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2. Whistleblowers seem to be everywhere these days

These are strangely euphoric days in the bond market.

Verizon is on the verge of history with $49 billion offering to investors around the world. The old record is a mere $17 billion, set by Apple in April. The offering comes amid plenty of lingering chatter about an on-going rotation out of bonds and into stocks and in an environment in which rates are destined to rise. Verizon of course will use the proceeds to help finance its $130 billion deal to buy out Vodafone's stake in their wireless joint venture. More specifically, the proceeds will pay off a $49 billion bridge loan that was secured to help close the deal.

Barclays, Bank of America, JPMorgan, and Morgan Stanley are the main underwriters, with help from Citi, Credit Suisse, Mitsubishi UFJ, Wells Fargo and others.

To be sure, Verizon is paying for the privilege of smashing the issuance record. Yields will be relatively high. The 10-year notes priced at 2.25 percentage points over Treasuries. The 30-year bonds priced at a 2.65 percentage points premium. The other bonds and notes priced at similar premiums as well.

What's going on?

Reuters notes that a host of issuers are rushing to issue corporate grade bonds, saying that "new deals are flooding the market." One expert was quoted: "It feels like people are seeing this as a window that's closing, a last-chance saloon to get the cheap funding through the door."

So what do you think? Is there really only time for one more drink?

For more:
- here's the article

Read more about: Bond Market, Great Rotation
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By Jim Kim

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3. Controversial ex-Goldman employee advising SEC

Favorable new laws such as Dodd-Frank and well as favorable old laws such as the False Claims Act dangle some alluring rewards in front of them. Some have fared extremely well. Recall that Sherry Hunt ended up with $31 million for her whistle blowing efforts at Citigroup, where she continues to work.

A whole legal industry has formed around the idea of whistle blowing, and we should expect more employees to take a flyer. Whether they get rich or not is anyone's guess. The odds of a massive payday, it should be noted, are not necessarily good.

Which brings us to Saeed Ahmad, a former internal auditor at Morgan Stanley, on which he has tried to blow the whistle.

"In claims denied by the bank, Mr Ahmad states the audit reports he authored, which warned of failings in loan underwriting, were "whitewashed" and omitted from the bank's annual reports to US regulators. He came forward as an internal whistleblower after sending an anonymous fax outlining his concerns to executives including then-chief executive John Mack," according to the Financial Times.

Ahmad claims in the lawsuit he was assured that "he would not be retaliated against," but Morgan Stanley began a "deliberately slow" investigation into his claims, which caused him "emotional stress" and eventually led to retaliation. He took administrative leave and eventually long-term disability leave.

The former employee is seeking double back-pay with interest and unspecified damages.

The bank says it thoroughly vetted Ahmad's claims at the time and found them unfounded. The bank went ahead and alerted regulators about the claims. It will be interesting to see where this goes. On the surface, it doesn't sound like explosive stuff. But you never know.

For more:
- here's the article

Read more about: Whistleblowers
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By Jim Kim

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4. Ackman lobs criticism at Herbalife's auditor

Will this be the ultimate revenge of Greg Smith?

Recall that the former Goldman Sachs employee published an excoriating op-ed piece in the New York Times last year that took the gilded bank to task for treating all clients like counterparties, arguing that clients at the bank were seen as mere muppets. The piece caused a firestorm of controversy and helped Smith land a lucrative deal to write a book, which has been published.

But in the end, his explosive charges amounted to much less than an expose. The bank addressed these and related concerns with a high-profile campaign that resulted in among other things a much-discussed report from the newly formed Business Standards Committee. The bank no doubt considered the Greg Smith episode over.

But he has come storming back onto the stage. According to Politico, he has met recently with SEC officials, urging them to "ignore Wall Street's warnings about the so-called Volcker rule and craft a strict crackdown on big bank trading practices…. Smith sought to debunk banks' arguments one by one in his meeting with SEC officials, according to an agenda of the Aug. 27 gathering the agency posted on its website Tuesday. A source familiar with the meeting confirmed the Greg Smith noted on the agenda is the former Goldman employee."

Here are smith's agenda items:

1. Portfolio hedging and how it is used as an account for the bank to make macro bets (in things like volatility, mortgages, credit)

2. Market making (market making should be when a customer approaches a bank to facilitate a trade. Today, the bank decides what trade it wants to do - then it lines up clients to take the other side of the trade. This is no longer market making in my view - it is akin to proprietary trading).

3. The vital importance of including all structured products and derivatives as covered by Volcker Rule. This is where the vast majority of money gets made in the trading business.

4. Disclosure and fiduciary duty

5. Liquidity as a false argument to stifle the Volcker rule

For more:
- here's the article

Read more about: Volcker Rule, Greg Smith
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By Jim Kim

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5. Banks loosen mortgage requirements

William Ackman raised an interesting issue with his recent letter to the SEC that excoriated Herbalife, against which he has bet a billion, for employing PricewaterhouseCoopers for audit and non-audit work. The letter, as noted by DealBook, seeks answers that would "explain how PwC intends to overcome and resolve the appearance of impaired independence with respect to its in-progress and impending audit and review in light of nonaudit services performed by PwC and/or members of the PwC global network for Herbalife."

In May, Herbalife disclosed in an SEC filing that it had employed PwC for payroll and administrative services but added that its audit committee had found that the services would not present any conflicts the firm's audit work.

This is a big issue across the accounting industry. The reality is that the Big Four have all rebuilt their non-audit consulting units to the point that they are once again huge revenue generators. They represent the fastest growing parts of some audit firms.

Recall that in the aftermath of the Enron implosion, Sarbanes Oxley basically banned the process of audit firms engaging with their clients for consulting jobs. Since then, however, the firms have legally rebuilt their consulting arms, to the hackles of numerous critics. Not all of this consulting work is performed for audit clients. But there is enough of an overlap to guarantee controversy.

In the case of Herbalife, Ackman's entreaties may be seen as tainted somewhat by his desire to recover some paper losses on his massive Herbalife short bet. His ulterior motive is obvious. Still, no regulator wants to be seen as doing the bidding of a short seller. When the hedge fund star announces that he's doing the work that regulators ought to be doing or when he predicts enforcement action, the real regulators must cringe.

For more:
- here's the article from DealBook

Read more about: Bill Ackman, Herbalife
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By Jim Kim

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