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2. Judge extends freeze on account used for Heinz trade

One thing about layoffs is that they certainly provide an opportunity for bank managers to cull their weakest performers.

On Wall Street, the notion that banks should clean house to the tune of 5 percent or more at least once a year has never been controversial. Sometimes, such culling aligns with layoffs and sometimes they don't. Goldman Sachs (NYSE:GS) is set to pare some jobs, notably in sales and trading, according to Reuters.

"Equities trading will likely see cuts bigger than 5 percent, while fixed-income trading, which took big hits last year and has had better volumes, will likely see cuts of less than 5 percent, the sources said. The number of shares traded on major U.S. exchanges this year is down 7.2 percent. It is unclear whether the cuts in totality will be larger than Goldman's typical 5 percent culling across the firm," the article noted.

If one had to guess, they might do well to guess that the bank will take a conservative approach and perhaps lay off more than usual. The reality is that the trading environment will remain unstable for a while, and no one is looking to cash equities as a big revenue source.

Secular trends are all portending a tougher job market over the next few years in this market. At the same time, the need to hike returns isn't getting any less intense.

For more:
- here's the article

Read more about: Goldman Sachs, jobs
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By Jim Kim

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3. KKR, TPG aim to avoid bankruptcy of Energy Future

Big merger announcements have proven to be a treasure trove for insider traders, who sometimes use call options to make massive bets on the target ahead of the formal announcement. And so it was with the deal that calls for Berkshire Hathaway and 3G, who intend to buy Heinz for $23 billion.

Regulators quickly detected some very unusual options activity. Someone made a massive purchase of Heinz call options via a Swiss account at Goldman Sachs and ended up pocketing $1.7 million. They will not be able to spend a cent, however, as the FBI and SEC have frozen the account and a judge has extended that freeze, according to Reuters.

The account was apparently of the numbered variety, with the owners not known even to the bank. The account owners are in hiding; they have not responded to a judge's order to present themselves.

So the hunt is on. Swiss officials and Goldman Sachs have pledged to work with U.S. authorities to ferret out the owners. And at this point, it may only be a matter of time before the identities of the traders are discovered. They would be wise to huddle now with their attorneys now and figure out a way to turn themselves in voluntarily.

That might help them win some leniency in the event they plead or are found to be guilty.

For more:
- here's the article

Read more about: SEC, TPG
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By Jim Kim

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4. Correlation books on the auction block

Wall Street is giddily anticipating a return to the glory days of private equity, as the proposed Dell has raised expectations. But a sober reminder is that success is hardly guaranteed in this business lurks. Even as more deals get off the ground, the biggest one of all continues to run aground.

As reported by Bloomberg, "Five years after their record- setting leveraged buyout of Energy Future Holdings Corp., KKR & Co. and TPG Capital are moving closer to a possible new milestone: the biggest bankruptcy of a private equity-backed company since the failure of Chrysler Group LLC."

Ouch! This is certainly a reality check.

There was considerable fanfare when the deal for TXU (as the company was then known) was announced. The sheer size ($48 billion including the assumption of debt) made it noteworthy, as did the unprecedented cooperation between the new owners and environmental groups. Many people were rooting for this to work and to prove the value of private equity owners and managers once and for all.

But it simply hasn't worked out that way. When you get right down to the essence of it all, the buyout was a massive bet on natural gas prices. Unfortunately, the new owners bet wrong. Gas prices have plunged over the last five years, pushing the deal to the point of no return.

Negotiations with creditors are underway, as the firm faces a critical October 2014 maturity date on $3.8 billion in loans. Bankruptcy is a real possibility at some point. That would likely trigger a move by some creditors to seize the company, including other alternative investment providers such as Apollo Global Management, Oaktree Capital Group and GSO Capital Partners (owned by Blackstone). Blackstone has also been hired to restructure the debt.

While plenty of skeptics abound, there is still plenty of time to work out a deal. A rise in natural gas prices would help.

For more:
- here's the article

Related articles:
TXU deal as troubled as ever

Read more about: Energy Future Holdings, KKR
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By Jim Kim

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5. Municipal credit analyst the new hot job

The final triumph of regulators, for better or worse, may be at hand for top investment banks. Correlation books aren't worth the trouble any more, some banks have concluded, as they try to sell their books amid a tough fixed income climate. Synthetic collateralized debt obligations--the heart of many correlation books, especially of the bespoke single-tranche variety--were all the rage before the financial crisis hit, but since then the market has become tougher and tougher.

We're at the point now that banks are aiming to unload them to raise capital.

Reuters reports that, "It will be a bitter pill to swallow for the banks, which are having to sell them off now at a loss just as the positions are finally in the black and they can glimpse the finish line - most of the exposures are expected to roll off in the next two years.

It also noted that, "banks need to conjure up capital to meet new requirements enacted after a crisis brought about by those very same holdings. Many have concluded that shedding the risk-weighted assets is a better play than attempting to issue costly equity, as they race to get above the 8.5% Core Tier 1 capital threshold of Basel III."

Fortunately, plenty of hedge funds seem to be willing to take a close look at portfolios. That said, offloading these assets in an environment in which the sellers are known to be motivated may prove difficult.

For more:
- here's the article

Read more about: Correlations, CDSs
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By Jim Kim

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