Editor's Corner: Lloyd Blankfein's career is incomplete Also Noted: Spotlight On... People still chasing the hedge fund dream
Today's Top News1. Aggrieved shareholders take on Goldman Sachs
An esteemed New York Times columnist offers an interesting look at a company once known as Equity Inns, an owner of hotels, whose common shares were acquired by Goldman Sachs in 2007. The company subsequently went dark (in that it stopped filing detailed disclosures) as it is entitled to do by law if the number of shareholders falls below 300. The remaining preferred shareholders were none too pleased, as they saw their dividends nixed, and have mounted an interesting campaign to publicize what they see as an injustice and to keep the information flowing. One professor who owned the preferred shares has made the claim that Goldman Sachs' action "smells like insider trading," a reference to the bank's deal to purchase a large tranche of the preferred shares for itself. Another shareholder has set up 301 trusts, each of which owns preferred shares, listing himself as the trustee. The point is to force the bank to disclose more information about the company, which essentially is a collection of interests in hotels and no employees. "The S.E.C. chose to ask for public comment on the request, bringing letters of protest from a number of shareholders, including Mr. Sullivan (who set up the trusts), who told me he would disclose the identities of the beneficial holders to the S.E.C., but only if it promised not to make them public." Even if Sullivan succeeds, "it is far from clear what he will have accomplished. Public filings would make it easier to see what was going on, but Goldman would still have all the cards and might find ways to assure that the preferred holders received little or nothing from their investment." For Goldman Sachs, the publicity over what it no doubt considers a minor matter is not welcome. Compared to what it went through after the financial crisis, this seems relatively minor. But not to the aggrieved shareholders. For more:
Read more about: shareholders, Goldman Sachs 2. Fairholme Capital bets big on GSEs
Another fund is laying some big bets on the GSEs. Bruce Berkowitz, of Fairholme Capital Management, has invested about $500 million in preferred shares in the two housing GSE mortgage giants, according to Fortune. The bullish bet might be supported by the fact that Fannie Mae is back to boasting big profits. Recall that it posted record quarterly earnings of $7.6 billion last week and said that it expects to be profitable for the foreseeable future. By dint of a change to the GSE bailout agreements, these profits are delivered to the Treasury Department. There is now talk that the two GSEs will someday pay off their debts to Uncle Sam, the way AIG and several top banks have. That would be a sweet moment. To be sure, the real play is that Fannie Mae and Freddie Mac are eventually saved from the dustbin of history. The preferred shares traded so low, in part, because the conventional wisdom was that they would eventually be shuttered by the government. But if they were to continue in some or fashion, the preferred shareholders stand to benefit. Several hedge funds have been willing to make this trade, including John Paulson. Some think it will prove to be a loser. Bert Ely, a veteran Washington, D.C.-based banking consultant, told the magazine that he's heard from regulators who said that there is no plan to make any payouts to preferred shareholders. "It's bullshit," Ely was quoted as saying. "I've been told that the terms of the conservatorship are that the perferreds will never have any real value." Hedge funds are convinced they will be able to influence the political process to their liking. We'll see. For more: Read more about: GSEs, Fannie 3. Public opinion: Congress, the new banking industry
Recall that the financial crisis ushered in an era of extreme skepticism of large banks, much to the delight of small banks and credit unions. Consumer advocates smiled as these banks were pilloried in the media and in Washington, D.C., especially in Congress, where banks became the target of great ire and plenty of investigations. Powerful Congressmen seemed to relish accusing the likes of Goldman Sachs executives of perjury. But times have changed, and banks aren't the villains they once were. According to a new Gallup poll, confidence in banks rose five points in the past year and now rests at 26 percent. How quickly Americans forget the banking crisis of just a few years ago that sent the market crashing and pushed the federal government to bailout those 'too big to fail.' Last year, confidence in banks hit a record low at 21 percent, down two points from a year earlier. Before the economic downturn, confidence in banks was at 41 percent in 2007, according to the National Journal. So who is the new villain in the public mind? Somewhat ironically, Congress. Americans' confidence in Congress has dropped to an all-time low, worse than any institution since the poll was started in 1973: Only 10 percent of Americans gave Congress positive marks. This was its fourth straight year at the bottom of a list of 16 institutions. The tables have turned. Read more about: Image Problems 4. James Herbert II capably leads First Republic Bank
