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2. John Paulson ponders move to Puerto Rico

Whenever a big revenue stream dries up, the obvious question becomes "what's next?"

I asked this question when the "MBS-to-CDO-and-beyond" gravy train stopped fairly abruptly. I asked it all over again on the consumer side when the Durbin Amendment hit hard, decimating debit card revenue.

Right now, however, the "what's next?" question seems to have taken a back seat, which irks analyst Richard Bove, of Rafferty Capital.

He voiced his view to TheStreet.com at a recent conference. He noted that, with the exception of Wells Fargo, "nobody was really talking about expanding the businesses. It was all about how much capital can you return. What the hell is that all about? Doesn't anybody think that the banking business has any future whatsoever--that all they want to do is get a high dividend and stock buybacks? It's kind of discouraging when you hear that."

The focus right now is obviously on capital returns.

Bove added that, "I know people want Apple to pay back its cash now, but aren't people supposed to be interested in what you're selling, how many you're gonna sell of it, and what the margins are? That's what was so different about Wells Fargo versus multiple other presentations, because that's what Wells Fargo talked about: these are the products we're selling, these are the markets we're penetrating, these are the margins we expect to get on these products because we're cutting our expenses."

The short-term focus on capital return initiatives is entirely understandable given that this is stress test season, when capital return plans are being approved or not. But Bove's reminder is an apt one. Top line growth remains the biggest long-term issue. And right now, especially on the consumer side, the next thing is a big unknown.

For more:
- here's the article

Read more about: banks, Richard Bove
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By Jim Kim

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3. Jamie Dimon, JPMorgan still enjoying Bear Stearns deal

Just about all large companies will take advantage of lower tax rates abroad as a way to reduce liabilities at home. Apple is a great example of a company that has been doing this for years, building up phenomenal cash reserves that can't be repatriated without triggering higher taxes. Many companies are waiting for some sort of tax amnesty program so they can bring that money home.

When it comes to alternative investments, the very business model depends on setting up in the Cayman Islands or comparable tax haven. Just recently, however, more hedge fund moguls seem to be contemplating more than domiciling funds in tax havens. They are increasingly thinking about domiciling themselves in havens to lower their tax burden.

The best example is John Paulson, who has struggled mightily with his flagship hedge funds over the past two years. According to Reuters, Paulson, "a lifelong New Yorker, is exploring a move to Puerto Rico, where a new law would eliminate taxes on gains from the $9.5 billion he has invested in his own hedge funds…"

The article continued, noting that,"Paulson, 57, recently looked at real estate in the exclusive Condado neighborhood of San Juan, where an 8,379- square-foot penthouse, complete with six underground parking spaces, lists for $5 million. The area is home to St. John's School, a private English-language academy where he and his wife could send their two children, said the people, who asked not to be named because the discussions were private."

Puerto Rican tax laws certainly have an appeal.

"Under the Puerto Rican law, any capital gains accrued after a person moves there would be tax free. Dividend and interest income paid by U.S. companies would still be subject to U.S. federal taxes, though would not be taxed locally," Reuters notes.

What does Paulson have to gain by letting it be known that he is pondering such a move? He may simply be attempting to judge public reaction, seeking confirmation perhaps that the Wall Street climate has changed since the days of Occupy Wall Street. We'll see if the Queens native actually makes the move.

For more:
- here's the article

Read more about: John Paulson, Tax Havens
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By Jim Kim

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4. Private equity firms monetize tax savings long after exit

JPMorgan CEO Jamie Dimon turned 57 on March 13, and DealBook took the opportunity to wish him well and relive what has become a signature deal in his storied career.

"In what is now Wall Street lore, Mr. Dimon was celebrating his 52nd birthday at a Greek restaurant in Midtown Manhattan on March 13, 2008, surrounded by his wife, his parents and one of his three daughters. But his dinner was interrupted by a call on his cellphone, which was normally used by his children. As it turns out, the caller was Gary Parr, a senior deal maker at Lazard – who was working on behalf of Bear Stearns," Dealbook notes.

That set in motion a chain of events that culminated in a shrewd deal. JPMorgan (NYSE:JPM) bought the beleaguered investment bank for $2 a share, a bargain that produced such shock and awe that it was raised to $10 a share soon after. Indeed, the $2 deal was less than one-tenth the market price, and it included an agreement that the Federal Reserve would guarantee the trading obligations of the troubled bank, which was at the brink of bankruptcy.

It's fair to say that Bear Stearns did not become the albatross that, say, Countrywide did for Bank of America.

Still, nearly five years after the deal, the New York attorney general has sued JPMorgan for the mortgage-backed sins of Bear Stearns way back when. The Department of Justice is also taking a look as part of a wider ranging investigation. Depending on how that turns out, the deal may not be as sweet as once thought.

But there is certainly no buyer's remorse. Not yet anyway.

For more:
- here's the article

Read more about: JPMorgan, Bear Stearns
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By Jim Kim

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5. Jamie Dimon wins if dividend plans are approved

It's no secret that private equity firms have become increasingly adept over the years at extracting income from portfolio companies. The massive debt-financed dividends that have become common stand as the best example.

But DealBook highlights another technique, one that allows private equity funds to extract fees from portfolio companies even after they are sold via the public markets. The technique has become more common as of late, as "dozens" of deals have featured the so-called income tax receivable agreement.

It works like this: "Under the typical agreement, the private equity portfolio company transfers partnership interests to a newly formed entity. The transfers bolster the market value of certain items, like tax credits, operating losses, good will, amortization and property depreciation. In doing so, the related entity captures the tax savings on those items."

Typically, companies agree to hand over about 85 percent of their current and future tax savings. "The newly public companies keep the remaining 15 percent, providing it with deductions that they otherwise would not have had," Dealbook notes.

Of course, there are those who would argue that the former portfolio companies should retain all of the tax savings.

For the private equity fund, the beauty of the agreement is that it takes items that are often considered non-cash items, such as goodwill, and converts them into cold hard cash, a kind of alchemy, in the form a fairly predictable income stream.

It remains to be seen if this will become a standard practice, as it has the potential to be quite controversial. Some firms may ultimately judge it a bridge too far at a time when the industry's tax practices are under heavy scrutiny.

For more:
- here's the article

Read more about: Private Equity, Dividends
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By Jim Kim

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