Earlier this week, Phil Falcone notified investors in his Credit Distressed BlueLine Fund, in advance of a previously announced April 2012 wind-up. Today, he sent out a letter notifying investors in Harbinger Capital Fund I, Harbinger Capital Partners Offshore Fund I, Harbinger Capital Partners Fund II, and Harbinger Capital Partner Offshore Fund II that they should “anticipate” having redemptions frozen as well, on account of the Well Notice received by the SEC. Happy Holidays. [WSJ]
Archive for December 2011
Sheila Bair, former head of the FDIC and cartoon-klutz-villain of Too Big to Fail, comes in for the occasional gentle ribbing on Wall Street, and her column in Fortune today is well set up for another round of gentle ribbing, which I will get to in just a minute, so you might think that that headline was intended to make fun of her, but actually, no, she makes a solid point:
MF Global took proprietary positions in European sovereign debt through what Wall Street calls “repo to maturity” transactions. It technically sold the European bonds to other firms, agreeing to repurchase them at a premium when they matured in 2012. MF hoped to make money by pocketing the difference in the rate it paid its trading partners and the higher rate paid on the bonds themselves. … Under the 300-page Rube Goldberg contraption of a regulation recently proposed by federal agencies to implement the Volcker Rule, “repo” transactions like MF Global’s are not generally treated as verboten proprietary trades. Thus, even if MF Global had been a bank, it arguably could have used this exception to gamble away, putting the FDIC at risk.
Now, if I had to guess, I’d say the better side of the argument is that the MF sovereign trades would in fact be streng verboten under the Volcker Rule. (Except, of course, as she points out, that MF is not an FDIC insured bank and so is not covered by the Volcker Rule.) I read the rule’s coverage of “any long, short, synthetic or other position” in a security to include the Corzine repo-to-maturity, which is at least a “synthetic position” in the underlying debt, and since the position seems to have been more “prop” than “flow” it would probably be prohibited. But I had to search around in the proposal for some time to come to that conclusion – it’s not apparent even from the mammoth Davis Polk flowchart that has replaced the actual rule text for my day-to-day Volcker Rule pondering efforts. And the meaning of “synthetic” may not be the same to everyone. So I’ll spot her the claim that a bank could “arguably” use a repo-to-maturity structure to prop trade to its little heart’s content. [Update: A lawyer I trust points to the Volcker Rule's "repo exception" for trades arising out of repo agreements; he thinks that Bair is right that the MF Global trades would fall under the exception and not be covered by the rule. I suspect that the intent of the "repo exception" is to cover the people providing the repo funding (here MF's counterparties), not the people with economic exposure to the position, so I'll tentatively stick to my original claim, but in any case the murk is even murkier than I'd thought. By the way, if I'm wrong, then things are even worse than Sheila Bair thinks. Basically any prop trade is fine as long as you fund it via repo.] Continue reading »
Earlier this week, an important point of correction was made about a “dance of celebration.” Specifically, the one recounted in an article entitled “What Really Happened to Strauss-Kahn,” which described “what looked like a dance of celebration by two employees of the Hotel Sofitel in New York City at approximately 1:35 PM on the day that Dominique Strauss-Kahn was arrested in connection with an alleged sexual assault.” According to the article, the victory dance in question lasted “three minutes,” which struck some people as excessively, unbelievably long. According to the security tapes, however, it was more like thirteen seconds. Which brings us to another point of contention. Though some believe the thirteen-second “dance of celebration,” which occurred shortly after a 911 call was place to the police re: the alleged rape of a hotel maid, is evidence that Dominique Strauss-Kahn was set up, there apparently being no other reason two men could dance in such a joyful manner. Or is there?
…a source familiar with the video said yesterday that the dancing Sofitel men appear to be “celebrating over some sporting event. It looks as if they’re saying ‘Yankees’ ” — who were in the middle of a series against the Red Sox that weekend…Lanny Davis, a lawyer for Accor Group, which owns the Sofitel, said in a statement: “The notion that the video . . . establishes evidence of Accor’s involvement in a conspiracy is nonsense…A bellman at the hotel, after being shown the video by a reporter, was skeptical about the idea that it proved there was a conspiracy to cripple Strauss-Kahn. “There’s no sound. They could have been dancing about anything. This doesn’t prove a thing. Maybe they were going to Hooters after work and were excited about that,” he said.