Who says private equity owned banks can't work out? Herbert is the CEO of San Francisco-based First Republic Bank, which specializes in jumbo mortgages. The bank has held up well as the financial services industry has rebounded. Several hedge funds are bullish on the bank. Robert Joseph Caruso's Select Equity Group had among the largest positions in First Republic Bank, worth close to $116.8 million. John Armitage of Egerton Capital holds a $43.1 million position. Other hedge funds with sizeable stakes include Renaissance Technologies, Conatus Capital Management and Osterweis Capital Management. A few funds have turned less bullish just recently. And a Jefferies analyst has moved the stock to a hold from a buy. But all in all, there are still plenty of bulls. "Analysts at Keefe, Bruyette & Woods raised their price target on shares of First Republic Bank from $37.00 to $40.00 in a research note to investors on Friday, April 26th. Separately, analysts at Sandler O'Neill raised their price target on shares of First Republic Bank from $38.00 to $40.00 in a research note to investors on Tuesday, April 16th. They now have a hold rating on the stock. Finally, analysts at FBR Capital Markets raised their price target on shares of First Republic Bank from $40.00 to $44.00 in a research note to investors on Tuesday, April 16th. They now have an outperform rating on the stock," notes theflyonthewall. Forbes notes the recent history of the bank--how Herbert adroitly sold it to Merrill Lynch, which was subsequently bought by Bank of America. Herbert then took the bank private, with the help of private equity firms Colony Capital and General Atlantic. "Before 2010 was out--a little more than five months after Herbert had led the purchase of First Republic from Bank of America--Herbert took First Republic public again in an IPO that priced at $25.5 a share, valuing the bank at $3.27 billion. The private equity shareholders made nearly a 70% return in some five months and rewarded Herbert with a boatload of stock options carrying an exercise price of $15 a share." He ended up a very rich man. For more: Read more about: CEO, First Republic 5. Mortgage settlement report card coming soon
This week, regulators, Congress, and the public will likely get the first official "report card" on how well big lenders and servicers are doing as they try to live up to their promises as set by the national mortgage settlement, inked in February 2012. Former North Carolina Banking Commissioner Joseph Smith has been tasked with overseeing compliance and monitoring. To be sure, there have been plenty of indications that, in some states anyway, the process has not been without hiccups. New York Attorney General Eric Schneiderman has threatened to sue Bank of America and Wells Fargo, after his office received a litany of complaints about the banks. Florida Attorney General Pam Bondi has made similar threats. An interim report from Smith's office noted that 5,700 complaints had been lodged since the settlement was agreed to. That said, the problems are not intense in every state. Some attorneys general have been eager to announce that funds are now flowing to aggrieved mortgage holders in their states. Some have even struck a sympathetic note when it comes to the banks. The reality is that the national mortgage settlement holds banks to a fairly high standard in terms of customer service, and it might be unrealistic to think that all of a sudden, just because the executives have signed a $26 billion settlement, they can conjure up the business processes and systems necessary to remain fully compliant. It may seem simple to ensure that a foreclosure notice doesn't go out while a modification negotiation is underway, but from a process point of view, it's not a snap. It's not like the banks had advanced systems to work with. In addition, the employees who handle all this tend to be low paid and poorly trained. There will be some horror stories. Given that Smith is a reasonable guy not prone to drama, his report card will likely be balanced, which is about the most the banks can hope for given the anecdotal evidence. For more: Read more about: National Mortgage Settlement Also NotedSPOTLIGHT ON... People still chasing the hedge fund dream According to data from Hedge Fund Research, just shy of 300 hedge funds were launched in the first quarter of 2013. That's the third-highest quarterly total since the beginning of 2008, which suggests that hedge fund dreams are alive and well. To be sure, the chances of success are not much higher these days. And the competition is as intense as ever, especially for small funds with scant track records. Indeed, average first quarter management fees fell 0.32 percentage points to 1.55 percent over the past year. Incentive fees fell 0.31 percentage point to 17.4 percent. Article Company News: Regulatory News:
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Monday, June 17, 2013
| 06.17.13 | Lloyd Blankfein's career is incomplete
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