Today's Top Stories Also Noted: Spotlight On... Jamie Dimon's new office News From the Fierce Network:
Today's Top News1. Blackstone's Dell efforts heat up
Dell's leveraged buyout saga continues this week, and it looks like the new front-runner may be Blackstone, which continues to court Michael Dell. A team of Blackstone executives was scheduled to be at the ailing computer maker's headquarters on Monday, to begin what could become the definitive due diligence process, one that could lead to a firm offer to buy the company. So while we might not get an outright bidding war, we may well get a competitive two-horse race. The twist here is the Michael Dell, the founder and largest shareholder of the firm, could end up riding two horses. He has been more than shrewd in dealing with the Blackstone proto-offer, which he seemed to regard seriously from the get-go. He could have taken a hostile approach, circling his wagons with his original partners, private equity giant Silver Lake and Microsoft, but he chose wisely to take the conciliatory approach. When shareholders vote (a majority of shareholders not including Dell himself must approve a deal), it's quite possible the founder will be a win-win situation. No matter which side prevails, he could be left as CEO, which he no doubt sees as fitting and appropriate. Reuters reports that, "In its first step toward firming up a bid, Blackstone is working closely with Michael Dell in putting together a new business plan and actively talking to him about staying on in his current role as CEO, two people familiar with the matter said. If Michael Dell gets on board with Blackstone's still-developing strategy for Dell, he would be Blackstone's preferred choice running the new company, the sources said." But nothing is guaranteed, and the buyout firm, via an executive search firm, has reached out to about six people for the job. The leading candidate so far is Cisco Systems director Michael Capellas, according to Reuters. Others in the mix include former IBM services head Michael Daniels, Oracle Corp President Mark Hurd and Hewlett-Packard's Todd Bradley. You can add to all this the fact that Carl Ichan is looming in the background. The latest is that the special committee has offered to pay for some of the costs of his bid, as it did for Blackstone, if Icahn agrees to stand down a bit. The committee would like him to agree to work with the committee, instead of offering a formal slate of candidate at the annual meeting or suing the company. For more: Related Articles:
Read more about: lbo, Leveraged Buyout
2. Building symbolizes alternative investment power
There once was a day when the building at the corner of Wall Street and Broad Street in lower Manhattan symbolized all the glory and passion of American capitalism. The building still serves as an apt symbol, but people acknowledge the "real" exchange is located at its powerful data center out in New Jersey. The buildings of the august bulge bracket banks may also stand for power, especially the Goldman Sachs building, but these structures certainly lack history. No one would confuse them for major tourist attractions. This brings me to an article in Forbes that touches on the lack of symbolically powerful buildings that represent the alternative investment universe. A building may be a poor representation of the industry altogether. "Unlike the older parts of the financial industry that grew up adjacent to, or in ready walking distance from, a stock exchange or a central bank, private equity and hedge funds have found their footing and taken their rightful place in the current financial hierarchy at a time when technology has freed them from both physical locations and the need for 'safety in numbers.' Perhaps that is part of the reason why a growing number of people in positions of influence and power have begun to express concerns about these new financial entrepreneurs. Perhaps their short histories and small, discreet offices, which seem slightly out of place when compared with their ability to influence events in the financial markets, cause a certain amount of unease." I would quibble with the notion that the industry has been freed from physical locations. The reality is that locations are important, -- New York City in particular. Many funds have found that a Manhattan presence is necessary in to facilitate actual meetings, which still drive the industry. Not everything is done virtually. Not yet anyway. If you had to pick a building that symbolized the industry, it would have to be 9 West 57th Street. "Home to private equity giants (KKR & Co. LP and Apollo Global Management LLC), rising stars (Silver Lake Partners) and start-ups (Lightyear Capital and Sycamore Ventures), as well leading hedge fund managers (Och-Ziff Capital Management), this office tower provides an enviable home to many of the most successful practitioners of alternative investing, or at least those willing to pay $200 a square foot for the privilege," Forbes notes. For more: Read more about: Hedge Funds, Corporate Headquarters 3. JPMorgan board works to keep Dimon as chairman and CEO
