Today's Top Stories Also Noted: Spotlight On... Bove continues bank barnstorming News From the Fierce Network:
Today's Top News1. Bank outages not necessarily fault of hackers
When a major bank suffers an internet outage, eyebrows immediately rise and palms start to sweat. People jerk to the conclusion that it had to have been a continuation of the advanced persistent attacks (APTs) that swept the industry a few months ago. Those fears cropped up after the Bank of America outage last week, especially when it became clear that the outage also affected phone line service and mobile services. But in hindsight, it's clear that the cause of the outage was not any sort of hacker attack but rather internal problems. For those who are concerned about APT attacks from the likes of Iran that banks face these days, this might be cause of mild relief. If you are customer of the bank, however, the net effect was even worse. As noted by Bits, "those earlier attacks caused online banking sites to hiccup or fall offline for several minutes at a time. The outage at Bank of America lasted for several more than four hours." Such outages are unfortunate for a bank that continues to suffer a poor reputation in terms of customer service. In fact, CEO Brian Moynihan recently urged employees to do a better job in this area. The bank had the lowest score among national banks in the most recent American Customer Satisfaction Index. To be fair, big banks in general did not fare well, as they lagged thrifts and small banks. For more: Related articles:
Read more about: Hackers, Web Site
2. Equity swap complicates SAC Capital's insider trading narrative
Given the government's strong win-loss record in insider trading trials, Mathew Martoma might have seemed foolhardy in choosing to fight the charges against him. But it may be that he took close look at the evidence against him and decided that the odds were in his favor. That may be wishful thinking, but the Martoma camp is letting it be known that there are some wrinkles in the government's narrative that makes the alleged insider trading seem less cut and dried. While SAC Capital at the behest of Martoma, then a drug company analyst, undoubtedly sold large positions in Elan and Wyeth and subsequently established short positions, the hedge fund was also hedged to a degree on the short positions by an equity swap trade, such that the exposure of the fund in sum was neither positive nor negative. "SAC was short 4.5 million shares of Elan but, taking the swap into account, effectively long about 8.7 million shares of Wyeth," notes DealBook. When the stock tanked, the short positions paid off, but the swaps lost money. So the net gain was relatively small. "While such details would seem to contradict how authorities have described the trading, prosecutors could argue that SAC had little choice but to leave the swaps in place, and that was part of the strategy to trade on inside information. That is because selling a swap would be difficult to do without attracting attention in the marketplace. If SAC had sold its swaps, it would have had to notify the Wall Street bank that it entered into the swap transaction with and, in turn, the bank's trader would have most likely sold the shares on the open market," according to Dealbook. The government was aware of the swaps trade but it was not the result of insider information. One issue is at what time the swap position was established, and if it were in essence a long bet that the company couldn't wind down in time. Perhaps the short position was designed to offset the losses the fund knew it would take on the swaps. For more:
Read more about: insider trading, SAC Capital 3. Bank of America's $8.5B settlement lingers
Just when you thought that the mortgage meltdown was in the rear view mirror at Bank of America, an esteemed New York Times columnist notes some big, complicating issues. The columnist notes new evidence filed by three Federal Home Loan Banks in Boston, Chicago and Indianapolis, and Triaxx, an investment vehicle that bought mortgage securities over the controversial $8.5 billion settlement that Bank of America inked in 2011 to resolve claims over Countrywide's misdeeds. The evidence would suggest that "questionable practices by the bank's loan servicing unit have continued well after the Countrywide acquisition; they paint a picture of a bank that continued to put its own interests ahead of investors as it modified troubled mortgages…Among the new details in the filing are those showing that Bank of America failed to buy back troubled mortgages in full once it had lowered the payments and principal on the loans — an apparent violation of its agreements with investors who bought the securities that held the mortgages." In addition, the bank "may have engaged in self-dealing and other misconduct, including in connection with modifications to first lien loans held by the Trusts where BofA or Countrywide held second lien loans on the same subject properties," according to the documents. The problem is that Bank of America held lots of second liens in addition to first liens. By modifying the first lien, does it increase the chances that second liens will continue to perform? The big issue here is whether these revelations make it less likely that the $8.5 billion settlement will be approved. The critics of the deal are certainly making the process difficult. For more: Related articles: Read more about: Bank of America, Mortgage Settlement 4. Blackstone to enter investment banking
At the height of the private equity industry's Golden Era in 2007, there was a lot of tension between traditional investment bankers and private equity executives. The issues were plentiful. Were banks aiming to compete with their financial sponsor clients? Were banks getting the best deals for their private equity clients in terms of underwritings? A few private equity firms led by KKR decided they had to do something, if only to make a statement. KKR led a movement to start up internal investment banking units. The latest news is that Blackstone has decided to join the ranks. It has secured a license to underwrite securities. But as the Financial Times notes, "moves into underwriting have raised concerns among private equity fund investors who fear the groups are straying from their core activities. Private equity executives are also voicing concerns about the possibility a group such as KKR or Blackstone could underwrite a public listing of a company jointly owned by a team of private equity investors." Blackstone's website apparently states that, "Unlike competitors that also provide securities underwriting, trading, research and other ancillary businesses, we are truly conflict-free." For now, it may aim to pick and choose its spots, so as to avoid any conflicts. One executive was quoted: "It is just an arrow in the quiver. It is a way to serve clients in corporate restructuring or in the mergers advisory business or in the private equity portfolio. If it proves interesting, Blackstone may grow it over time." It will no doubt keep an eye on KKR's more robust investment banking operations. For more: Related articles: Read more about: Private Equity Firm, investment banking 5. Dell closes in on buyout deal
It looks like the proposed Dell LBO is close to becoming a reality. Reuters reports that negotiations have bubbled forth a price range of between $13.50 and $13.75 a share, which would value the computer maker at nearly $24 billion. Talks between Dell's founder Michael Dell and his private equity backers and the board are said to be in the final stages. Microsoft is expected to invest around $2 billion in the deal, while private equity firm Silver Lake is expected to put in about $1 billion. The consortium backing the deal apparently has some other investors lined up. As for Michael Dell himself, he is "expected to roll over his roughly 16 percent stake in the company and add personal funds in order to retain control of the company." At some point, shareholders will have to approve the deal. It would not appear at this point that a richer deal would be forthcoming, but you never know. Obviously, Dell's debt would take a big hit. This deal is so huge, in fact, that it will have enormous implications for the entire corporate bond market. If the market is convinced that the Dell deal validates the LBO concept all over again, the debt of companies that are seen as ripe for buyouts will likewise be hit hard. Some portfolio managers are already adjusting. For more: Related articles: Read more about: lbo, Dell Also NotedSPOTLIGHT ON... Bove continues bank barnstorming It's no surprise that Rafferty Capital's Dick Bove has been among the most outspoken bulls on the banking industry. He went on CNBC to say, "You should be buying Goldman Sachs ... Bank of America ... Comerica. You should be going up and down the scale and buying these stocks." He added, "You're going to get is what you've gotten the last four years, which is continuous up earnings, increases in dividends, [and] higher stock buyback programs." Article Company News:
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Tuesday, February 5, 2013
| 02.05.13 | Dell closes in on LBO terms
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