correct--so far anyway. DealBook notes that, "Such contrarian bets are looking pretty smart right now. Last week, the European Central Bank pledged to buy huge amounts of the region's sovereign debt, potentially putting a floor under the prices of Italian, Portuguese, Spanish and Irish bonds…With the extraordinary level of support from the central bank, mutual fund managers are reaping big returns on their purchases." Portuguese bonds have risen more than 30 percent since April. Italy and Spain bonds have rallied also. Here's the kicker for Corzine: "In some ways, it's hard to see how the mutual funds can lose." Corzine had the right instincts. Unfortunately, his timing was all wrong, and his bets were way over-the-top. If he had made more modest bets that didn't subject the firm to margin calls, he would be the hero right now. But he wasn't managing a mutual fund, he was betting a company, and that's a big difference. While these bonds have soared in value, the future remains iffy. For more: Related articles:
Read more about: MF Global, Sovereign Debt 2. Nasdaq sticks to its Facebook IPO restitution offer
Nasdaq OMX is sticking to its guns in its standoff with big market makers over the Facebook IPO fiasco. "Clearly there are differences of opinion, and some are more negative on the proposal," said Nasdaq OMX CFO Lee Shavel said at an investor conference, as quoted by Reuters. He added that, "We continue to believe...that this addresses the issues that we identified in a very fair, reasonable, and objective manner." Recall that the exchange company has offered restitution funds of $62 million, which UBS and Citigroup have called woefully inadequate. The offer prompted Citigroup to pen an incendiary letter to the SEC, excoriating Nasdaq's offer and its performance during the fateful IPO. UBS has likewise been a vocal critic, saying that it has suffered losses in the $350 million range in addition to $30 million in losses by the firm's market making unit. Other market makers have come out in support of the plan, notably Knight Capital, which lost about $35 million. It later suffered its own market glitches, which cost it $440 million in less than an hour. The SEC will decide the Faebook issue soon. Most expect some sort of a decision on the restitution plan before the end of the year. The agency just might come up with a compromise solution that tries to split the difference between the two sides, but there's a lot of room between the two. For more: Related articles: test Read more about: Nasdaq, Facebook IPO 3. Bank of America now aiming for organic growth
Bank of America has been busy re-engineering its balance sheet, selling off assets and slashing costs to strengthen its capital position. One could argue that it has pared itself down to what it considers is core operations. For confirmation, we turn to CFO Bruce Thompson, who has "highlighted how the bank has changed the way it does business as part of an effort to streamline the company and better serve customers. For example, the bank has reshaped its credit card business by selling Canadian and European businesses and by focusing on selling cards through branches...The bank is also ending some 'affinity' partnerships in which cards carried the logos of sports teams and nonprofit organizations and offered special rewards, a strategy inherited from its 2006 MBNA Corp acquisition. As part of a cost-cutting strategy, Bank of America has also previously said it plans to close or sell 750 branches. The bank now has about 5,600 branches, down from a peak of 6,100, and executives continue to evaluate the branch network." The focus now is on organic growth. The bank aims to continue its improvement in lending to mid-sized and larger companies, and it thinks it can reassert itself at the consumer level. A recovering economy will help. At some point, cyclical stocks will move into favor, but will it come sooner -- or later? For more: Related articles: Read more about: Bank of America, mortgages 4. AIG: The good and the not so good
Some see the bailout of AIG with taxpayer money as a great success, but there are different ways to interpret the news that the Treasury will sell another tranche of AIG shares. If it succeeds in selling 550 million shares back to AIG and other investors for $32.50 each, it will net about $18 billion. All told, the deal will mean that the Treasury and the Federal Reserve will have made $194.7 billion from its AIG investment, about $12 billion more than the government committed in aid, according to the Washington Post. This outcome is infinitely preferable to the one many feared initially -- that the government would essentially become a long-term shareholder of a company mired in toxic debt, a ward of the government. But the company has recovered impressively, the Treasury has plans to exit, and some might be tempted to call this an exercise in strong government action in the face of a crisis. Others, however, note that the Treasury did not take the opportunity to fundamentally change the company, which could've brought the economy down even more had it not been bailed out. The company in many ways has changed little, and the government has yet to designate it a SIFI. As of now there are no assurances that a repeat of the AIG crisis is not possible. All in all, this may simply underscore that reality some institutions remain too big to fail. If AIG were to run into trouble tomorrow, it likely would be bailed out all over again. For more: Related articles:
Read more about: AIG, Bailouts 5. Goldman Sachs denied $20 million advisory fee
The Kinder Morgan deal to purchase pipeline company El Paso generated lots of litigation and bad press, especially for Goldman Sachs. The gilded bank was ripped by a judge for its deep conflicts in the deal negotiations. The bank was in fact representing both companies, which ultimately prompted El Paso shareholders to sue, arguing that they got a lowball offer because of Goldman Sachs' conflicts. To be fair, Goldman's internal conflicts committee reviewed the situation and informed El Paso that another investment bank should be retained. The lucky bank turned out to be Morgan Stanley. But Goldman still sought a $20 million fee from El Paso for its advisory work. A judge has ruled that Goldman Sachs is not entitled to the fee after all, and Kinder Morgan has agreed to pay $110 million to El Paso shareholders to settle the suit. Goldman Sachs has denied that it did anything wrong. Deal Journal, however, reminds us that "Goldman's private-equity group owned about 19% of Kinder Morgan and two Goldman managing directors sat on the company's board, though they recused themselves from discussion about the deal. It later came out in court discovery that Goldman's lead banker on the deal, Steve Daniel, personally owned about $340,000 in Kinder Morgan stock, partly in a fund." For more: Related articles: Read more about: conflicts of interest, Goldman Sachs Also NotedSPOTLIGHT ON... Raj Rajaratnam bids to get out of jail Convicted insider trading mastermind Raj Rajaratnam has not given up on his quest to get of prison. A hearing before an appellate court is set for October 25, and the stakes are high, given that he has been sentenced to 11 years. The big issue of course is admissibility of the wiretaps evidence that proved so effective for the prosecution. This may be Rajaratnam's last best chance. Either way, it's going to be huge news. Article Company News: And Finally…What's next for Apple. Article
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Wednesday, September 12, 2012
| 09.12.12 | Corzine was right: European debt soars
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