Archive for April 2009

Charlie Gasparino reports that DE Shaw “has the inside track” to buy Madoff Securities, which will be bid for on Monday, with three other firms in the running. The biz was once thought to be worth around a billion, though, obviously, it’ll go for considerably less than that (one bid came in at $15 million).

Picture 1147.pngWe don’t have to tell you people we love ourselves some Vikram Pandit, but is this perhaps laying it on a bit thick? In response to “sources” telling the Post that regulators may take Count Vikula out of the building in order to “signal Washington is taking as hard a line with the banks as it did with General Motors,” Citi CFO Ned Kelly offered: “Replacing [Pandit] would be dramatically de-stabilizing both for Citi and the system.” As for the matter of Tim Geithner paying a visit to the Big C’s offices a week and a half ago? Totally not a big deal, and nothing having to do with Pandito’s job being at risk. The drop by, according to people familiar with the meeting, was “simply to conduct a checkup on the bank.” You know, making sure the building was up to code, that the toilets were all flushing properly, etc. Standard. Paulson used to do the same thing.

  • 24 Apr 2009 at 8:58 AM

Madoff CFO To Sell Madoffs Down River?

Unlike Bernie-boy, who won’t be bribed to talk, longtime Madoff Securities employee and CFO since 1996 Frank DiPascali is apparently willing to “work with” federal officials, in order to get a shorter stay bunking with Bubba. Supposedly he doesn’t have any dirt on Lady Ruth McMadoff or sons Mark and Andy but perhaps over time he’ll be able to come up with something?

Fortune has learned that Frank DiPascali is trying to negotiate a plea deal with federal prosecutors in which, in exchange for a reduced sentence, he would divulge his encyclopedic knowledge of Madoff’s scheme. And unlike his boss, DiPascali is willing to name names.
According to a person familiar with the matter, DiPascali has no evidence that other Madoff family members were participants in the fraud. However, he is prepared to testify that he manipulated phony returns on behalf of some key Madoff investors, including Frank Avellino, who used to run a so-called feeder fund, Jeffry Picower, whose foundation had to close as a result of Madoff-related losses, and others. If, for example, one of these special customers had large gains on other investments, he would tell DiPascali, who would fabricate a loss to reduce the tax bill. If true, that would mean these investors knew their returns were fishy. (Lawyers for Avellino and Picower declined to comment. Marc Mukasey, DiPascali’s attorney, says, “We expect and encourage a thorough investigation.”)

Awkward! (Rickles had said that it was no big deal if the banks don’t lend to one another. Steve begged to differ.)

  • 24 Apr 2009 at 8:05 AM

Opening Bell: 04.24.09

Morgan Stanley Eyes Changing PDT Desk (WSJ)
They’re examining rolling the desk out into a hedge fund or opening it to outside investors; though there’s every possibility that they’ll leave it alone. All that’s known is “Discussions about restructuring the group have been under way for more than a year, but have accelerated during the past few months.” At the heart of the issue are the H-1B rules implemented for those institutions holding TARP funds; under the new guidelines you have to prove you made every reasonable effort to hire an American before taking on someone requiring a Visa. The desk is largely quant, and the quants are largely foreign.
Investors Seek To Block Mortgage Securities Bill (FT)
“Bond investors are lobbying hard to change federal policies aimed at reducing foreclosures in the US, saying the measures discriminate against holders of top-rated securities backed by mortgages.
The investors are set to meet senators next week. The next step could be legal action against the US government if the law is passed, on the basis that it could violate the Fifth Amendment, which prohibits the taking of private property for public use without compensation.”
US To Tell Banks How They Did, Scores Posted By Gym At Noon (NYT)
The Gov will be telling the banks what their results looked like at some point today, and this afternoon they should release the details of how the stress tests worked/what metrics were used; the public won’t get a good look at “scores” until May 4th. In the week + weekend you have to wonder how many leaks there’s going to be, and whether Code Pink can possibly survive the nine days of not knowing who they’re going to annoy next.
Pandit Could Be Forced From Citi After Tests (Reuters)
Reuters puts forth a not-so-bad argument that when the tests for Citi come back, the US Gov may have very little (if any) choice but to replace him a-la GM. We have to be fair in socialism, you know.
M.B.A’s Staying Put (WSJ)
It used to be, you could do pretty much whatever you wanted post college (numbers related), go get your MBA, and someone would pick you up. Not so much anymore, as recent MBA Grad’s are finding out – dreams of going into IB are being squashed left and right. For instance, this guy:
“But as he prepares to graduate from the University of Notre Dame in Indiana next month, Mr. Fusco, 27 years old, hasn’t had any luck landing a position in finance. The only solution he has is to go back to his accounting roots. “It’s a tough pill to swallow, but I’ve come to the conclusion that I can’t sit and wait and cross my fingers,” he says.
Madoff Net Losers Safe From Clawback (WSJ)
“Investors with Bernard Madoff who had a net loss due to his fraud won’t be asked to return funds they withdrew from his firm in recent years, said a lawyer who is charged with recovering the firm’s assets.”

