| January 28, 2013
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Today's Top Stories
1. "Black edge" at issue in SAC Capital case
2. Sizing up the Fed's proescution record
3. Ackman vs. Icahn feud rages again
4. Dell LBO competitor not likely
5. Einhorn's mediocre year Editor's Corner: Big banks off to favorable start in 2013 Also Noted: Spotlight On... Citi merges leveraged finance, syndication
JPMorgan raised to buy; Raymond James touts integration; and much more...
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Big banks off to favorable start in 2013 
Now that the big banks have reported earnings for 2012, what's the prognosis for 2013?
It appears that the capital markets side of the bank remains vulnerable. Fitch analysts have concluded that, "the outlook for major U.S. banks' equity trading and investment banking businesses may be brightening somewhat in early 2013, but weak volumes and a still sluggish M&A environment are likely to hold back revenue growth in the near term." It also notes that capital markets revenues for the top five U.S. banks rose nearly 40 percent year over year in the fourth quarter, with FICC leading the way--despite the typical seasonal slowdown. The first quarter tends to be a strong one in terms of investment banking and trading. So while we may see a continuation of the strength, it's hardly a sure shot. It should be noted that modeling FICC results are among the most tasking for analysts. Still, there's plenty of reason to be bullish on continuing FICC gains. If Washington politicians can resolve the debt and fiscal cliff issues, the gains may intensify, however. All in all, you have to wonder if banks with strong offset potential in the form of consumer mortgages operations are positioned well right now. Such activity looks strong, as does core wealth management. So the diversified banks may be proving that the more diversified banks with consumer operations may be among the best bets going forward. -Jim Read more about: big banks, Ficc
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* General ad info: Click here | Today's Top News 1. "Black edge" at issue in SAC Capital case At SAC Capital, the term "black edge" apparently means information that is rock solid and very proprietary, the kind of information that can result in profitable trades that generate hundreds of millions of dollars. As an arresting article from Bloomberg Businessweek makes clear, the term "edge" is used elsewhere in the industry, notably at Galleon, where it signified proprietary information that was thought to be the lifeblood of traders. But "black edge" may be somewhat proprietary to the SAC Capital crowd. In a sea of media coverage, the Bloomberg article stands out as a definitive look at what's at stake for the firm, as Mathew Martoma prepares for trial. It notes that, "[Martoma] persuaded Cohen, one of the most sophisticated investors in the world, to do just what Munno and Slate had been advocating—drop a $700 million long position in Elan and Wyeth. Martoma furthermore persuaded his boss to short both stocks to the tune of hundreds of millions more. It was a billion-dollar trading swing that led to enormous profits and avoided losses." There is still a chance that Martoma will strike a deal with prosecutors. If not, this trial could be the most fascinating development yet. It will likely not play to Cohen's advantage. If Martoma doesn't flip, you have to question whether insider trading charges will ever be filed against Cohen. For more:
- here's the article Related articles:
Ex-SAC Capital manager cooperates with feds
SAC Capital: First in profitability and controversy
Mathew Martoma will not turn on Steven Cohen
SAC Capital probe expands
SAC Capital remains elusive target for Feds
Read more about: insider trading, SAC Capital
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2. Sizing up the Fed's proescution record The dearth of financial prosecutions has been endlessly debated. Frontline has weighed in with a lengthy exploration of the issue. One interesting side question is how the lack of criminal charges in the post-2008 period compares with the number of criminal charges in past crises. In some ways, the government has been fabulously successful in prosecuting financial crime such as the on-going insider trading investigations. But in other areas the government has a woeful record. To this day, critics bemoan the fact that not a single high-level executive of a top Wall Street firm faced criminal charges. At times, prosecutors seemed tantalizingly close. Charges against Lehman Brothers former executive, including the former CEO and CFO, seemed imminent at moments. But in the end, it appears the prosecutors just didn't have the goods. Frontline notes that "virtually no bankers were jailed in the wake of the Great Depression, though not for lack of trying…However, because banking laws did not guard against the kind of speculation that fueled the crash, most escaped prosecution." The savings and loan crisis of the 1980s was another story all together. More than 1,000 bankers were charged by the Justice Department. So what's the difference? Frontline notes that, "One key tool used during the S&L crisis was criminal referrals from regulators to government prosecutors, explained William Black, who served as the government's point man for litigation in the S&L crisis." For more:
- here's the article Read more about: SEC, Enforcement Action
