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2. New London Whale review points to JPMorgan shortcomings

Dell is in a tough spot.

On the one hand, it has a difficult business to run, so it has to project the aura of a winning company with cool products. It has to be a company with a bright future.

Here's a quote from a recent product introduction release: "We have taken outstanding products and made them even better with improved performance, sleek design and state-of-the-art security and management capabilities," said Kirk Schell, vice president. "We're constantly listening to customers and improving our leading edge products based upon their input. Through enhanced components and engineering, we're providing customers with a great computing experience and helping them realize the efficiency and productivity benefits provided through improved performance."

At the same time, however, founder Michael Dell is competing to take his company private, and that means convincing shareholders that his $13.64 a share offer ($24.4 billion) is a great deal. One necessary argument is that, as the company continues to struggle in a weak market, it's not likely that other deals will offer such a compelling valuation. In other words, he needs to emphasize just how troubled the company is. In light of calls to allow a public stub to trade, he has to make the case that so great are the company's woes that the stub stock is not likely to fare well or even trade actively while a turnaround is attempted.

Dell buttressed his case for the $13.64 deal with a presentation filed with the SEC.

The presentation says the Icahn-Southeastern proposal doesn't take into account about $1.4 billion in debt Dell must repay by next April, nor the full $450 million termination fee that Icahn and Southeastern must pay to bust up the current deal. The presentation, according to MoneyBeat, "says the dissident shareholders' proposal lowballs how much cash — about $1.5 billion — Dell needs at minimum to operate its business."

It also estimates Icahn and Southeastern need roughly $3.9 billion more financing than they have proposed or they must cut the proposed dividend to about $8.50 a share from $12 a share.

For more:
-here's the article
-here's the release
-here's the presentation

Read more about: lbo, Leveraged Buyout
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By Jim Kim

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3. New money market fund rules have better chance

You might have thought that Jamie Dimon's resounding victory at the annual shareholder meeting put an end to the London Whale episode. You might have thought that all the ink that could be spilled over the matter has already dried. But you would be wrong.

Bloomberg Markets magazine offers a new look at the unfortunate series of events that saw a group of traders run amuck, sticking JPMorgan (NYSE:JPM) with massive losses and calling into question the leadership of top executives.

The magazine's portrait, based in part on interviews with traders and current and former executives, "offer evidence of a widening spiral of panic as the losses became known beyond a small circle of traders and the extent of the damage reached top management, including Chief Executive Officer Jamie Dimon."

More specifically, the record shows that "Dimon presided over a company whose traders amassed growing positions in complex derivatives and whose executives offered rosy forecasts, withheld information from regulators and ignored risk limits that were breached 330 times in the first four months of 2012."

There may well be another big shoe to drop in this saga. The FBI, Justice Department and SEC are still scrutinizing the evidence. One possibility is that the bank or specific individuals could be charged with some form of market manipulation. Others suggest that the bank may be cited for gross failure to supervise or making misleading disclosures. Prosecutors are under pressure to act.

But no matter what happens, it appears that Dimon has survived. Unless the investigators come up with new damning information, he has been tried in the court of shareholder opinion, and he emerged with his titles intact -- still the reigning chairman and CEO (and president).

For more:
- see this article

Read more about: Enforcement Action, London Whale
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By Jim Kim

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4. Jefferson County saga nearing an end

Mary Jo White is attempting to pass a money market fund reform package after her SEC predecessor came so tantalizingly close.

While this may seem like a regulatory victory -- reform in this area has been seen as crucial by some investor advocates since the financial crisis of 2008 -- it also suggests the growing might of financial industry lobbyists, who have been able to shape proposed reform packages to their liking.

That dynamic has played out again with regard to money market mutual funds. The best example may be the proposal to float the net asset value of these mutual funds, something investor advocates supported.

In the reign of Linda Schapiro, the SEC floated the idea of doing away with the time-honored $1-per-share convention and start marking assets to their true value. White's proposal offers a similar prescription but only for some funds. The proposal puts forward an idea that the rules should allow for a floating NAV for money market funds that invest in corporate debt (mainly commercial paper) but not on funds that invest in government debt. The prime funds that invest mainly in corporate debt tend to be more popular with institutions. That concession, if it comes to pass, will be much more to the industry's liking, and you would have to think that the chances of passage are strong.

It will be interesting to see what stance the mutual fund industry takes. As of now, they are in study mode. The lobbying group has previously maintained that a fixed NAV is the best option. The proposal, however, would preserve the $1 a share convention on funds that are generally popular with retail investors.

One question is whether the reform package will ultimately require some funds to hold more in capital reserves. Previous proposals have called for a 1 percent capital cushion. Other ideas include a method by which funds could limit redemptions and even charge fees in face of redemptions.

The debate may mark the emergence of Sallie Krawcheck as a regulatory force. She has opposed the idea of a dual set of rules. She may choose to speak even more loudly.

For more:
- here's an overview from Bloomberg

By Jim Kim

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5. Cerberus still suffering for Newtown massacre

It's tempting to view the entire Jefferson County sewer saga as a precursor to the enforcement woes that have engulfed JPMorgan Chase.

The swaps deals with the county put the bank in a rather unflattering light, embroiling it in a gothic southern tale of old-fashioned corruption mixed with crooked bankers. Charges were inevitable as the saga rolled on, and in November 2009, the SEC alleged that J.P. Morgan Securities and former managing directors Charles LeCroy and Douglas MacFaddin paid more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners.

"In connection with the payments, the county commissioners voted to select J.P. Morgan Securities as managing underwriter of the bond offerings and its affiliated bank as swap provider for the transactions."

J.P. Morgan Securities unfortunately "did not disclose any of the payments or conflicts of interest in the swap confirmation agreements or bond offering documents, yet passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions."

Several local politicians ended up in jail for short stints, and the bank was left to grapple with a stinking PR mess.

Now it appears a final resolution is near. According to DealBook, the county has inked a deal to reschedule most of its sewer debt. The deal covers about $2.4 billion of Jefferson County's total $3.078 billion in sewer debt. JPMorgan "is giving up $842 million, or about 70 percent, of the face value of its debt, according to people briefed on the negotiations. Just before declaring bankruptcy in 2011, the county abruptly rejected a previous package of concessions that called for JPMorgan to give up about $750 million."

There are a lot of other interest rate swap controversies raging around the country. But none were as rich in corruption and drama as this one. I can only hope that it's more of an outlier than the norm. This was far from the bank's finest moment. But neither was it the bank's worst moment, as subsequent events showed.

For more:
- here's the article

Read more about: Interest Rate Swaps, Jefferson County
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By Jim Kim

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