Archive for March 2012

  • 20 Mar 2012 at 5:53 PM

Was The Financial Crisis Caused By A Fictional Hooker-Loving Master Of The Universe? At Least One Guy Thinks Maybe

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Several weeks back, Michael Douglas appeared in a public service announcement shot by the FBI, in which he tells people that while they may have been taken by his character in Wall Street, that it’s important to remember that that was just a movie and in real life, insider trading is wrong and everyone must be vigilant to report any wrongdoing they observe on the job, especially after the shit we went through in ’08. Next up among actors who think roles they portrayed on the big screen contributed to the financial crisis is Richard Gere. Glamorizing being a corporate raider who made enough money to buy a hooker is his personal cross to bear. Read more »

  • 20 Mar 2012 at 4:58 PM

B-School Facts & Fiction

By Dealbreaker Business School Bureau Chief

It’s finals time, folks! In undergrad, this meant camping out in the 24-hour library, not showering, ingesting solely caffeine and mozzarella sticks, sleeping less than four hours, arriving exam day in the ultimate defeatist attire (college hoodie and pajama pants). In business school, finals time means … hmm some light stretching, a hearty yaaaaaaaaawn from sleeping too well, award-winning hygiene, a variety of frosty beverages, and a manicure an hour before my toughest exam. I’d like to say it’s because I’m older, wiser, and better at time management, but (1) I’m a poor liar and (2) really, it’s because my many years have confirmed that looks matter more than grades.

In a similar spirit, my only other conclusions about life in business school follow. Here are few thoughts and theories I wish I had cleared up before starting, based on what prospective and newly admitted students seem to ask most often. Read more »

  • 20 Mar 2012 at 3:29 PM

You Don’t Become The World’s Leading Hedge Fund Manager Without Learning To Delegate The Most Critical Of Tasks

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How does a nanny earn more than the average pediatrician? The simple answer is hard work — plus a strange seller’s market that follows a couple of quirky economic principles. A typical high-priced nanny effectively signs her (and they are almost always women) life over to the family she works for…And, alas, it seems that there just aren’t enough “good” nannies, always on call, to go around. Especially since a wealthy family’s demands can be pretty specific. According to Pavillion’s vice president, Seth Norman Greenberg, a nanny increases her market value if she speaks fluent French (or, increasingly, Mandarin); can cook a four-course meal (and, occasionally, macrobiotic dishes); and ride, wash and groom a horse. Greenberg has also known families to prize nannies who can steer a 32-foot boat, help manage an art collection or, in one case, drive a Zamboni to clean a private ice rink. [NYT via BI, related]

  • 20 Mar 2012 at 1:48 PM

Bernie Madoff Was Just Trying To “Change The Way Money Was Managed,” Not That Anyone Cares

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For about a year now, Bernie Madoff has been holding court with various members of the press about something that’s been plaguing him: the fact that few people if any are willing to give credit where credit is due. Yes, he may have pleaded guilty to a $50 billion crime that ruined countless people’s lives, including those of his wife and children, one of whom committed suicide as a result, but he did a lot of other stuff too, like run a “successful business” for which he won lots of “industry awards” during his “legitimate years.” And, yet, everyone seems to forget all that when his name comes up, much like they conveniently forgot about how Mussolini made the trains run or time, or how Hitler built those wonderful autobahns, or how Ted Bundy made women feel special. And since he’s serving a 150 year sentence, Berns has had lots of time to ponder why his years of legitimate achievements go unmentioned and the one thing he keeps coming back to? Irving Picard, who’s pulled a fast one on you all, by suggesting that Bernie’s crime started wayyyyy before it did, when, in fact, Madoff Securities was only running a Ponzi scheme for barely even 20 years. Examine the evidence Madoff shared with Forbes contributor Diana B. Henriques via email:

Jan. 17, 2011 11:05 A.M. … Also remember that the U.S. Attorney admitted that they had no evidence that the crime started in the 80’s and could establish that Montauk and the N.Y. homes in Ruth’s name were not purchased with tainted funds …

Mar. 10, 2011 7:35 A.M. … I would love to know what evidence [Picard] has to date my crime back to 1983 … THE FACT IS THAT THERE IS NONE.

8:05 A.M. … I say once again the fraud started in the 90’s …

Mar. 18, 2011 9:26 A.M. … I guess I’m obsessed with this START OF CRIME ISSUE.

