Archive for September 2012

Write-Offs: 09.28.12

$$$ Spain Banks Have $76 Billion Capital Deficit in Stress Test [Bloomberg]

$$$ How Bernanke Pulled the Fed His Way [WSJ]

$$$ The economics of video games [Wonkblog]

$$$ Scaramucci Picking Singapore Shows City as Hot Spot [Bloomberg]

$$$ “SocGen’s Alberts concedes that his writing can be ‘pretty insane’ and his market timing ‘unerringly inaccurate.'” CNBC’s headline is “Bernanke’s ‘Ruinous’ QE Will Lead to Rapid Inflation: SocGen’s Albert Edwards” [CNBC]

$$$ ‘Cocaine For Snowblindness': What Polar Explorers Packed For First Aid [NPR]
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  • 28 Sep 2012 at 6:40 PM

Banks Win Some, Lose Some In Shareholder Lawsuits

A surprising percentage of conversations at Dealbreaker HQ go like this:

Bess: Can you really sue someone for [thing someone is suing someone else over]?
Matt: Anyone can sue anyone for anything.
Bess: Did you even go to law school?1

What you don’t learn in law school, though, is that “what the law says” and “what you can settle a case for” are two different things. One thing people love to sue about is “doing stupid shit with shareholder money.” Weirdly, though, the state law that governs who can do what with shareholder money not only allows but actively encourages doing stupid shit with shareholder money; if you go to Delaware state court and say “hey the CEO of my company did stupid shit with my money and now it’s gone” they will LAUGH AND LAUGH AND LAUGH at you and then make you go away.2

If you go to federal court and say “the CEO did stupid shit with my money” you will also be kicked out of court, but for purely technical reasons: that is not technically a thing federal courts care about. But you can fix it easily; all you have to do is say “the CEO did stupid shit with my money and then didn’t tell me about it.” This is called “securities fraud,” and it is something federal courts care deeply about. And a moment’s reflection should tell you that those sentences are essentially equivalent: how many companies have you seen issue press releases that say “hey, FYI, we did some stupid shit this quarter, but no one’s noticed yet”?

There are two big pieces of federal securities class action news today. The bigger one is that BofA settled a lawsuit over its acquisition of Merrill Lynch for $2.43 billion. There are many things worth saying about this, including: Read more »

If you want to make things easy on yourself, go after an economics major, says Bloomberg TV, which cautions people to avoid philosophy, education, and earth science concentrators, who make up “the least promiscuous majors.” Just don’t get too excited about your odds, though, warns anchor Scarlet Fu, noting that “we are far from the free loving days,” during which Paul Krugman shot fish in a barrel.

  • 28 Sep 2012 at 3:04 PM

These Things Happen

Kareem Serageldin, the ex-global head of Credit Suisse’s CDO business charged in a bonus-boosting fraud tied to a $5.35 billion trading book, plans to fight extradition to the U.S. until he reaches a plea deal. Serageldin’s lawyer told a London court yesterday that his client’s arrest this week outside the U.S. Embassy was a result of “miscommunication.” Ben Brandon said Serageldin was negotiating a plea bargain with U.S. prosecutors before the arrest. He was released on a 150,000-pound security ($243,000) until a Nov. 28 court hearing. [Bloomberg]

As many of you know, the last year or so has been a pretty tough one for Phil Falcone. In addition to a civil suit against him by Harbinger Capital investors, DWAI’s on the home front, and the pesky matter of being charged with securities fraud by the SEC, which would like to see him banned from the industry, what’s really been plaguing him has been the opposition encountered by LightSquared, his dream and the thing he’s more or less staked all his and his investors’ money on. Before it entered Chapter 11 bankruptcy in May, the most serious charge against the company was that while it may seek to create “convenient connectivity for all,” in doing so, the odds are high it would cause GPS interference that would result in boats getting lost at sea; “degrade precision services that track hurricanes, guide farmers, and help build flood defenses“; and, according to the FAA, “cost 794 lives in aviation accidents over 10 years with disruptions to satellite-aided navigation.” Now, four months later, the would-be wireless network has come back with a plan: LightSquared, but without all the murderous bits (for now). Read more »

  • 28 Sep 2012 at 12:41 PM

Jeffrey Gundlach’s Babies Come Home

Just a week after putting out an AMBER alert that several of his beloved pieces of art had gone missing during a heist on his home and a mere four days after an emotional press conference pleading with the public to help him find them, bond manager Jeffrey Gundlach’s most prized possessions, after his Sexy Slave KitTM, have been recovered. Read more »

  • 28 Sep 2012 at 11:31 AM

It’s The Beginning Of The End For Danish Kroner Libor

Why would you want to be a Libor bank? It’s unpaid work, in that every day you need to get on the phone to Reuters and say where you can borrow across 150 tenors and currencies in which you mostly don’t borrow, which one assumes taxes the imagination. And there’s potential badness, though the specifics vary over time: in 2008 the badness was “if we submit a high Libor people will think we can’t fund ourselves and there will be a run”; in 2012 the badness is “if we submit a bad Libor we’ll go to jail.”

