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Today's Top News1. New income-oriented entities on the rise
So what explains the popularity of master limited partnerships? They were designed to be exceedingly friendly to shareholders, a way to marry the benefits of a publically traded stock and a traditional partnership. The form, as noted by The Economist, reflects a desire by shareholders to own vehicles that appreciate in value mainly by virtue of the fact that they pass virtually all earnings to shareholders. BDCs and REITs are also popular these days. "Many of the standard rules that corporations which retain their earnings have to follow when dealing with shareholders do not apply to such firms. And, crucially, so long as they distribute their earnings such set-ups can largely avoid corporate tax." The best examples of MLPs of course are the big publically traded private equity firms, the likes of Apollo, Blackstone, Carlyle and KKR. The biggest issue may be the desire by managers to avoid the perceived thicket of rules and regulations that apply to conventional C corporations and onerous taxation. My sense is that as these sorts of entities continue to grow, we'll see a reaction in Congress. That's understandable. "But if the shift prompts genuine concerns, it is also specifically and broadly virtuous—because it enables capital to be channelled to where it can have a return, rather than sitting in the roach motel of retained earnings on which C corporations are based. That may, in the end, be the most compelling component of whatever defines the American system and enables it to be productive and innovative. For all the inequities, when vast wealth has been made through these structures, it has been in cases where the underlying assets produced more cash, not less." It will not be long before all this gets even more politicized. For more: Read more about: Private Equity, BDCs
The market right now is abuzz with all things Twitter. But it's not too early to look ahead to the next big new-era technology deal, one that will continue in the tradition of Facebook and Twitter. Will Square emerge as the next big IPO? Some would argue that's a good bet. Jack Dorsey, quite the entrepreneur, founded both companies. He remains chairman of Twitter, and he serves as CEO of Square, which has emerged as a new-era payments powerhouse. Square's new headquarters is right next to the office of Twitter in San Francisco. According to media report, he has begun informal talks with investment bankers. In the wake of the Twitter, deal, one would think that Goldman Sachs has the inside track as a potential lead underwriter. NYSE may have the same track as the listing venue. In any case, the company seems to be pondering a deal at an ideal time. "Square is growing nearly as fast as its soon-to-be-public sibling, with sales approaching $1 billion in 2014, according to an internal projection people familiar with the matter shared with the Wall Street Journal. That revenue represents what Square takes from the roughly $30 billion in total transactions it expects to process next year, before it passes much of that amount on to partnering credit card companies," notes Digits. "Sales will be about $550 million this year on total payment volume of around $20 billion, these people said. Roughly 70 to 80 percent of Square's revenue gets kicked back to credit card companies, putting the company's net revenue closer to $110 million to $165 million." The company is also in the thick of the Digital Wallet race, competing with a host of technology, retail, financial and telecom companies. That said, it is way too early to pick winners and losers, though Square has built a strong position and solid mind-share. The company just might turn profitable around 2015. For more: Read more about: IPOs 3. Backlash against Goldman Sachs' anti-work rules
Goldman Sachs shocked the world not too long ago when it decided to actively discourage junior investment banking analysts from working weekends. The move was in keeping with a larger effort at the bank to improve the lot of its youngest full-time employees in hopes of retaining the most talented. Recall that the bank did away with the traditional two-year track for junior associates earlier. But there's a bit of a problem here. The fact is that a lot of young Goldman Sachs employees are wired to work hard. Really hard. Working all night is a badge of sorts, basically an athletic achievement. So when you tell this group not to work so hard, it's a tough pill to swallow. "Nobody was more surprised by the changes than Goldman's young bankers themselves. Now, with rules that reserve their Saturdays for 'critical client activity,' the firm's underlings are afraid they're being marked for punishment if they work too