Editor's Corner: JPMorgan mess: Blame the Europeans Also Noted: Spotlight On... A dazzling year for private equity News From the Fierce Network:
Today's Top News1. Is Wall Street ready for another massive Dutch auction?
Few companies wield the type of heft to essentially demand that underwriters stage a massive Dutch auction. The only one to date to have its way in this arena was Google, whose IPO was staged by Morgan Stanley in perhaps the most celebrated Dutch auction ever. In the end, most people would call that IPO an amazing success. Facebook of course went with a more conventional IPO, and its results were disastrous. The stock plunged immediately. Nasdaq suffered system issues that stuck it with a $10 million fine and lots of headaches. Only recently did Facebook even come close to its offer price. Now that Twitter appears amenable to an IPO, the issue is hot again. "The process used by Google founders Larry Page and Sergey Brin successfully mitigated some of the hype that Facebook couldn't. The auction style asks investors to declare how much they're willing to pay and for how many shares. The price steadily declines until it reaches a level where all the shares on offer would sell — at which point all interested buyers commit," notes Breakingviews. "Google left itself latitude to cut the price further, which it eventually did. The decision elicited much criticism but also eradicated the feared 'winner's curse' that instead would years later befall Facebook investors. The social network's 2012 debut was marred by technological failures and in only a few months the shares had fallen by half. By contrast, Google stock popped by about 18 percent on its first day of trading, achieving the generally desired result of raising the targeted funds for the company and any selling owners while giving new shareholders a warm welcome." In the end, Twitter executives will have to make a touch decision. You can bet that the top sell-side banks are working hard to convince them that a conventional offering is the way to go. My guess is that they will go in that direction. But even so, Twitter would be wise to play hardball on fees. They at least have the heft to demand rock-bottom costs. The banks will still line up. For more: Read more about: IPO, Dutch Auction 2. On Wall Street, sports teams still trophies
Josh Harris, a founder of private equity firm Apollo, and David Blitzer, a senior managing director at Blackstone, have become the latest to acquire that highly prized personal trophy: a sports team. They are leading the group that just bought the New Jersey Devils hockey team for $320 million. Harris now joins an elite group: people who own multiple sports franchises, as noted by the Financial Times. The short list includes Paul Allen, who owns the Seattle Seahawks and the Portland Trailblazers, and Stan Kroenke, who owns the Saint Louis Rams and the Denver Nuggets, not to mention a controlling stake in Arsenal. As for Blitzer, he joins the list of Wall Street financiers who dabble in sports team ownership. That list includes the likes of David Einhorn, the hedge fund manager who took a $200 million stake in the New York Mets, Jeff Vinik, another hedge fund guy, who bought the Tampa Bay Lightning in 2010, Tom Hicks, the private equity honcho, who has owned several teams at various points, including the Dallas Stars. Not all Wall Street forays into sports ownership have ended successfully. Recall that Stanley Druckenmiller, another hedge fund executive who made his name working with George Soros, was rebuffed in his attempts to buy the Pittsburgh Steelers. In the end, vanity project can be a lot of fun. They can also showcase an executive's managerial chops---if they can work their magic. There are other vanity projects that showcase their talents even more. Consider Jeff Bezos's purchase of the Washington Post for $250 million. If he can somehow turnaround that great paper, allowing it to thrive in the new media era, he'll look good indeed. For more: Read more about: Sports 3. Sordid tale of Bank of America exec and murder plot
The banking industry crime blotter fills up quickly with white-collar items, insider trading and the like. So when violent crime crops up in the industry involving high-level executives, people tend to take note. The case of Chris Latham is sordid indeed. He was a high-ranking executive in Bank of America's U.S. Trust based out of Charleston. He served in unit that sought and served high-net-worth clients in Florida, Georgia and South Carolina. He was also the Charleston market president for Bank of America. He is now in jail in Charleston, arrested, indicted and denied bail for his role in an alleged murder-for-hire plot that targeted his wife. The big break in the case came in the wake of a drug bust, when one of the arrested fessed up about the plot. A gaggle of conspirators were rounded up, and the plot soon foiled. Last week, the "50-year-old suspect, who until recently commanded an annual