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3. Ackman vs. Icahn feud rages again The William Ackman vs. Dan Loeb feud over Herbalife seems rather cordial on the surface. It comes across as a rather professional difference over valuation and the legitimacy of a company's business model. You do not get the sense that it is personal. But it's another story when it comes to the feud between Ackman and Carl Icahn, who has chosen to use Ackman's Herbalife tactics to revive their antagonism. Their personal acrimony, according to Bloomberg, stretches back to 2003. It notes that Akman, "agreed to sell Icahn a 15 percent stake in Hallwood Realty Partners at $80 a share." The deal included a contract provision that allowed Ackman's investors a share of any profits if the stock was sold for a profit within three years. But Ackman alleged that Icahn refused to pay the nearly $5 million owed to investors after the sthares were sold a year later. The debt was settled in 2011. Just recently, Icahn has decried Ackman's tactics on Herbalife and Ackman's offer to give any profits from the trade to charity. If you want to be in the business of exposing sham companies for the public good, "why don't you join the SEC," he suggested to the news service. He added that he didn't like or respect Ackman. For more:
- here's the article Related articles:
Investigation shakes up Herbalife battle
Read more about: William Ackman, Hedge Funds
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4. Dell LBO competitor not likely If you're a shareholder of Dell, you're hoping for the best as the LBO drama plays out. You can be forgiven if deep down you're holding out hope that a secret consortium of private equity companies and big investors are putting together a bid right now to force Michael Dell's consortium to pony up even more. But you're probably resigned to that not happening. Any go-shop period will likely expire without another bidder coming forward. Reuters quotes one industry executive who said that: "I just don't think it is doable to break up the current consortium. When management is rolling over (their stake) and they have picked a partner (Microsoft and a big Canadian pension), it is hard to top the agreed offer." Michael Dell has agreed to roll over his 16 percent stake in the company. If a better offer were to come forward, he might make the same offer. But he obviously prefers to work with Silver Lake and Microsoft, an ally for nearly his entire career. Dell has formed a special committee of its independent directors, and it has hired Evercore Partners "to assess whether the company is getting the best deal for shareholders and not one that is just in the best interest of Chief Executive Michael Dell." In the end, the board will have to take pains to ensure that it has complied with all laws and shareholder expectations. As of now, itt would take a lot to bust up the current deal-in-the-making, which all agree is on the verge of announcement. But an auction would be great. For more:
- here's the article Related articles:
Microsoft may participate in Dell buyout
Can Silver Lake really turn Dell around? Read more about: lbo, Leveraged Buyout
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5. Einhorn's mediocre year Hedge funds walk s a fine line between a good year and mediocre year. Just ask David Einhorn, who was cooking for much of 2012, until the fourth quarter rolled around. His Greenlight Capital suffered a 5 percent drop in the quarter, reducing the full year gains to 8 percent. MarketWatch quoted his recent letter to shareholders, which noted that, "The disappointing fourth quarter result reduced our year from good to pedestrian. While it is hard to view our performance last year as a catastrophe, it nonetheless falls short of our goals." The S&P 500 Index's rose 13 percent in 2012. What really socked the fund were some underperforming short positions. The best example was Green Mountain Coffee, which surged in the quarter. For the full year, it ended up 74 percent, punishing the shorts. Greenlight Capital ended up with no profits from the position on the year. At the same time, the fund's long positions also suffered some big setbacks. The fund's large Apple position turned out to be less than a supreme winner, as some big gains were wiped out in the third quarter. The share decline did afford the fund a chance to purchase more shares. The biggest loser of the year was the fund's long position in Marvell. The stock value was cut in half over the year. Overall, Einhorn will remain an in-demand manager despite his near-miss in 2012. He has generated an average annual rate of return of nearly 20 percent since he launched his fund in 1996. For more:
- here's the article
Read more about: David Einhorn
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Also Noted SPOTLIGHT ON... Citi merges leveraged finance, syndication It makes complete sense for a big diversified bank to merge its syndication and leveraged finance teams as it seeks efficiencies in how its serves debt clients. The combined market would appear favorable as high-yield debt comes back into favor and as leveraged transactions threaten to make a comeback. The move follows the successful integration of the banks investment grade debt and equity units, notes Reuters. Article Company News:
> Brian Moynihan on Davos panel. Article
> JPMorgan raised to buy by analyst. Article
> Raymond James touts integration. Article
> Goldman Sachs back in benchmark bonds market. Article
> Kravis sues art collector. Article
Industry News:
> Ex-banker in Olympus scandal wins bail. Article
> Hedge funds eye car maker. Article
> S&P 500 on a long winning streak. Article
Regulatory News:
> Bank of Italy feels scandal heat. Article
> SEC hires new watchdog. Article
And Finally…Paper maps make a comeback. Article > Webinar: Secure Mobile File Access for Financial Services Organizations Now available for on-demand viewing Join us as we discuss why financial organizations must find a way to balance the needs of a highly mobile workforce against security and compliance needs in a way that ensures security while improving productivity. Register Today!
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