Editor's Corner: In JPMorgan battle, board must contend with small governance firm Also Noted: Spotlight On... The difficulty in hedge fund valuation News From the Fierce Network:
Today's Top News1. Bloomberg admits surveillance of executives' terminals
In the early days of Bloomberg, when the company was fighting a guerilla war to colonize desktops across the industry, the power and sheer technical wizardry of the terminals were new and unique. People loved them. In this networked era, the rising power of all those now-ubiquitous terminals has given rise to a new concern: do the terminals allow Bloomberg to essentially spy on users? The issue has cropped up in part due to a casual conversation between a reporter at the company's news service and a Goldman Sachs executive. According to the New York Post, the reporter asked a partner if he had recently left the firm — "noting casually that he hadn't logged into his Bloomberg terminal in some time." The bank "later learned that Bloomberg staffers could determine not only which of its employees had logged into Bloomberg's proprietary terminals but also how many times they had used particular functions, insiders said. The matter raised serious concerns for the firm about how secure information exchanged through the terminals within the firm actually was — and if the privacy of their business strategy had been compromised." An insider at the bank was quoted saying, "You can basically see how many times someone has looked up news stories or if they used their messaging functions… It made us think, 'Well, what else does [Bloomberg] have access to?' " Goldman Sachs confronted the news service, which confirmed that reporters monitored the terminals to see what users were looking at, whether they were logged and so on. It also said that it had disabled the feature that allows such monitoring. You can bet that other banks are discussing this issue and will likely demand assurances that their executives aren't being monitored. As of now, it's clear that this sort of monitoring was quite common in the newsroom. The implications are broad. The New York Times notes that, "The incident led to broader concerns about the line at Bloomberg between its lucrative terminal business and the hypercompetitive newsroom, threatening to undermine the credibility of both. In a secretive world that thrives on opacity, traders and financial firms jealously guard every speck of information about their activity to avoid tipping their hand on their trades and investments. For more: Read more about: Goldman Sachs, Bloomberg
2. Gold woes hit Paulson's gold-denominated shares
Not too long ago, issuing gold-denominated shares for his hedge funds seemed like a stroke of genius on the part of hedge fund manager John Paulson, founder of Paulson & Co. As the price of gold soared, gold-denominated shares got a powerful extra boost. But how the markets have changed. Gold has lost some of its luster, falling nearly 8 percent last month, and the fallout has been painful. The effects on gold-denominated shares--not to mention gold funds--will no doubt be acutely felt. The silver lining here is that most of these shares apparently are owned by employees, according to Bloomberg. At least limited partners will be spared the short-term added volatility. The firm also has taken a beating on its Gold Fund, which tanked 27 percent last month, according to the news service. For the year, the losses are approaching 50 percent. The fund's primary investor is said to be Paulson himself, so once again, limited partners will be spared. The good news is that firm's flagship funds--the Advantage Plus Fund and the Advantage Fund--are faring well. The Advantage Plus Fund is up 3.9 percent this year, while the more leveraged Advantage Fund is up 2.6 percent for the year. As for dollar-share funds in their entirety, nearly all have gained so far this year. Paulson is among those sticking with a bullish stance on gold. He and his employees have a lot riding on a rebound. These are white-knuckle days to be sure, as the great debate over gold rages. For more: Related Articles: Read more about: John Paulson 3. U.S. banks are again on top
At the height of the financial crisis, it was a distinct possibility that top U.S. investment banks could fail, one after another. The Economist notes the words of then Treasury Secretary Hank Paulson who said that, "Lose Morgan Stanley and Goldman Sachs would be next in line -- if they fell the financial system might vaporise." The magazine goes on to make the point that the travails of U.S. banks led to some initial Schadenfreude overseas, where some politicians saw it all as a timely "comeuppance" for American banks. Fast forward to the present, however, and it's clear that U.S. banks are in much better shape than their European counterparts. Many of the latter are retreating in critical markets, such as FICC-oriented sales and trading, leaving the market wide open to U.S. banks such as Goldman Sachs. For the moment, the paths of these two groups of banks will continue to diverge. "One of the reasons that American banks are doing better is that they took the pain, and dealt with it, faster. The American authorities acted quickly, making their banks write down bad debts and rapidly raise more capital. Those that proved unwilling or unable, and even those, like Goldman, that claimed they didn't need it were force-fed additional capital. As a result America's big banks have been able to return to profitability, pay back the government and support lending in the economy. This has helped them contribute to an economic revival that in turn is holding down bad debts," The Economist notes. But are European bank regulators taking a more logical approach that will end up serving the system better over the long haul? They are acting more aggressively in terms of hiking capital requirements (though the Brown-Vitter proposal can't be discounted) and aiming to separate retail deposit businesses from wholesale businesses. One might argue that such moves will cause some short-term pain but also a more stable long-term outlook. What do you think? For more:
Read more about: European Banks, financial crisis 4. Icahn, Southeastern make offer for Dell
The Dell leveraged buyout drama took an interesting turn when Carl Icahn and Southeastern Asset Management -- perhaps the two most vocal critics of the deal put forward by Michael Dell and Silver Lake -- decided to join forces. They have offered a joint deal and have certainly upped the stakes in this high profile battle. Together, they own about 13 percent of the common stock. At first blush, the deal would not appear to be a slam dunk. After all, it allows shareholders to exchange each share for just $12, either in cash or in additional shares (valued at $1.65 per share) thus allowing for a public stub. Blackstone's purported deal, before it dropped out of the process, was for at least $14.25, with some sort of public stub. In contrast, the offer from Michael Dell and Silver Lake is for $13.65 cash a share with no stub. Icahn and Southeastern will finance their offer from cash held at Dell and from $just $5.2 billion in new debt (it will seek a bridge loan to guarantee the availability of funds), compared with the $16 billion contemplated by the Michael Dell/Silver Lake offer. So how valuable is this offer? Icahn and Southeastern are arguing that the existence of the stub, which will allow holders to benefit if the ailing computer maker recovers, is quite valuable and certainly worth more than the Michael Dell/Silver Lake offer. The initial value of $1.65 per exchanged share suggests great upside, they argue. The letter by the two big shareholders to the committee was unusually inflammatory, accusing the board of insulting shareholders, saying the board brought "cynicism" to "new heights." It also charged that, "This company has suffered long enough headed decisions made by the Board and its management." The two shareholders have threatened a proxy fight if the special committee does not approve its bid. For more: Related Articles: Read more about: Carl Icahn, Leveraged Buyout 5. California AG sues JPMorgan for credit card abuses
Legally speaking, JPMorgan has found itself inundated with enforcement actions -- at the worst possible time for the bank's directors and in particular CEO Jamie Dimon. They must contend with high-profile resolutions at the upcoming annual meeting that seek to oust some and force Dimon to give up either the Chairman or CEO title. It certainly doesn't help that the California AG has decided to bring an enforcement action against the embattled bank for credit card abuses. The action stems from the many lawsuits the bank has filed to recover unpaid credit card debts. Attorney General Kamala D. Harris accused JPMorgan Chase of essentially operating a "debt collection mill" that "flooded courts with more than 100,000 lawsuits to obtain speedy judgments before consumers could fight back. Much as banks did during the housing crisis, JPMorgan used so-called robo-signing to churn out documents without reviewing them," as noted by the LATimes. The state of California alleges that JPMorgan "relied on incomplete records and erroneous information to make its cases; in some instances, key documents allegedly were signed by low-level employees posing as assistant treasurers and bank officers. Harris also alleges that the bank revealed customers' credit card numbers, potentially exposing them to identity theft. JPMorgan also failed to notify some customers that lawsuits had been filed against them, a practice known as 'sewer service' litigation, according to Harris." JPMorgan has since backed off filing so many suits, as legal issues percolated up. The goal was to win quick default judgments (something that happens fairly often) that would allow it to garnish debtors' wages. But that has backfired. In most cases, the people who have been sued by the bank acknowledge that they owe the money. It remains to be seen how these customers will fare going forward. Is it possible that some debt modification program will stem from a settlement? One that will result in debt forgiveness? For more: Read more about: Jamie Dimon, Credit Card Also NotedSPOTLIGHT ON... The difficulty in hedge fund valuation What explains the lack of a secondary market for hedge funds? One esteemed Reuters blogger suggests that a big reason has to do with the difficulty in valuing hedge funds. He says that trying to value such funds is "impossible, really." All you can really see is past returns, and we know how much that means in this industry. The lack of a secondary market, "is bad news for banks forced to get rid of their hedge fund arms as a result of the Volcker Rule. If they just close them down, then they'll lose money. But there also aren't willing buyers for such things out there in the world. So Citi, for one, is doing the only thing it can. It spun off Citi Capital Advisors at the beginning of March; the firm is now called Napier Park Global Capital." Article Company news:
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Monday, May 13, 2013
| 05.13.13 | Bloomberg admits surveillance of executives' terminals
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