In an effort to head off controversy or the possibility of embarrassment, management these days often reaches out to key shareholders ahead of annual meetings. Goldman Sachs, for example, last year reached out to shareholders on executive compensation issues in a successful effort to make sure that it did not suffer a negative say-on-pay vote. This year, JPMorgan is reaching out to shareholders -- with a twist. The directors themselves are personally taking their case to influential money managers to appeal to them to not support a resolution that would split the CEO and chairman jobs at the bank. Currently, those positions are held by Jamie Dimon, who has been in the news as of late for a host of less-than-flattering issues, including a devastating report by a Senate subcommittee that was critical of management during the London Whale episode. A similar split-the-jobs resolution was voted on at last year's annual meeting, garnering about 40 percent of the vote. This year, the circumstances are much different, and the board fears that the resolution will garner a majority of the shareholder vote. The resolution is non-binding, but it would put pressure on the directors to take some sort of action. DealBook reports that, "The campaigning, which shareholders indicate is unusually proactive this year, reflects the growing worries within JPMorgan that investors may be dissatisfied with management because of the continuing fallout from a multibillion-dollar trading debacle. In the past, such investors say they usually received only a phone call from executives in the investor relations department or met with them in person. Along with director meetings, the company this year is also contacting smaller shareholders who previously might not have heard from the big bank at all." Directors will make the case that Dimon is the man for the top jobs (he's president as well). They'll note that his record in generating profits has been solid lately and that the board has been tough on him, reducing his pay for 2012. Still, the idea of splitting the two jobs has caught on with other controversial big consumer banks. Bank of America and Citigroup both have independent chairman now. Wells Fargo, however, has combined top positions, with John Stumpf action as chairman, CEO and president. My sense is that the vote will garner more than 40 percent this year, but it's unclear how much more. For more: Related Articles: Read more about: corporate governance, CEO 4. Proposal would impose higher capital requirements
Under Basel III, banks are required to carry 7 percent of Tier 1 capital as a percent of risk-weighted assets, plus as much as a 2.5 percent surcharge for the largest banks. If a bank was deemed extremely risky, it could be hit with a 3.5 percent surcharge. As of now, no bank has been put in that category. But capital requirements remain a huge issue, especially as the angst in Washington about "too-big-to-fail" banks continues. A bipartisan bill indeed would hike capital requirements on big banks by much more than even the most stringent requirements of Basel III. It would also shift the focus more toward tangible common equity and less on risk-weighted assets. The current draft of the legislation, as reported by Bloomberg, would replace Basel III requirements with a 10 percent requirement for all banks and an additional surcharge of 5 percent for institutions with more than $400 billion in assets. Such a surcharge would thus apply to JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. As of now, it's unclear where the bill has the sort of support that would allow it to become law. But it will be co-sponsored by a Republican and a Democrat, which improves its chances. This is bad news for the top banks, which have fought hard to keep capital requirements more to their liking. This is terrific news, however, for bank lobbyists, who have yet another proposal that banks will pay handsomely to defeat. So far, when it comes to bank regulation, the lobbyists have earned their keep. In fact, a congressional staffer has accused bank lobbyists of stealing a copy of the draft legislation to share with clients. This is going to get heated. The bill is expected to be introduced this month. For more: Related Articles: Read more about: Tier 1 Capital, Basel III 5. ETFs faring well against mutual funds
So far this year, exchange traded funds (ETFs) have fared well in terms of garnering more assets, especially from investors betting that stocks will continue to rise. That said, stock mutual funds have held their own as well. All in all, however, the long-term trend seems clear: ETFs will continue to win market share while mutual funds, especially actively managed funds, will struggle. The LA Times puts it all in historical perspective. "Exchange-traded funds have ballooned into a $1.4-trillion industry in the U.S. and $2 trillion worldwide. Asset growth has surged since 2007 as the number of ETFs has soared past 1,400, covering every corner of stock, bond and commodity markets. And although conventional U.S. mutual funds still hold more than seven times the assets of ETFs, an increasing number of professional and small investors now see traditional funds as lumbering dinosaurs, doomed to be outmaneuvered and eventually overcome by more efficient and focused ETFs." While retail investors have certainly caught on to the benefits of ETFs, it's fair to say that brokers and wealth management consultants are a huge part of this trend as well. They have come around to the view that ETFs represent an efficient way to allocate and manage client assets. More brokerages and wealth management platforms are laser focused on this asset class now, which has pushed trading costs to new lows. Passive investing seems ascendant, but we may cycle back to a point where active management comes back into vogue. At that point, it will be interesting to see if funds flow back to actively managed stock mutual funds or into active managed ETFs. For more: Related Articles: Read more about: Mutual Funds, ETFs Also NotedSPOTLIGHT ON... Jamie Dimon's new office Wealthy folks in Manhattan will often purchase a unit in their residential buildings, often a studio, to use as a home office. Jamie Dimon has purchased a commercial unit at the base of his building, according to records from the New York City Department of Finance. Most likely, he and his family needed a bigger home office. It must be nice to have a detached home office in your building, as it might give you the feel of getting away from home without actually leaving. Article Company news:
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Tuesday, April 9, 2013
| 04.09.13 | Blackstone's Dell efforts heat up
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