Also Noted: Spotlight On... Court decision has private equity tax implications News From the Fierce Network:
Today's Top News1. Banks trade above tangible book value
Banks have fared well this year, especially in the second quarter, when the top banks all reported upside earnings surprises. That has proven to be good news for the entire stock market, in which the banking sector is once again started to play a hegemonic role. Some nuggets from Bloomberg:
Perhaps the biggest news is that the largest banks now trade above their tangible book values per share. In most cases, the premiums are striking. Citigroup appears to be the exception; it is merely hovering at about its tangible book value. In any case, these are no longer value plays. They perhaps are at a point where they might be described as growth opportunities, though some might find them fully valued at this point. For more: Read more about: banks, Bank Stocks 2. Latest bank commodities challenge
It's fair to say that banks are under a microscope these days, from shareholders and regulators. The pressure to generate new avenues of revenue is intense, but so is the scrutiny from regulators looking out for consumers of all types. The latest flashpoint: Commodities. Such trading has long stoked criticism of banks, as many contend that banks' activities tend to raise prices. We've seen various controversies erupt in various markets, such as foods, energy and metals. The rhetoric can get pretty flowery. With JPMorgan's move to settle charges it manipulated energy prices and a recent New York Times article on the metals warehousing controversy, the issue is white-hot all over again. Here's a choice quote from a Senator in DealBook: "It seems like there's a huge amount of conflict of interest and a huge amount of market manipulation and it doesn't seem like much action …. When these prices go up it's a huge tax on the economy whether it's in the price of a beer can or aluminum siding." To be sure, when markets explode, the banks win, on agency commissions, market-making activity, and their own speculation. If you are warehousing commodities, the benefits are even greater. According to data from analytics company Coalition, the 10 largest Wall Street banks generated about $1 billion from physical commodity units in 2012, and about $5 billion from commodity derivatives and financing. Goldman Sachs ranked No. 1 in all commodities revenue, including derivatives, followed by JPMorgan, notes Bloomberg. It's hard to walk away from such revenue. JPMorgan Chase, however, has announced its intention to exit the physical commodities business, though it will remain active in market making and trading. That's a reasonable move, given that the spotlight will be intense for the foreseeable future. The Fed is taking a look at whether banks should be able to trade commodities, and politicians are sensing a winning issue. For more: Read more about: commodities, Enforcement Action 3. Dell special committee rejects bid conditions
The Dell special committee is being pressured from all sides. Carl Icahn, of course, has had few kind words for it. On the other side, Michael Dell and Silver Lake have been pressuring it to agree to new voting rules. Well, the committee has made up its mind on the proposed new rule. In doing so, it has dealt Michael Dell as setback. Or has it? On the surface anyway, the committee looks like it has slapped Dell and Silver Lake across their cheeks, rejecting their request that they change the voting rules treat uncast votes as "no" votes. That has made it hard on Michael Dell. Indeed, he conditioned his latest offer---$13.75 a share, compares with $13.65 a share previously---on the committee acceding to their rule change request. But the rejection may not be as painful as it appears. The committee also decided that it would change the "of record" date governing who gets to vote. Currently, shareholders as of June 3 get to vote. But some of them may have sold shares already and are no participating. As noted by Fortune, by allowing others to vote, the thinking might be that the move will bring in more shareholders willing to vote. These shareholders might have bought in at below $13.75 a share, and thus might be more willing to vote for the deal, especially as the stock swoons. So this might be doing Michael Dell and Silver Lake a favor, if they are willing to go forward with a $13.75 a share deal. It's unclear of Michael Dell will go down that path, but his options seem limited at this point. For more: Read more about: Leveraged Buyout, Dell 4. SAC Capital probe yields another indictment
How long will the insider trading investigation last? That's unclear. Some might assume the investigations are cresting with the criminal charges against SAC Capital, which was the Moby Dick of prosecutors. But we're still seeing more cases. Sandeep Aggarwal, a former analyst for Caris & Co., was arrested this week. He stands accused of distributing inside information about a 2009 agreement between Microsoft and Yahoo to hedge funds, including SAC Capital. According to the complaint, the source of his information was an insider at Microsoft. After the information was given to Richard Lee, of SAC Capital, a key figure in the broader investigation of the hedge fund firm. The firm proceeded to buy several hundred thousand shares of Yahoo stock while Lee bought 25,000 shares of Yahoo for his personal account, according to the complaint. Lee pleaded guilty in July to conspiracy and securities fraud and has been working with the government. Aggarwal has not entered a plea, according to the San Jose Mercury News. When he was questioned internally, "Aggarwal told his company's senior management and legal and compliance departments that his sources were not current employees of either Microsoft or Yahoo and he sent a companywide email later in the day saying he had made comments about a Microsoft-Yahoo deal but 'My comments about MSFT/YHOO are based on my own assessment ... and I have not heard anything to this regard either from current MSFT/YHOO employees,' " notes the article. All in all, one gets the feeling that while we might see more cases---the SAC Capital investigation has obviously borne lots of prosecutorial fruit---another massive, earth-shattering wave of arrests isn't likely. For more:
Read more about: insider trading, SAC Capital 5. Consumer databases stoke controversy
We are truly living in the Big Data era. For IT folks, Big Data refers to a specific technology seen as the successor to SQL databases. For ordinary folks, Big Data refers to the use analytics and data in unprecedented ways. Everyone from banks to basketball coaches worship at the altar of analytics these days. But is there a downside? Large volumes of data exist today and can be crunched more efficiently than ever before, but in the end, the interpretation of the data and the actions that flow from that interpretation can be quite vexing. In the financial services industry, a good example comes from the large databases that exist to give banks a means to flag customers who might not work out. The concern is that lower-income people are being denied bank services because of relatively minor issues in the past that are logged in databases. The New York Times offers a look at the largest database, which is owned by ChexSystems, a subsidiary of FIS. "Subscribers — Bank of America, JPMorgan Chase, Citibank and Wells Fargo among them — 'regularly contribute information on mishandled checking and savings accounts,' ChexSystems says on its Web site. 'A consumer may dispute any information in their file and ChexSystems will facilitate the resolution of the dispute on the consumer's behalf,' the company said in a statement. A rival, Early Warning, which is owned by Bank of America, BB&T, Capital One, JPMorgan Chase and Wells Fargo, says roughly 80 percent of the 50 largest American banks pay a fee to subscribe to its deposit-check service." Banks say they use the data responsibly. "JPMorgan says a negative report in ChexSystems will rarely bar someone from obtaining an account. Others, like Bank of America, Citibank and Wells Fargo, say they use the information carefully, distinguishing between people who have made mistakes and those who have a history of fraud. Some banks have introduced second-chance checking accounts for people who do not qualify for traditional bank accounts." We'll no doubt here more about this. For more: Read more about: Big Data, Analytics Also NotedSPOTLIGHT ON... Court decision has private equity tax implications An appellate court has found that private equity funds are not mere passive investors in portfolio companies. The decision could prove to be far-reaching. According to the Christian Science Monitor, "it potentially has much broader tax implications that are critical for private equity funds and their investors. For tax exempt or foreign investors, income from a private equity fund that is engaged in a trade or business is potentially subject to the unrelated business income tax (UBIT) or withholding taxes, respectively. Moreover the decision buttresses the argument that the income of private equity managers should be taxed at higher ordinary income rates, rather than capital gains rates." Article
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Thursday, August 1, 2013
| 08.01.13 | Dell special committee rejects bid conditions
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