hard," notes New York Magazine. "According to one Goldman analyst, the firm's junior bankers have been told that unless they receive a special waiver, they aren't supposed to set foot inside Goldman's offices for a period of 36 hours every weekend. (The period lasts from 9 p.m. Friday until 9 a.m. Sunday). Moreover, the analyst said, junior bankers have been told that the firm's IT department may check remote logins to make sure they're not working from home during the off-limits time period, and that supervisors who are found to have assigned them excessive weekend work without a waiver will be disciplined." Rules are rules. So will Goldman Sachs face a backlash, as the most driven young recruits move to other firms that will allow them to work to their hearts' content? For more: Read more about: workplace, jobs 4. Twitter deals produces higher than expected fees
It was a great day for anyone aboard the Twitter gray train. The deal seemed somehow charmed from the start, and the stock did not disappoint once it started trading. It rocketed out of the gate, bringing back memories of the dot-com days. The deal priced at $26 a share and opened above $45 a share. The bankers are certainly smiling. Given the overallotment, some ended up making more than expected. Here's how the fees will be divvied up: As noted previously, Twitter is paying its underwriters a generous 3.25 percent of the proceeds of the sale of securities. So if they end up selling all 80.5 million shares, they will be in line to receive $68 million, notes MoneyBeat. Goldman Sachs, as the top lead underwriter led by Anthony Noto, will take home the lion's share, 38.5 percent, which means it stands to take home $26.2 million. Morgan Stanley, led by Michael Grimes, "was awarded 20.5% of the shares, more than the 18% expected, putting it in place for a fee of about $13.9 million. The bonus is worth about $1.7 million." JPMorgan Chase ended up with 16 percent of total shares instead of the expected 15 percent, "putting it in a place to get $10.9 million, a $680,000 bonus." Bank of America and Deutsche Bank "both earned 8.5% of shares, up from 8%. That would earn each $5.8 million. Allen & Co. was awarded 7.5% of shares, up from 7%, work worth up to $5.1 million. Code Advisors got 0.5% of shares or $340,112.50." All eyes now shift to the next big tech deal. One might guess that Goldman Sachs has the inside track once again, as Square was founded by Jack Dorsey, the same person who founded Twitter. He's likely pleased with how the IPO turned out. For more: Read more about: IPO, Twitter 5. Bonus blues about to intensify?
It may be a blue holiday season on Wall Street. Bonuses are going to be smaller for many. The issue is how much smaller. Optimism seems to be waning by the day. Consider FICC-oriented sales and trading employees. According to one widely quoted compensation expert, bonuses on fixed-income, currency, and commodity trading desks will be down 10 percent to 15 percent. Just two months ago, the same expert had predicted bonus increases of 5 percent to 15 percent. The world has changed, as evidenced by the third-quarter earnings reports. For some, this "could be the third or fourth year in a row in which some Wall Street bond traders get $0 bonus checks," the same expert says, as noted by Reuters. Once again, the specter of holiday-time layoffs is haunting a lot of trading desks. That said, most banks have refrained from tipping their hands on job cuts, and at least one has suggested it is comfortable with its headcount in this area. The situation isn't much better in other departments. In general, the premier banks seem to be willing to prioritize shareholders over employees when it comes to compensation expenses. The absolute amounts that the top banks are seeing aside have declined so far this year. "Thousands of Wall Street's best and brightest, used to high-six-figure to multimillion-dollar pay awards each year, will be canceling country-club memberships and putting on hold plans for beachfront property in the Hamptons," says the New York Post. Some are wondering if working on Wall Street is still worth it. For more: Read more about: bank compensation, Bank Bonuses Also Noted
SPOTLIGHT ON... A Twitter downgrade already The Twitter IPO was a great way for an analyst to make a name for himself or herself. Plenty stormed out of the gate with bullish commentary. One distinguished himself with a more muted call that set a target of $30 a share. The stock opened in the mid-$40s, way past his target, leading him to suggest taking some funds off the table. Article Company News:
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Friday, November 8, 2013
| 11.08.13 | Backlash against Goldman Sachs' anti-work rules
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