Today's Top Stories Also Noted: Spotlight On... Funds that saw Apple's big drop coming News From the Fierce Network:
Today's Top News1. The new king of Wall Street?
When people talk about the most influential bankers on Wall Street, they usually talk about the CEOs of the premiere companies, whether broker-dealers, hedge funds or private equity funds. They're never talking about the head of a middle-market broker dealer. But Jefferies' Richard Handler has changed that. For the second time in three years, he has emerged as the top paid CEO in the industry. For work rendered in 2012, the Jefferies board gave Handler $45.2 million in pay, according to the SEC's calculation of compensation. This means he's better paid than even the likes of JPMorgan Chase CEO Jamie Dimon and Goldman Sachs CEO Lloyd Blankfein. The 2012 package breaks down to $1 million in salary, $5 million in cash and $39 million in restricted stock grants that will vest over three years. In 2010, Handler took home a pay package worth $47 million. So the big question is, did he deserve it? The board certainly thinks so. Handler is credited with saving his company from a short attack in the wake of charges from a small credit rating company that it was overexposed to European debt, not unlike MFGlobal. Handler also deserves credit for engineering a sale of the company to Leucadia, which will leave him as the top executive of the combined company. What's more, Jefferies shares have been kind to shareholders, having risen more than 150 percent since he took the helm in 2001. Marketwatch opines that, "Wall Street pay isn't always about scale or performance. It's about how much shareholders will complain. Jefferies' stock rally, the premium and the financial boost of the Leucadia means that any criticism is coming from those who aren't in on the game." For more: Related articles: Read more about: Jefferies 2. Judge holds the key in massive FHFA litigation
Is there any hope for a quick end to the massive litigation brought by the FHFA, the overseer of the big housing GSEs, against big banks over mortgage misrepresentation issues? If so, the best chance may rest with U.S. District Judge Denise Cote, 66, who was appointed to the federal bench in 1994 and "is best-known for presiding over the WorldCom securities fraud case nearly a decade ago. She is known as a no-nonsense judge who stresses efficiency in large, complex cases," according to Reuters. The bulk of the FHFA cases remain before her, and she has made clear that she wants a settlement. But that hasn't happened so far, and it might never happen. That said, there's plenty of time before the first trial gets underway. It's scheduled for next January. All in all, it does not look as though the banks will be successful in getting these cases dismissed, according to the piece: "Cote's rulings at times have frustrated the banks, such as orders limiting discovery by the defendants into only the side of Fannie Mae's and Freddie Mac's businesses that purchased the securities. Also, in December, the judge ruled that the FHFA could attempt to prove its case about whether the mortgages in question conformed to proper lending standards by using just a sample of the underlying loans in the securities, rather than having to review each of the 1.1 million total loans in the lawsuits." The banks have already appealed one of the judge's most important decisions to the appellate level; that decision allowed a suit against UBS to proceed. "The UBS lawsuit is a test case, and the future of all the lawsuits could rest on the appeals court's ultimate decision," said the article. For more: Read more about: mortgages 3. Cayman Islands aims to enhance hedge fund transparency
The global push for more transparency in financial services has reached the small tax-advantaged havens that hedge funds and other investment vehicles depend on for favorable tax treatment. The Cayman Islands has joined Jersey, the Isle of Man, the Bahamas and others in seeking greater transparency when it comes to hedge funds. The Financial Times notes that, "The British overseas territory, which wants to shed its reputation for clandestine financial activity, is introducing sweeping reforms that will make public the names of thousands of previously hidden companies and their directors…the islands' powerful monetary authority, CIMA, has outlined plans to create a public database of funds domiciled on the island for the first time. The database will also list funds' directors, pending an ongoing consultation process due to close in mid-March. CIMA, which did not respond to a request for comment, also plans to require directors to undergo a vetting process to ensure they are qualified to act as fiduciaries for investors." The FT uncovered some dubious practices recently regarding directors of hedge fund boards. It seems some were sitting on the boards of hundreds of funds, making it impossible to provide real oversight. One person was listed on the board of 567 entities. You might think hedge funds and other alternative vehicles will simply switch domiciles, but that's not likely to happen, given that big U.S. limited partners in general are behind the move for more transparency, which has already had a profound effect on the compliance and administrative aspects of the hedge fund industry. For more: Read more about: Transparency 4. Deals, including LBOs, may come back in 2013
The conventional wisdom early last year was that a pick-up in merger activity was just around the corner. The economy seemed poised to rise, companies had built up cash stockpiles and lending for deals seemed to be making a comeback. The big surge never fully materialized, but optimism still reigns. One indication comes from Morningstar, which makes the case for deal arbitrage as a strategy in 2013. The refrain is somewhat familiar: "We believe banks have an increased appetite for funding LBOs...the corporate bond market is open and active, making it easier to finance large-scale acquisitions, particularly as companies continue to stockpile cash. Higher market valuations have supported equity raises as well, so there is little question that capital is available for M&A, but CEOs continue to delay pulling the trigger." One area that seems ripe for more deals is LBOs. Banks have "repaired their balance sheets and need to expand net interest margins (which have been contracting). The high-yield market is wide open to new issuers and debt is cheap with all-in-yields near all time-lows. Additionally, private equity firms need to put money to work before capital commitment periods start to expire. With a strong market rally in the back half of 2012, we believe relative valuations have recovered enough that boards won't feel like they are selling too low, but still offer attractive internal rates of return to potential private equity sponsors." So will 2013 be a year of numerous financial sponsor-driven deals? There will likely be more, but the mega deals, like the one Dell recently brokered, may remain scarce. The conditions aren't that good. For more:
Read more about: LBOs, deals 5. The vindication of Jon Corzine?
Against the odds, it looks like the MFGlobal scandal will provide, if not a happy ending, then at least a not terribly unhappy ending. For Jon Corzine, the upshot is that he'll be able to escape pariah status. DealBook notes that, "Mr. Corzine, a former chief of Goldman Sachs, has started to regain his footing. He spent the summer on Long Island, traveled to France around the holidays and visited Central America for a humanitarian project involving children, setting up what he hopes will become a broader charitable effort. Mr. Corzine, 66, also spends time with his grandchildren and has office space in Midtown Manhattan, where he writes and trades with his own money." He's no longer a pariah in part because the victims of the scandal have for the most part, quite improbably, been made whole, in many cases recovering the vast majority of the sum they lost. Vindication for Corzine also has arrived courtesy of a stunning recovery in the European sovereign debt that sunk the company in the first place. "The European bonds at the center of a $6.3 billion bet by Mr. Corzine fully paid out when they matured in recent months. The large position in European sovereign debt in 2011 unnerved MF Global's investors and ratings agencies. Yet it is now clear that the bonds, which were sold to George Soros and other investors, were not by themselves to blame for felling MF Global. The firm also struggled after a one-time charge depressed its earnings." In the end, I'd be surprised to see a single criminal indictment out of this mess. The urgency to prosecute has waned considerably. While no one will go to jail, the company still stands as an example of how poor controls can ruin a company. For more: Read more about: John Corzine, MFGlobal Also NotedSPOTLIGHT ON... Funds that saw Apple's big drop coming Fifty-three of the 321 funds with more than 5 percent of their assets in Apple shares at the beginning of 2012 significantly cut back their stake in the technology company before its share price plummeted, according to data from Morningstar. One of the prescient winners was Tom Marsico, who told Reuters he sold his firm's entire stake in Apple "before things got really ugly." Lots of others have not been so lucky. Article Company News:
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Thursday, January 31, 2013
| 01.31.13 | The vindication of Jon Corzine?
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