In things that are not a surprise, a Delaware court this week threw out a lawsuit against Goldman Sachs directors and officers for paying bankers and traders The Wrong Way. Specifically:
The Plaintiffs contend that Goldman’s compensation structure created a divergence of interest between Goldman’s management and its stockholders. The Plaintiffs allege that because Goldman’s directors have consistently based compensation for the firm’s management on a percentage of net revenue, Goldman’s employees had a motivation to grow net revenue at any cost and without regard to risk.
The Plaintiffs allege that under this compensation structure, Goldman’s employees would attempt to maximize short-term profits, thus increasing their bonuses at the expense of stockholders’ interests. The Plaintiffs contend that Goldman’s employees would do this by engaging in highly risky trading practices and by over-leveraging the company’s assets. If these practices turned a profit, Goldman’s employees would receive a windfall; however, losses would fall on the stockholders.
Now, it should be said that this theory is not unprecedented, and not entirely crazy. Nor is it entirely sane: generally maximizing income is good for shareholders, and if you don’t like trading risk you could always, I don’t know, not buy shares of an investment bank. Linking comp to net revenue is broadly better than linking it to lots of other things, like peer-benchmark pay or fanciness of country club memberships.
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As you may have heard, the last several years have not been so hot for RBS. In the last 12 months alone, the bank beat expectation by posting “a bigger-than-estimated first quarter loss” (with a loss of 1.4 billion pounds for the first half), employees have gotten canned, management has already informed staff that 2011 bonuses will be less than 2010′s, you can’t say “ABN Amro” without getting tased, they’re still mopping up the mess from ToiletGate, they just got downgraded by Fitch, and the Queen is riding all their asses. What was left to look forward to? Not much at all but at least there was the annual Christmas party which, since 2008 has amounted to one bag of (fun size) chips per head. It wasn’t a lot but it was something and now? It’s gone.
RBS is canceling Christmas for its investment bankers this year as the government-owned lender tries to reduce costs.
Okay, so, no Christmas party seems a bit harsh but employees can still get into the holiday spirit with non-Christ-based soirées, right? WRONG! There will be no Halloween parties, no pre-Thanksgiving raves, no New Year’s bashes, no Beamer’s Appreciation Day on RBS’s watch. Continue reading »
Occupy Wall Street Stays In Park (WSJ)
“Late last night, we received notice from the owners of Zuccotti Park — Brookfield Properties — that they are postponing their scheduled cleaning of the park, and for the time being withdrawing their request from earlier in the week for police assistance during their cleaning operation,” Deputy Mayor Cas Holloway said in a statement Friday morning. “Brookfield believes they can work out an arrangement with the protesters that will ensure the park remains clean, safe, available for public use and that the situation is respectful of residents and businesses downtown, and we will continue to monitor the situation.” A cheer went up from the crowd of protesters shortly after 6:30 a.m. at word that there would be no cleanup by Brookfield personnel on Friday morning. Protester Nick Gulotta, 23, originally held up a sign referring to New York City Mayor Michael Bloomberg that read: “Bloomberg Don’t Evict Occupy Wall Street.” People cheered and clapped him on the back when he scratched out “don’t” and replaced it with “didn’t.” “It shows when people work together, you really can make a difference and make justice happen,” Gulotta said.
European Rescue Takes Shape (Bloomberg)
European leaders may complete the plan at an Oct. 23 summit to present to a gathering of G-20 chiefs Nov. 3-4. The aim is to craft what the French and German governments call a “durable” fix to the turmoil that has propelled Greece to the edge of default and is rattling global markets. Europe’s Stoxx 600 headed for a third week of gains amid optimism policy makers will contain woes.
Wilbur Ross: Markets Are Over Their Fears For Europe (CNBC)
FYI.
Greece’s Bondholders Brace for Bigger Losses to Solve Crisis: Euro Credit (Bloomberg)
“Everyone is coming to the conclusion that a much deeper restructuring is needed to make Greece in any way sustainable,” said Emiel van den Heiligenberg, chief investment officer of global balanced solutions at BNP Investment Partners in London, which oversees about $742 billion. “If the stock of debt doesn’t diminish, then the problems are going to be bigger and bigger and Greece will require rescue package after rescue package.”
