Today's Top Stories Also Noted: Spotlight On... Silver Lake well positioned for Dell deal News From the Fierce Network:
Today's Top News1. Moody's rips Jefferies' pay
I noted recently that there's a new kingpin on Wall Street in terms of compensation. For the second time in three years, Richard Handler, CEO of Jefferies has emerged as the industry's the top paid CEO. For work rendered in 2012, the Jefferies board's compensation committee gave Handler $45.2 million in pay, according to the SEC's calculation of compensation. This means he's better paid than even JPMorgan Chase CEO Jamie Dimon and Goldman Sachs CEO Lloyd Blankfein. But while some might be celebrating, that sort of pay will likely draw some criticism. Moody's has called the massive compensation package "credit negative" for bondholders. According to Forbes, "the size and form of the award (the short vesting period) for Friedman and Handler could jeopardize the firm's objective of 'motivating employees to perform without exposing the company to risk,' Moody's notes. In other words, the big pay packages signal a greater focus on compensation's relationship with short performance periods. That dangerous relationship, Moody's says, has been 'at the root of many outsized trading, credit and litigation losses at investment banks.'" It will be interesting to see how shareholders deal with this issue. The company last held a say-on-pay vote in 2011, so another vote may be due soon. The compensation committee would be wise to reach out to proxy advisory firms and shareholders ahead of the annual meetings to make its case. For more: Related articles:
Read more about: ceo pay, Compensation Committee
2. Meredith Whitney: Banks at a turning point
More analysts are coming forward with breathtakingly bullish predictions that the banking industry is entering a long-term virtuous cycle that makes them must-own right now. Analyst Richard Bove made his case recently, and now it's Meredith Whitney's turn. She's less bullish in general, but she does think the industry's at an inflection point. In the Financial Times, she writes that, "This year will mark an important turning point as individual banks begin to outperform the pack dramatically after almost five years of high correlation. There will be far fewer macroeconomic tailwinds. Banks will have to distinguish themselves through back-to-basics operating results. This will mean a welcome return for the sort of basic analysis by investors they apply to other companies." As the economy improves, the industry will hopefully revert to a market in which individual banks will be rewarded on their specific merits. While some would suggest buying the broad industry right now, she would be a stock picker. "We will soon find out if US bank chiefs are as good as their big pay cheques suggest. Some bosses have been whining about tighter regulations, higher capital standards and the broader economy, while the better ones are getting on with running their businesses…It is time that bank chief executives need to step up and show they really know how to run a business as effective operators all by themselves." She thinks that there is still some cost-cutting to be done. There will be some winners. For more: Read more about: stocks, banks
For a while, it seemed as though the bond rating companies would escape any sort of official sanction for their role in the credit crisis. This seemed to some like a travesty of justice, as these for-profit firms famously doled out AAA rating for shoddy securitized products like candy on Valentine's day. As it turns out, the Justice Department and state regulators have plans to exact a measure of punishment, accusing Standard & Poor's of fraud for its ratings. While some think that civil charges are not enough, it is somewhat surprising that even civil charges have been brought. S&P issued a prompt denial, saying such a suit "would be entirely without factual or legal merit" and that the department "would be wrong in contending that S&P ratings were motivated by commercial considerations and not issued in good faith. The focus of the civil action is apparently about 30 CDOs issued in the first half of 2007," notes the Financial Times. It's unclear what kind of evidence the department has amassed. Most likely, it has gathered some very interesting emails, perhaps some that indicate an unholy relationship between issuers and CDO managers on one hand and actual bond raters on the other. Email evidence has not always proven to be solid in trials, and the department might have some witnesses, which might make for powerful testimony. The legal burdens to gain a civil conviction are much lower than for a criminal conviction. It will be interesting to say the least, though a settlement is still likely. This suit portends action against other bond rating companies, as they were all rating CDOs similarly. It may be that the evidence against S&P is the strongest. For more: Read more about: Credit Ratings 4. Goldman Sachs gets another endorsement as a socially responsible investment
A shareholder making the case for the company as a socially responsible investment is no doubt music to the ears of the Goldman Sachs board. In this view, an underreported story out of Davos is CEO Lloyd Blankfein's "reason for being there in the first place: To discuss 10,000 Women, Goldman's $100 million initiative to help female entrepreneurs around the world learn more about running and managing their fledgling businesses. 10,000 Women is the sister program to 10,000 Small Businesses: Goldman's $500 billion initiative 'to help small businesses create jobs and economic opportunity by providing them with greater access to business education, financial capital, and business support services.'" He goes on to say that, "Programs like 10,000 Women can do serious good. And even if there is a public-relations aspect driving the bank's pursuit of initiatives like this, that's OK with me: $100,000 million is no small chunk of change, and it can make a real difference out there for people around the world. Keep up the good work, Goldman -- from an SRI and a business perspective -- and I'll keep singing your praises." It's an interesting argument. If you want to pursue this, here's the bank's 2011 ESG report. I do not yet see the report for 2012. For more: Related articles: Read more about: Goldman Sachs, socially responsilble investing 5. Dell secures $24.4B LBO deal
And so it has come to pass. As Dell bond holders quake, the firm has inked a deal to effect an LBO at $13.65 a share, making the transaction worth a whopping $24.4 billion. The company will now start a go-shop process, but the chances of a meaningfully better bid are not good. The fact that the founder of the company is actively investing (rolling over his existing stake and contributing even more personally) in the deal--and let's not forget Microsoft's participation--will make it hard for other sponsors to step up to the plate and compete with Silver Lake. What we'll likely end up with is one of the largest transactions since the financial crisis. Blackstone Group led a $26 billion leveraged takeover of Hilton Hotels in the 2007. The scrutiny will be intense, and fairly or not, people will see it as a litmus test of sorts for the viability of the private equity model. If Dell can resurrect itself, the model will be hailed. If not, it will be seen as a sign that the traditional buyouts are growing more anachronistic by the year. As noted by the Financial Times, Dell's board was advised by JPMorgan and Evercore and Debevoise & Plimpton. Dell was advised by Goldman Sachs and Hogan Lovells. Michael Dell was advised by Wachtell, Lipton, Rosen & Katz. Silver Lake was advised by the same four banks providing financing, that is, Barclays, RBC, Bank of America and Credit Suisse. The likelihood of a deal had Dell bondholders jumpy. Possible downgrades are now on the way, even as the company prepares to dump more debt on the market. For more: Related articles: Read more about: lbo, Leveraged Buyout Also NotedSPOTLIGHT ON... Silver Lake well positioned for Dell deal Silver Lake has made a specialty of aiming to resurrect big brand names that have stumbled on hard times. The firm, formed by Roger McNamee, has a long history with some luminaries of the old guard technology industry, Bill Gates, Larry Ellison and of course Michael Dell himself. In hindsight, you have to wonder if any other private equity firm could have pulled this off. Article Company News: News From the Fierce Network:
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Wednesday, February 6, 2013
| 02.06.13 | Goldman Sachs gets another endorsement as a socially responsible investment
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