Today's Top Stories Also Noted: Spotlight On... John Paulson now bullish on housing News From the Fierce Network:
Today's Top News1. Microsoft may participate in Dell buyout
For all those who were skeptical that Silver Lake could pull for a $20 billion plus leveraged buyout, the firm has an answer. The private equity giant announced that it is in negotiations with Microsoft, which might make a $3 billion investment in Dell. That would ease the financing burden considerably and just might make the deal doable. Microsoft has transacted with Silver Lake before, buying Skype for $8.5 billion and providing a $5 billion profit for Silver Lake and others. And Dell remains a key ally of Microsoft, even through the Surface tablet controversy. Microsoft, with its $66 billion in cash, has been more than willing to make strategic investments. This is certainly one way to keep a still-important hardware company in the Windows truck. FoxBusiness also reports that several hedge funds are in negotiations about also taking a stake. The big issues all revolve around pricing the securities. Microsoft most likely would buy a huge chunk of preferred stock. It will not likely seek an active role in management. For more: Related articles: Read more about: lbo, Dell 2. Poorly named "Shadow banking" is still hotly debated
At the communications levels, the financial services industry has failed when it comes to the widely used monikers of various services. The best example may be "dark pools," a term that evokes all sorts of Darth Vader-like images. These dark pools provide valuable liquidity services, and the industry understands that. But public and congressional perceptions matter a lot too, and a better name would have been in order. So it goes with the term "shadow banking." It once again rings of something that happens outside of the public eye and that should be regarded with skepticism. But frankly, it would be hard to conceive off a robust global financial system without shadow banking. JPMorgan Chase CEO Jamie Dimon defended shadow banking at Davos. He was quoted by Bloomberg noting that, "It's a free market. You're entitled to build a business and I agree that there are a lot of needs out there and people should find ways to fill them." Dimon's comments were made in response to a questioner who called him a shadow banker, which might have come off as an epithet in certain contexts. The bottom line is securitized products of all stripes, money market funds and the like have all had their issues, especially in the financial crisis. And there has been a big push to better regulator some of the activity. Done well, that's a good thing, but the trick is to provide reasonable regulations without choking off a critical source of liquidity for the entire economy. Shadow banking has been controversial for as long as I can remember, and this will likely continue. For more: Related articles: Read more about: shadow banking 3. Can Silver Lake really turn Dell around?
Silver Lake was formed with the idea that it could invest in mature technology companies and somehow work magic with the most mature parts of the business. One venture capitalist told the Financial Times that the private equity firm is the "undertaker" of the technology industry. Undertaking on this level has proven to be a strong business. The firm's third investment fund has generated a net annualized return of 17 percent as of the end of September. Its first fund was by far its best performer, with returns of 25 percent or so. Its second fund generated about 10 percent or so in annualized profits. Silver Lake built a stellar reputation by dint of some notable winning investments. The best example may be Skype, which was bought by Microsoft for $8.5 billion, netting the investors about $5 billion. But will Dell prove to be a too challenging? One executive tells the FT that, "It is fairly valued. It has already been through major cost-cutting. What would we do that Michael Dell hasn't already done?" Is there anything that Michael Dell will do as the CEO of a private company as opposed to a public one? He'll perhaps have to accept lower profits initially, for one thing, in a bid to invest heavily in the short-term, assuming he makes his LBO debt payments. Beyond that, the organic growth plan is unclear. Perhaps the Silver Lake crew has it all figured out already. This sort of skepticism is not new to them. For more: Related articles:
Read more about: lbo, Dell 4. Push into wealth management paying off
Banks have been yearning to diversify appropriately away from proprietary trading and investment banking into more stable sources of revenues as of late, leading many to focus on wealth management. That effort may be paying off. Consider Bank of America. Its Merrill Lynch unit contributed $3.5 billion, or 84 percent, of the global wealth management and investment unit's revenue. Its revenue rose 9 percent from the fourth quarter of 2011 and 2.7 percent from the end of the third quarter of 2012. Over at Morgan Stanley, the fourth quarter results were also favorable, as Morgan Stanley Wealth Management reported a 17 percent pre-tax profit margin in the fourth quarter, putting it well ahead of the 15 percent target management set for the middle of this year. Both units were able to grow profits, even as the broker head count declined in the quarter. It would appear for now that the decision to diversify into wealth management is paying off exactly as management had hoped. The future looks bright for the industry, as lots of wealthy folks yearn for financial advice in a still uncertain climate. For more: Related articles: Read more about: brokers, Financial Advisors 5. Morgan Stanley's deferred cash payments raise questions
Compensation ranks as one of the biggest issues at big banks, with executives, employees and of course shareholders. The need to manage expenses has been acute over the past few years, and more bank executives are coming around to the view that they will have to pay less going forward or risk some really serious shareholder agitation. Conventional wisdom holds that when it comes to the biggest expense on the books, shareholders have been given short shrift for long enough. The new parsimony has to be balanced against the need to retain and attract talent. An interesting experiment is going on at Morgan Stanley. DealBook explores the bank's move to start deferring cash compensation for up to three years. While this is common for options grants and restricted stock grants, deferred cash payments in large sums are relatively new. The article notes that, "Morgan Stanley says the move is good corporate governance, tying their employees' interests to the firm's and giving them a bigger pool to claw back if something goes wrong. Yet, critics say it also pushes the tab for current compensation into the future, when Morgan Stanley will have to pay for the compensation of past years." The bank doesn't think the future bill will be a problem. It intends to grow out of any problems. It also intends to manage the headcount and perhaps it will realize some "found money" from employees who leave before their deferred cash payment vests. For more: Related articles: Read more about: executive pay Also NotedSPOTLIGHT ON... John Paulson now bullish on housing The housing market has been famously kind to now hard hit hedge fund manager John Paulson, who rode the market's woes to billions in personal gain in the wake of the housing crunch. He's now bullish on the sector. In fact, he says that for individuals, one of the best ideas right now is to buy a house. Whether he can catch a strong upside wave to make up for a tough 2012 is anyone's guess. Overall, he's bullish on stocks, less so on credit, where the big gains may be in the past. Article Company News:
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Thursday, January 24, 2013
| 01.24.13 | Can Silver Lake really turn Dell around?
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