  • 23 Apr 2009 at 5:55 PM

Write-Offs: 04.23.09

$$$ Records Say U.S. Pressed BofA to Cut Dividend. Awkward! [Dealbook]
$$$ Power To The Hedge Funds! [Newsweek]
$$$ Nelson Peltz‘s House of Horrors [Cityfile]
$$$ Kellerman: the Scapegoat of a Self-Fulfilling Prophecy? [Housing Wire]
$$$ A private jet “sensible enough to impress any Congressional Committee” [copyranter]
$$$ Diet Coke Fail: “As at Harvard, Summers functions on exceedingly little
. (A former student told me Summers once praised his dedication after noticing he’d run a computation at 4 a.m.; the student didn’t have the heart to tell him he’d queued it up at six the night before.) To power through the day, Summers relies on a punishing Diet Coke regimen.” [TNR, previously]

  • 23 Apr 2009 at 5:28 PM

Okay, Then!

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The Federal Reserve didn’t advise Bank of America or CEO Ken Lewis “on any questions of disclosure,” a spokeswoman for Fed Chairman Ben Bernanke said.
Lewis has told New York’s attorney general that then-Treasury Secretary Henry Paulson and Bernanke pressured him in December not to discuss issues with its pending purchase of Merrill Lynch.
“It has long been the Federal Reserve’s view that questions of this nature are best addressed by individual institutions and their legal counsel, as they are in a position to understand clearly their obligations and responsibilities,” the spokeswoman, Michelle A. Smith, said.–WSJ

Of course, this doesn’t answer the question of whether Bernanke told Paulson to “advise” (e.g. threaten) Lewis,* or if he and Paulson came to that decision together, only that Bernanke himself didn’t directly go to Lewis and say “do it and die, pal!”
*Which is what Cuomo’s letter claims.
Update: Paulson says he was not acting at the behest of Bernanke when he threatened Lewis, as was previously stated by Cuomo.

Then-U.S. Secretary Henry Paulson was delivering his own message, and not the Federal Reserve’s, when he told Bank of America CEO Kenneth Lewis that the bank was in a binding merger contract with Merrill Lynch and Co., a spokesman for Paulson said on Thursday. “Secretary Paulson’s words were his own,” the spokesman said. “(Fed) Chairman (Ben) Bernanke did not instruct him to indicate any specific action the Fed might take,” a spokesman for Paulson said in a statement. New York Attorney General Andrew Cuomo said on Thursday that Lewis was pressured by Paulson and Bernanke to go through with Bank of America’s planned merger with Merrill Lynch.

Is Paulson backtracking or did Cuomo have it wrong all along?

  • 23 Apr 2009 at 4:51 PM

Fast Times At Harvard Management Company

Of course, it is pretty easy after the fact to point fingers and cast aspersions. But when what would appear to be a pattern of laxity, misfeasance and perhaps even malfeasance begins to emerge out of the mist, well, things become harder to dismiss.
It seems part of the culture of the crisis that the mighty would be made to bow low. Harvard is not only no exception, it is a major recurring theme, on both sides of the blame game. The light shown on the Harvard Management Company by The Harvard Crimson is, therefore, rather a critical bit of theater.
The Crimson winds a twisted path around taxation, endowment management, off-shore entities, off-setting management fees and one Lawrence H. Summers. Take out the names and the narrative sounds quite familiar, actually:

“The general disregard for the rules, procedures and compliance–it was ridiculous,” Rose said in an interview with The Crimson. “You had to be quiet and do it and put blinders on. If you were doing work in other aspects of the company, you could just do your job. But in [my] part of the job, you couldn’t ignore things.”
Harvard Management Company–which oversees Harvard’s multi-billion dollar endowment–was plagued by a culture of ethical laxity, Rose said. Special relationships with funds run by former employees and the use of offshore investment companies–both used to boost HMC’s once-legendary returns–may not be illegal, but are considered to be ethically questionable by some, particularly in light of Harvard’s non-profit status.

HMC Tax Concerns Aided Federal Inquiries [The Harvard Crimson]