Rajaratnam May Join Madoff, Blind Sheikh (Bloomberg)
“It’s the crown jewel of the federal prison system,” said Alan Ellis, a former president of the National Association of Criminal Defense lawyers and an expert on sentencing and prisons said of Butner. “It’s a very well-run facility.” Continue reading »
Howard Buffett said his father, billionaire Warren Buffett, plans to work until death leading Berkshire Hathaway Inc. and isn’t considering retirement. “That word is not in his vocabulary,” Howard Buffett said in an interview yesterday in Des Moines, Iowa. “He says when he goes to the grave he will communicate with us via Ouija board.” [Bloomberg]
Today’s sad news for Raj Rajaratnam and his constellation of illnesses is a solemn reminder to all of us that, however nice it is to generate outsize returns, nobody really wants to go to jail for it. Obviously the best way to do that is not to do anything illegal, but life being what it is, it’s important to be prepared just in case you one day should find yourself in possession of a hard disk containing incriminating information. For one thing, you probably shouldn’t get caught on a wiretap discussing how you destroyed it. More importantly, if you must try to profit from your illegally obtained hard disk, DON’T shop it to Teza Technologies, the dodgy Citadel spin-off that is keeping a candle burning in the window for when Sergei Aleynikov gets out of jail in 8 years.
Yihao “Ben” Pu seems to have been only about a C- student of past scandals. For one thing, he couldn’t resist the strange allure of Teza. He did manage to avoid wiretaps when he allegedly stole a bunch of code from Citadel, but was tripped up because the buddy whom he charged with destroying the evidence (1) half-assed it, dumping it intact in a single, albeit watery, dumping spot, and (2) went to the Citadel’s private investigators the next day and showed them where their diver (!) could find the hard drives:
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Perhaps you’re a tourist who traveled hundreds of miles to visit the famed Wall Street bull and get your photo taken next to his sack. Perhaps you’re a hedge fund manager who’s down like 47 percent through September, and was told your luck could change by rubbing those balls. Perhaps you work downtown and simply enjoy teabagging the biggest pair in the area every night on the way home. If you are any or all of those things, brace yourself for a crushing wave of disappointment and loss because you’re not getting anywhere near those guys. Continue reading »
Yesterday afternoon, after previously stating that the Wall Street protestors staying Zuccotti Park could remain there as long as they pleased, Mayor Bloomberg announced that the occupiers would 1) have to temporarily relocate while the area is cleaned and 2) leave their tents, tarps, and other accoutrement home when they come back. Some have told the cleaning crew they can go fuck themselves and that they’re not going anywhere, ever, while others are taking a page from the parent/child-threat-of-punishment-spurs-kids-to-furious-cleaing-of-room-and-promise-to-be-good book. Continue reading »
In sentencing Raj Rajaratnam to 11 years in prison for insider-trading charges, U.S. District Judge Richard Holwell said Rajaratnam’s ill health justified some leniency in sentencing…Former BOP official, Phillip Wise, says Rajaratnam in 2007 suffered a “severe cryptogenic stroke,” or a stroke with no obvious cause. According to the document released by the court, Rajaratnam also has been diagnosed with high blood pressure, high cholesterol, “marked obstructive sleep apnea” and Type II diabetes. The doctor said Rajaratnam’s diabetes “remains under poor control,” resulting in damage to his nerves, eyes and kidneys, and chronic anemia. [Deal Journal, earlier]
On today’s enjoyable-as-always earnings call, Jamie Dimon was not ashamed to confess that the Volcker Rule has not yet made its way to his pile of bedside reading material. Understandable! Also, he thinks it’s anti-American. Unsurprising!
Dimon may not be sweating the Volcker details because he thinks that everyone will eventually wake up and figure out the whole anti-American thing and the Volcker Rule will never actually be implemented as proposed. And he’ll do what he can to make that happen. In response to a question from Jason Goldberg at BarCap asking him to quantify the effects of the Volcker Rule on JPMorgan, he said that it’s early going on the rule and “let’s let it work through the process.” That process could include some Dimon-directed lobbying, as he told the analysts on the call that they’d better get their shit together to send in anti-Volcker-Rule comments by the January deadline: “I hope you understand how important this is not just for your own business but for the United States.”
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