salary of nearly $700,000, shuffled into the courtroom shackled, clad in a pin-striped jail jumpsuit and sporting grey stubble on his cheeks. He avoided eye contact with his estranged wife but frowned and shook his head when Assistant U.S. Attorney Nathan Williams said he was a key player in a plot to kill her." Latham and his wife are said to be estranged and in a contentious divorce. Media reports say that he had a "live-in" girlfriend, who was also arrested in the plot. His wife says she had suspected a plot for some time and had been in hiding fort two months. Latham "also listened attentively as his wife and their eldest daughter, 19-year-old Emily, pleaded with the judge to keep him locked up, saying they remained frightened for their safety." His daughter was quoted: "I really do wish I didn't have to stand here and ask you to keep my father in jail, but I am terrified. Please don't give him the opportunity to do any more harm to us." For more: Read more about: Bank of America 4. SAC Capital limited partners want funds quick
The most loyal limited partners of SAC Capital stuck with the firm for as long as they could. But at some point, the heavy curtain of enforcement actions descended to the point that defending their affiliation with the firm was no longer tenable. They had no choice but to ask for their money back. As of now, the company expects to hand back all external funds. The issue is how fast these funds will be delivered. Bloomberg reports that some limited partners have asked that the company honor redemption requests on an expedited basis, fearing that the government will freeze assets, even though the government has made clear that it intends for the company to remain in operation. SAC Capital has informed them that final payments will be made by the end of the year. In the minds of some limited partners, the best course of action is to get their funds out now and be done with the risk. Unfortunately, SAC Capital doesn't see it that way. It earns fees based on those assets, and at a time when revenue is drying up, it has every reason to want to hold onto those funds for as long as possible. It has refused requests for expedited redemptions. In any case, a significant milestone looms. Steven Cohen's firm will be transformed de facto into a family office, as all the assets will belong to Cohen and possibly some employees. It's unclear how the company will handle requests to redeem employee money. In a sense, has the death penalty already been meted out? For more: Read more about: SAC Capital, Limited Partners 5. Bank of America's exposure to FHFA claims debated
UBS's deal with the Federal Housing Finance Authority (FHFA) to settle toxic asset-related claims for $850 led to a collective gulp at big banks facing similar exposure. But in the end, it is unclear just how strong a precedent the settlement will be. Fitch has issued a report that suggests that more banks will fight the FHFA in court, as the UBS settlement suggests unduly high settlement costs. If they were to do that, the banks would effectively drag this conflict out for many years. That might not be a bad financial strategy, though there may be some additional litigation-related-cost reserving that has to be done this year. The reality is that the longer banks wait, the total costs of a settlement could actually decline. As noted by Morgan Stanley analysts, "Looks like UBS settled for total estimated lifetime losses on the underlying securities. As a result, some investors have been concerned about BAC's potential exposure given Moody's estimated lifetime losses on the securities are $10b." The analysts think that way too high, and peg the exposure at $2 billion in their base case. In the worst case, the costs would hit about $3.5 billion. To be sure, just because UBS "seems to have paid full lifetime loss estimates, doesn't mean others will pay the same," the analysts note. At the same time, the value of housing-related toxic assets has surged, making the full losses even less. Those assets could well soar in value over the next few years as the housing market and economy continue to recover. There's a lot of game theory going on at this point. Read more about: MBS, FHFA Also NotedSPOTLIGHT ON... A dazzling year for private equity The Lex column at the Financial Times notes that realized carried interest at Blackstone, KKR and Apollo is up a collective 400 per cent so far this year. If you were to count dividends and share appreciation, the three have returned more than 40 percent to their shareholders. Nice. All this at a time when deal-making remains weak. On the flip side, exits have been strong, giving funds some choice. The column notes several advantages of outright sales. But most are flocking to the IPO market. Article Company News:
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Monday, August 19, 2013
| 08.19.13 | Bank of America's exposure to FHFA claims debated
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