Don’t you see, idiots of the media?! That’s the real issue here. Not the crime itself but the start of the crime. Do the math. Read more »

  • 20 Mar 2012 at 12:49 PM

Today In People Who Don’t Need Your Capital

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I’ve sort of resisted writing about Apple’s capital return thingy because, yeah, that basically makes sense, they have more money than they know what to do with and more coming in each day, so their choices are pretty much (1) give some of it back, (2) find something super-awesome to spend it on, (3) find something dumb to spend it on, or (4) engage in weird experiments in macroeconomics and/or exponential growth where they end up having more money than there is in the world. I don’t have any super-awesome ideas to spend it on (and also I trust Apple to know better than I do what it’s good at doing); spending it on dumb things seems … dumb; and I don’t think the weird experiments will work though you never know! That leaves “give some of it back.” So you can say something like “yeah this makes sense” or “I would’ve done it slightly differently,” or you can go and say something silly. Like:

Gregory Milano of Fortuna Advisors, which advises Fortune 500 companies on maximizing their market value, did some quick math. Milano considers buybacks to be like any other investment a company can make. Buybacks must offer a good return in order to be deemed a smart use of capital. That is, if a company buys its stock at $10 a share and it rises to $12 next year, it’s earned a 20% “return on investment” for shareholders. Because the average business’s capital costs run 10% a year, between debt and equity expenses, most companies should seek buybacks to return more than 10% a year if they want to build shareholder profit.

In Apple’s case, returns on capital are extraordinary. The tech giant earns around a 40% return on its operating capital, far exceeding its capital costs. So what’s a good hurdle rate, or minimum rate of return, for its buyback? Milano thinks a 20% “return on investment” is fair.

For the buybacks to deliver that return, Milano says Apple’s stock price will have to rise 128% to $1,368 over the next five years. For a meager 10% buyback return, the stock needs to hit $984 in five years.

Can the stock reach those heights?

You make the call! I will not be making that call because feh. Here is my model of Apple: Read more »

Opening Bell: 03.20.12

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Bernanke Returns to Academic Roots to Justify Fed’s Existence (Bloomberg)
Bernanke will lecture to about 30 undergraduate students at George Washington University in the first of four hour-long talks on the history of the Fed as part of what public relations specialist Richard Dukas called a “P.R. offensive” to buff the central bank’s tarnished image. The Fed is being attacked from both the left and the right, with liberals criticizing it for not doing enough to bring down unemployment, and conservatives blaming it for doing too much and risking faster inflation…The lecture series — the brainchild of the Fed and the first by a sitting chairman — will be streamed live on the central-bank’s website and on ustream.tv. Afterwards, it will be posted on the Fed’s YouTube page. The central bank said transcripts also will be available. “I understand he’s excited about coming back and being in the classroom,” said Tim Fort, the professor in charge of the half-semester class.

Mets owners could actually make money in Madoff settlement (NYP)
Under the deal, Mets owners have agreed to pay back $162 million in phantom profits that they withdrew from their Madoff accounts between 2002 and 2008 — the year the Ponzi pyramid collapsed. Picard also dropped his claim that the owners were “willfully blind” to the scheme — allowing them to claim up to $178 million as victims of the fraud.

Goldman Sachs Cuts Staff in Annual Review Process (Reuters)
Goldman Sachs has begun a new round of staff cuts in its trading and investment banking divisions, three sources familiar with the matter said, a sign of continued cutbacks on Wall Street…The latest round of cuts is part of Goldman’s annual employee review process. It’s unclear how many people will be affected by the job eliminations, which began two weeks ago, because different divisions have received different targets, sources said. While management has formulated an overall plan for cost-cutting, all of the job cuts may not be completed for months, said a source familiar with the matter.

Deutsche Bank Cuts Board’s Pay 19% as Profit Goal Missed (Bloomberg)
Jain earned 5.81 million euros ($7.67 million) in salary and bonuses for last year, down from 7.55 million euros, Deutsche Bank said today in its financial report. Jain and the board’s other six members received 26.4 million euros compared with 32.4 million euros in 2010, when there were eight members.

Jefferies Net Down 12%; Revenue Tops Forecasts (WSJ)
Fixed-income trading revenue came in at $339.1 million in the quarter ended Feb. 29, up 6.6% from a year earlier and more than double what the firm booked in the prior quarter. Investment-banking revenue rose to $285.8 million, up 20% from a year earlier and 9.4% from the previous quarter. Overall, Jefferies reported a profit of $77.1 million, or 33 cents a share, compared with a year-earlier profit of $87.3 million, or 42 cents a share. Revenue increased 2.2% to $758.1 million. Analysts expected a per-share profit of 29 cents on $699 million in revenue, according to a poll conducted by Thomson Reuters.