So why do it? Some part of the answer is a certain kind of public-spiritedness: you’re JPMorgan, you trade a zillion dollars of interest-rate swaps, the swaps reference Libor, there needs to be a Libor, you and your friends who trade swaps get together and agree to make a Libor so that you can have a swaps market, and then you keep making that Libor every day. We’ll go be cynical in a minute, but let’s take sec to appreciate that this is a real thing and surely the primary motivator behind Libor. The financial industry is actually good, in a way that say the cell-phone mapping industry is not, at getting together and solving coordination problems via committee in a way that creates new markets for everyone to benefit from. Everyone on the committee, I mean.

The other part of the answer is of course “once you’ve set up this swaps market, you can manipulate it to your profit.” This to some extent counteracts the preceding public-spiritedness – your zillion-dollar swaps market depends on your benchmark being reliable, so if you manipulate it you screw things up for everyone – but in meaningful ways it doesn’t. For one thing every market consists of traders cheating each other within controlled bounds; it’s just about plausible to think that Libor submitters thought of themselves like the bond trader who tells his customer that he just can’t afford to part with these bonds for less than 102 when in fact he picked them up at 85, and that they figured that their cheating Libor down would be balanced by some other similarly dodgy character at another bank cheating Libor up, creating a system that is deceptive in every particular but trustworthy in aggregate.1 For another thing, you have a world and can go look at it, and empirical investigation will tell you that swaps volume was untroubled by actual Libor cheating through 2010, and doesn’t seem especially troubled (stripping out effects of economic contraction, concerns on counterparty credit risk, increased clearing and collateral requirements, netting down, etc.) by the exposure of Libor cheating in 2012. So go ahead and cheat.

So there you are chugging along being a Libor panel bank, submitting Libors that are honest enough to foster a robust swaps market, but dishonest enough to foster robust profits for you in that market, and bang, this: Read more »

Opening Bell: 09.28.12

Bank Of America Reaches Settlement In Merrill Lynch Acquisition-Related Class Action Litigation (BW)
Under terms of the proposed settlement, Bank of America would pay a total of $2.43 billion and institute certain corporate governance policies. Plaintiffs had alleged, among other claims, that Bank of America and certain of its officers made false or misleading statements about the financial health of Bank of America and Merrill Lynch. Bank of America denies the allegations and is entering into this settlement to eliminate the uncertainties, burden and expense of further protracted litigation.

Greece Seeks Taxes From Wealthy With Cash Havens in London (NYT)
At the request of the Athens government, the British financial authorities recently handed over a detailed list of about 400 Greek individuals who have bought and sold London properties since 2009. The list, closely guarded, has not been publicly disclosed. But Greek officials are examining it to determine whether the people named — who they say include prominent businessmen, bankers, shipping tycoons and professional athletes — have deceived the tax authorities by understating their wealth.

Libor Riggers May Be Criminal, Even If Acts Not Illegal at Time (CNBC)
Those who took part in the manipulation of the London interbank offered rate (Libor), the key benchmark rate, could face criminal prosecution even though Libor manipulation is not yet a criminal offense. Martin Wheatley, who is advising the U.K. government on what changes could be made to Libor to stop manipulation in the future, said that U.K. regulator the Financial Services Authority (FSA) is considering prosecuting those who took part under “broad principles of conduct.” He also recommended that the government should give the FSA power to prosecute future Libor manipulation.

Libor Furor: Key Rate Gets New Scrutiny (WSJ)
“There’s a concern that if you’re going to base financial decisions on a particular interest rate” it should be a measure that responds to changes in market conditions, “and that’s not Libor,” said Andrew Lo, a finance professor at the Massachusetts Institute of Technology.

Macquarie Bonuses Whack Profit (WSJ)
Macquarie Group may have lost its reputation as the Millionaire’s Factory as profits slumped since the onset of the global financial crisis, but according to Citigroup analysts the bank’s net profit could have been 60% higher last financial year if not for a dramatic rise in bonus payments to staff…Wes Nason estimates that while the bank’s return on equity fell to 6.8% last financial year-–hitting its lowest level since it listed in the first half of fiscal 2012 and compared with a 10-year average of 18.4%—-its average bonus payments almost tripled to A$73,000 a head, up from A$26,000 in 2009.

Replacement referee Lance Easley stands by touchdown call (NYDN)
Lance Easley has been vilified for awarding the Seattle Seahawks a touchdown on its Hail Mary pass in the closing seconds of Monday night’s game against the Green Bay Packers even though pretty much everyone in the country saw that the pass had been intercepted. “I processed everything properly,” Easley told the Daily News Thursday. “It was supported on video. But the bad thing is, people don’t understand the rules in that whole play. “But that play rarely ever happens, it rarely happens in the field of play and it never happens in an NFL game,” he added. “And here I got stuck in the middle of it.” The call was reviewed on instant replay — and, amazingly, upheld, despite the refs also missing a pass interference infraction by a Seattle player. Since then the 52-year-old Bank of America VP has been swept up in a whirlwind of national outrage — one that forced the NFL to end a seven-week lockout of its unionized refs early Thursday. But Easley said he and his replacements did a good job in their stint in zebra stripes. “I know where I stand,” he said. “Everything I did … I got support from all the referees and everything, and replay and our league office and anybody else that understands the rules and how those plays function. Read more »