Obviously as objective parties and people who solve puzzles by analyzing facts and ferreting out information, etc, you should all take a look and weigh in. Let’s roll the tapes. Continue reading »
$$$ Corzine: I Didn’t ‘Intend’ to Break Rules [Bloomberg]
$$$ Hedge Funds Braced for Worst Year Since 2008 [FT]
$$$ Mario Draghi will not bail out European governments, is “surprised” you thought he would [NYT]
$$$ John Mack complained about “how fat” his hands are in an oil painting of himself unveiled yesterday afternoon during his Morgan Stanley retirement party, while his replacement James Gorman bragged that he’s both “a little longer and a little skinnier” than the departing chairman of the big investment bank. [FBN]
$$$ Lloyds CEO António Horta-Osório, who took a leave of absence because he was tired, has to reapply for his job [FT]
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Someone hit F9 on the random number generator that decides how much capital European banks need and now it’s $115 billion, which I guess is more than it used to be, so that’s a thing. As you might imagine this is a problem because who in their right mind would buy equity of a European bank? Or, in diplomatic terms:
One analyst questioned [Commerzbank’s] ability to make up the deficit through shrinkage or other means. “It certainly seems hard for them to come back with another equity raise from the market, so if all else fails it looks like the government is the answer.”
But the bank insisted this was not part of its plan. Eric Strutz, finance director, said: “We stand by our intention not to make use of additional public funds.”
So that’s nice. But if you’d rather look at it in world-historical-demographic terms, it turns out you can. Because this little consulting outfit called McKinsey occasionally sends out musings to its friends and supporters, and today they’ve got a mammoth, slightly odd financial markets study, which the Journal has written about, concluding that nobody will buy stock anymore, especially from Commerzbank (though I may have just made that part up).
Since When Is Saying “If You Don’t Like The Euro Trade You Repo This [Grabs Crotch] To Maturity” Considered A Threat?
By Bess LevinAsked if he’d threatened to leave MF Global if the board did not trust his judgment on the European trade, Mr. Corzine said no. But he conceded he had “one specific conversation with a lead director which could have been interpreted that way.” [WSJ]
Don’t Ask Jon Corzine To Remember Petty Details Like Where He Put All His Customers’ Money
By Matt Levine
Despite popular perception, the financial industry isn’t actually made up entirely of “investment bankers” but rather of a whole range of people from those who work for months on years to close deals with $100mm fees that are pure profit, all the way down to people who do overnight lending of treasuries to make a spread that, annualized, is in the low-single-digit basis points. I sat somewhere in the middle and, while the M&A hitters usually had better suits, I had a suspicion that the guys shaving basis points for funding had to be more important.
Jon Corzine maybe disagreed. His prepared testimony for his filleting this afternoon has five pages talking about his ill-fated European sovereign bond bets, which conclude with a little note that all of those supposedly ill-fated bonds are doing fine, not that you cared. Then there’s some other stuff. Then there’s a page and a half about what people bought tickets for: the $1.2bn of missing customer money, which he calls by its colloquial nickname, “unreconciled accounts.” Here’s what he has to say about that:
1. “I simply do not know where the money is,” and
2. Can you blame me?: Continue reading »
Daniela Rausnitz, who had a torrid affair with married investment banker David Gray, 28, sent him steamy messages just days before she sicced London cops on him, according to testimony in the case. “There were countless texts and e-mails in early August of a very affectionate nature,” said Gray’s London attorney, Dan O’Callaghan yesterday. O’Callaghan and Gray’s mother said the number-crunching nerd simply lost his mind after his colleague at JPMorgan Chase dumped him for another guy, deluging her with hundreds of e-mails. [NYP, earlier]
For about a year now, hedge fund manager Phil Falcone’s relationship with his investors has been a bit rocky. While many expressed displeasure at his decision to tie up a good chunk of money in a wireless bet that may or may not pan out, what really set a lot of people off was Falcone’s decision, last November, to loan himself $113 million from a fund in which redemptions has been suspended, in order to pay personal taxes he hadn’t set aside enough cash to cover. Since then, Phil has not only paid the $113 million back, but 1) proved he learned his lesson re: borrowing money from humorless clients (in July he failed to pay $201,101 in property taxes, which he could have loaned himself from you know who but didn’t) and 2) offered investors interested in redeeming the opportunity to receive illiquid shares of his new company, or to sell their stakes on Craigslist. All of which is to say, he’s grown a lot in the last year. BlueLine fund investors, who were told in Harbinger’s most recent letter that their redemptions have been suspended, should keep that in mind. Continue reading »
As you may have heard, yesterday afternoon, Morgan Stanley held a little good-bye party for John Mack, who will step down as chairman at the end of the year. What are Mack’s plans for the retirement phase of his life? Will he sail around the world? Restore old cars? Work on his golf game? Take up fly fishing? Move back down to his native North Carolina? Teach a course on business at his alma mater, Duke University? While those would all be admirable pursuits, it’s not likely Mack will have the time for them. Because John Mack, you see, has his sights set on something bigger. The realization of a dream, if you will. The dream of selling women’s shoes. Continue reading »