The Banker And The Cabbie: When Two Worlds Collide (Reuters)
The day, December 21, 2011, had started out normally as Jennings left the kind of home – sweeping curved staircase, perfectly plumped chintz pillows, backyard swimming pool and a Ferrari in the garage – that makes many New Yorkers deeply jealous, and headed to the steel-and-glass tower in midtown Manhattan where he directed the firm’s bond business…Morgan Stanley has already placed him on leave. The firm’s spokesman declined to comment, other than to say no decision has been made regarding Jennings’ longer-term status at the firm. One top-ranking Morgan Stanley executive, though, said he “does not stand a chance of getting his job back.” Read more »

Write-Offs: 03.19.12

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$$$ As Cash Move Shows, Apple CEO Goes His Own Way [WSJ]

$$$ Mets owners reach a settlement with Madoff trustee whereby they pay $162mm, or receive $16mm, depending how you count [NYT]

$$$ Deutsche Börse to sue Brussels over NYSE block [FT]

$$$ S&P Volatility Falls Most Since FDR as Valuations Sink [Bloomberg]

$$$ Daniel Boulud made a meter-long ham sandwich festooned with miniature French flags for Jerry Lewis’s 86th birthday [NYP]

$$$ Want to move to Texas? Highland Capital Management is looking to fill several positions in Dallas, including a distressed investments senior analyst and a director of credit [DBCC]
Read more »

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  • 19 Mar 2012 at 5:55 PM

Former Goldman Employee Having Difficulty Forming An Opinion On Greg Smith Resignation Op-Ed

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“Greg Smith got his 15 seconds of lame fame which is all it is. If he was a man and not a mouse, he would have taken the high road and become part of the solution – he would have become an agent of change. Instead, he’s just a quitter who never gave management an opportunity to respond before he verbally strafed the entire firm in print.” [85Broads]

  • 19 Mar 2012 at 3:41 PM

Derivative Surprises Everyone By Accomplishing Purpose and Unwinding at Randomly Generated Market Value

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Yay, Greek CDS worked. But, as we talked about a bit, it almost didn’t:

By happenstance, some of the new bonds Greece has issued in its restructuring have a market price close to the total value of the package creditors received — about 22 cents on the euro. Those bonds will help set the CDS payout, and trouble will be averted: CDS holders will receive about 78 cents, roughly equivalent to the loss bondholders suffered. …

If the new Greek bonds had different terms — higher or lower interest payments for instance — their prices could be substantially different, changing the amount the default swaps would pay. Ben Heller, a portfolio manager at New York hedge fund Hutchin Hill Capital, which owns both Greek bonds and CDS, said that means the swaps aren’t doing their job. He said that until the problem is fixed, he “will not use CDS as a hedge against credit exposures anymore.”

In fact Heller told Felix Salmon:

When you think about it, it’s a product that, on certain poorly defined credit events, offers a random payout. So if I want to do that, then I could play roulette at a casino.

So, first of all: yes! I think worry about the definition of credit events is a bit overblown, but the randomness of the payout is a real thing and bizarre and terrifying. It bears re-emphasizing that the method of calculating the Greek CDS payout bears no relation whatsoever to the default risk that it was supposedly hedging.

But, also: no! Read more »

  • 19 Mar 2012 at 3:35 PM

A Brief Update From Your Dealbreaker NCAA Tournament Challenge Manager

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Some stats and a message about life from Pool Manager NakedShort: “We currently have two overall leaders, with 50 points. Congrats to ‘Golden West’ and ‘Mike Courtney,’ who had nice opening weekends. Some other top performer stats: 4 people are tied with 49 points; 8 are at 48 (1 unlucky entrant picked Missouri to win); 7 are at 47 (Missouri and Duke each fucked one of you); 12 are at 46 (none of you picked any current losers!); “iluvmatt” is leading the 44s. The remaining 800 or so are frankly are horrible and should stop watching basketball entirely. For those unlucky souls who had their winner lose this weekend, turn up the speakers and join us in a good cry.” Read more »

  • 19 Mar 2012 at 1:26 PM

Team-Bonding Exercises Not Big Among Upper East Side Brothel Employees

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Except for double-teaming clients, which was huge. Read more »