Archive for March 2012

Write-Offs: 03.30.12

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$$$ Corporate pension funds break away from equities [Reuters]

$$$ Dealpolitik: What’s H Partners Up to at Sealy? [Deal Journal]

$$$ Bias, penguins in CDS auctions [FTAV, part 2 here]

$$$ Co-Pilot Who Landed JetBlue Plane Was Voted ‘Most Understanding’ (in high school) [Bloomberg]

$$$ How to Prank Your Boss (and Keep Your Job) [Bloomberg]

$$$ A leading global investment bank is looking for a single stock options trader to join their team in New York, in case that might be a good fit for you [DBCC]
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  • 30 Mar 2012 at 6:28 PM
  • Banks

Europe Will Try To Make Its Banks’ Creditors Play Nicer With Each Other

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Today the EU issued a discussion paper about how it plans to forcibly write down the debts of shaky banks if it ever comes to that, which for some reason is called a “bail-in,” I guess in the sense that the bailing is coming from creditors who are already in the bank’s credit rather than from taxpayers who aren’t. It’s pretty interesting, go read it, or read Bloomberg’s piece about various bits of squabbling over it and also somewhat counterintuitively a statement from EU guy Michel Barnier (left!) that “There’s a big international consensus on the principle.”

Actually there probably is; the principle is pretty sensible, which is that there comes a time in many companies’ lives where the best way to preserve value not only for the enterprise but also for the creditors is to write down some of the debt to allow the company to continue as a going concern that can pay off the rest of the debt. This is why we have bankruptcy, but bankruptcy seems to be too slow and scary for banks. The worry is, you have a bank and it’s got like $15 of equity and $100 of debt and its assets go from $115 to $90 and all of the debt holders start looking at their watches and being all “hey this has been fun but I’m actually late for this thing so would it be too much trouble for you to give me my money back?” and the bank has to sell a bunch of stuff to meet those demands then that looks like a fire sale and people figure it out and all of a sudden that $90 becomes, like, $60, and the debtholders get back 60 cents on the dollar instead of the 90 cents, and they’re like “crap, if I’d just said ‘I’ll take $90, and also whenever you have it is fine, no rush,’ I’d have much more money.”

Of course that’s all sort of obvious so one thing that the creditors could do is just not do that, and voluntarily and quickly write down their debt so that the bank wouldn’t have to have a fire sale to meet their claims, but, knowing creditors, that’s not what would happen, so you need some sort of resolution mechanism to protect them from themselves. Read more »

  • 30 Mar 2012 at 5:58 PM

Layoffs Watch ’12: Bank Of America

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On the one hand, Brian Moynihan et al plan to cut staff next month, which hurts. On the other, they’ve been suggesting to certain at risk employees that they might want to see if they can find a home elsewhere inside the bank prior to D-Day, so that’s nice. Read more »

Charlie Gasparino: Goldman Employees Really Enjoyed Jason Segal’s Take On The Muppets

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[via CGasparino]

  • 30 Mar 2012 at 3:04 PM
  • Banks

Investors Want To Put All Their Run-Off-With-My-Money Risk In One Place

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One way I like to imagine the world is that there’s sort of a constant amount of financial risk and entropy tends to increase, so that as time goes by everyone increasingly ends up facing the same financial risks as everyone else (though quantities and leverage vary) and idiosyncratic risk is a rare and beautiful flower and so I dropped a good portion of my net worth on Mega Millions this morning because what else can you do? Entropy increasers could include index funds, or converging bank business models, and I guess you could profitably ponder the fact that the big banks are now living on DCM fees until M&A comes back and what that could mean for a model of “we need to split up the big banks to avoid too-big-to-fail risk.”*

One thing it could mean is get the hell away from banks. So for instance you could quite reasonably be worried about putting all of your money in collateral accounts with the banks who are your derivatives counterparties because hey MF Global just lost all the collateral you put with them, and so you are, reports the Journal based on the Fed’s Senior Credit Officer Opinion Survey on Dealer Financing Terms: Read more »

  • 30 Mar 2012 at 2:37 PM

When Lucky Brass Balls Fail

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“Of the top 25 earners of 2010, 15 did not make this year’s list [of highest paid hedge fund managers]. Among them: Appaloosa’s David Tepper, whose Palomino fund fell 3.33 percent, and Edward Lampert of ESL Partners, which plunged 12 percent on big losses from Sears Holdings. Mr. Tepper did not respond to requests for comment. A spokesman for ESL declined to comment. Mr. Paulson — the $5 billion manager in 2010 — failed to make the list this time. One of his largest funds lost more than 50 percent, after bets on the economic recovery soured. A spokesman for Paulson declined to comment.” [Dealbook, AR, related: "Mr. Tepper keeps a brass replica of a pair of testicles in a prominent spot on his desk...He rubs the gift for luck during the trading day."]

  • 30 Mar 2012 at 11:56 AM

Investment Bank Group Head: Do You Want To Be A Wolf That Starves In The Winter Or Wolf That Eats His Competitors’ Fee Pies For Lunch?

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Think about it.

From: [redacted]
Sent: March 28, 2012 9:12 AM
To: Team
Subject: Spring Ahead

For those with direct/indirect coverage responsibilities, pls take out your lists today to remind yourselves who we have money out to and that your name is on the ComCom coverage team that got that money approved. Anecdotal observation I conclude is that where we pay attention in some reasonable, non-trivial ways (meeting, meal, call, insightful email), we get paid back in flow DCM capital markets participation

It’s just how this game works, the money doesn’t flat out speak for us, we need to speak for it, and we don’t have to stomp/yell, just be around, consistently the more frequency, the more client comfort, the more they feel reminded of their commercial obligations to us, the easier it is for them to remember to take care of us — lubricate to prevent rust, just like a motor engine or morning exercise

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Opening Bell: 03.30.12

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Three Major Banks Prepare for Possible Credit Downgrades (NYT)
Moody’s Investors Service has said it will decide in mid-May whether to lower its ratings for 17 global financial companies. Morgan Stanley, which was hit hard in the financial crisis, appears to be the most vulnerable. Moody’s is threatening to cut the bank’s ratings by three notches, to a level that would be well below the rating of a rival like JPMorgan Chase.

Eurozone Lifts Firewall (WSJ)
Euro-zone finance ministers on Friday agreed on a temporary boost of the bloc’s bailout lending limit to €700 billion ($931 billion), opting for a less ambitious plan that some fear won’t be enough to prevent a re-awakening of euro zone financial turmoil.

Dalio Earns $3.9bn to Top Hedge Fund Pay List (FT)
Ray Dalio, head of Bridgewater, the world’s largest hedge fund, personally made $3.9 billion in a year that his $70 billion Pure Alpha fund produced $13.8 billion of investment profits for its investors, according to industry rankings. He tops a list published Friday by Absolute Return magazine of the richest 25 hedge fund managers. The select group took home $14.4 billion in pay and paper profits on their own investments last year, down from $22 billion in 2010 in a sign of the industry’s struggle to deliver returns for its clients in 2011.

Goldman Bets on Property Rebound With New Fund: Mortgages (Bloomberg)
The U.S. Housing Recovery Fund is expected to finish its first round of capital raising and open April 1, according to a marketing document obtained by Bloomberg News. It will focus on senior-ranked securities without government backing, many of which now carry junk credit grades.

BATS Weighs Cooling Its Listing Push (WSJ)
BATS Global Markets Inc. is considering suspending its efforts to recruit corporate listings after a software glitch last Friday derailed the exchange operator’s IPO, people familiar with the matter said. Concerns about BATS’s bungled initial public offering could disrupt its efforts to draw other companies to list their stocks on its electronic exchange, forestalling ambitions by the electronic-markets operator to become a full-service exchange company. Such a move could entail notifying the Securities and Exchange Commission, which last year approved BATS’s plan to list shares and exchange-traded products.

Canada Eliminates Penny Costing Penny-and-a-Half to Make (Bloomberg)
Canada will withdraw the penny from circulation this year, saving taxpayers about C$11 million ($11 million) annually and forcing retailers to round prices to the nearest nickel, the government announced in its budget today.

Grand Central nabs tell-all by ex-Goldman exec Smith (NYP)
Greg Smith, the former Goldman Sachs executive who became an instant sensation when he ripped the Wall Street investment bank with a resignation letter published as an Op-Ed piece in the New York Times, has scored a $1.5 million advance to write a memoir of his experiences. Read more »

Write-Offs: 03.29.12

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$$$ Bain Gave Staff Way to Swell IRAs by Investing in Deals [WSJ]

$$$ Rousseff attacks west’s crisis response [FT]

$$$ Canada Eliminates Penny Costing Penny-and-a-Half to Make [Bloomberg]

$$$ Harvard faculty and students tended to regard the business school with a mix of disdain and condescension; its students were seen as academically suspect. Overwhelmingly white and male — just 11 percent of Romney’s HBS classmates were women — the business school was insulated from the forces buffeting society. For clean-cut business students, venturing onto the main university campus meant running a gantlet of hostile looks. “You felt like they didn’t want you to be there,” says Mitch Kurz, who was a year behind Romney and later became chief executive officer of Wunderman, an advertising agency. [BW]

$$$ Owner hopes stolen parrot annoys thieves [UPI, earlier]
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  • 29 Mar 2012 at 6:27 PM
  • Banks

Today In Swiss Banks With Creepy But Defensible Structured Products

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I don’t really understand it but the TVIX thing is creepy fun. If you haven’t followed it, Credit Suisse issued this exchange-traded note called TVIX that was a 2x levered bet on the VIX. They suspended new issuance about a month ago due to position limits, and people were just so damn excited to own the thing that its price crept up to 189% of its fair value, where “fair value” is a reasonably easily measurable thing based on the formula in the TVIX prospectus. Then last week Credit Suisse announced that they would be creating more units, and the price plummeted to and then through fair value, which is what you’d expect to happen. Except that it started plummeting a few hours before that announcement, which is Suspicious.

So of course people are sad and there’s a Bloomberg Brief with sort of sad-funny quotes like:

“When it started to fall, I bought more because I couldn’t believe how low it was going. I didn’t realize I was playing with a hand grenade.”
– Michael Gamble [heh! - ed.], 67, who doubled down on his TVIX investment before the price collapsed.

Investors “all think: ‘Oh, I’ll just buy these things, I’ll be hedged against volatility and everything will be wonderful.’ And now they’ve seen the market goes down and their volatility protection goes down too, and they’re going ‘Hmm, what happened here?’ These people are going to have to pay a really expensive lesson.”
– Larry McMillan, who manages $30 million as president of McMillan Analysis Corp.

So, yes, Larry, they are going to pay a really expensive lesson. But what is it? Stephen Lubben has a little thing in DealBook today where he frets: Read more »

  • 29 Mar 2012 at 6:08 PM

Dealbreaker Career Center

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Are you an investment banker looking to move to California? Boutique bank Janes Capital Partners is looking for an aerospace & defense analyst in Irvine. And a global bank is looking for a tech M&A associate and vice president in San Francisco. Or if that’s not your thing, perhaps you might want to be a financial writer in Texas? [DBCC]