Archive for November 2012

30 Nov 2012 at 7:04 PM
Posted in:
Write-Offs

Write-Offs: 11.30.12

By Dealbreaker

$$$ Plaintiffs’ lawyers somehow turn nonbinding “say on pay” votes into shakedown opportunity [Reuters, related]

$$$ How a desperate HP suspended disbelief for Autonomy deal [Reuters]

$$$ Virtu, Getco Start Examining Knight Trading’s Books [Deal Journal]

$$$ Carl Icahn and the Oshkosh board are still fighting [WSJ]

$$$ National Bank of Poland Working Paper: “Would it have paid to be in the eurozone?” (Spoiler: no) [NBP]

$$$ John Cochrane and Cliff Asness critique Warren Buffett on taxes [Grumpy Economist]

$$$ Somebody’s using bitcoins [BBW]
Read more »

940673 CommentsWrite-Offs%3A+11.30.122012-12-01+00%3A04%3A21Dealbreaker

30 Nov 2012 at 6:31 PM

CEO Sentenced To 50 Years In Prison For Defrauding Investors Wishes He’d Made His Intent To Screw Them A Bit More Clear, In Retrospect

By Bess Levin

Timothy S. Durham, the onetime chief executive officer of National Lampoon Inc., was sentenced to 50 years in prison for defrauding investors in an unrelated company he partly controlled. Durham, who was also the CEO of Indianapolis-based buyout firm Obsidian Enterprises Inc., and an accomplice, James Cochran, 57, were convicted in June of taking money raised from Fair Finance investors, spending it on themselves and lending it to other entities they controlled. A third man, Rick Snow, 49, was convicted of helping to deceive investors about the company’s financial condition. The three squandered $208 million of investors’ money, according to U.S. Attorney Joseph Hogsett in Indianapolis [...] “I feel badly about all this,” Durham told Magnus- Stinson. He said he was surprised at the amount of money lost by four victims who also spoke in court today. “I wish I had tried harder to make things clearer for them,” he said of Fair Finance’s public disclosures. [Bloomberg]

30 Nov 2012 at 6:17 PM

EFSF Conveniently Downgraded

By Matt Levine

Here are two tiny little puzzles about Moody’s's’s downgrade of the European Financial Stability Facility from Aaa to Aa1 just now. But first, here is some math on EFSF guarantees; basically every €100 of EFSF bonds has €165 of member guarantees, of which €103ish were Aaa-rated and €62ish were not. Until Moody’s downgraded France last week. Now it appears that each €100 EFSF bond has only €67 of Aaa guarantees, €36 of Aa1, and €62 of … various lesser things.

So the puzzles: first, this thing – the EFSF – is basically a structured credit product that is roughly two-thirds guaranteed by a Aaa thing, one-third guaranteed by an Aa1 thing, and roughly another two-thirds guaranteed by an assorted lower-rated miscellany that you can safely ignore. Should that make it (1) Aaa, (2) Aa1, or (4) other? S&P, as it happens, has a mechanism to sort of solve this, which is to say that a bond is rated by its probability of defaulting. Discarding the cats and dogs (and ignoring correlation questions), something that is 1/3 AA+ and 2/3 AAA has about an AA+ chance of defaulting: even if those AAAs are rock-solid, a default by that AA+ counts 100% as a default. Moody’s doesn’t have that – they, in theory, rate structured products¹ based on expected loss, not just chances that there will be a default. So something that is two-thirds Aaa and one-third Aa1 is … at least arithmetically closer to Aaa than Aa1, is it not? (Especially if you assume the cats and dogs add a little bit of recovery.) But here you are stuck in a granular world: a thing that is two-thirds Germany and one-third France may be better than France, but I guess it’s also worse than Germany, so you gotta pick one or the other and I suppose pessimism is always a good look.

But a second and possibly related puzzle: if you were the EFSF, would you be bummed about being downgraded? Here is a weird fact² (via Alea): Read more »

30 Nov 2012 at 4:08 PM

Those Were The Days

By Bess Levin

In 2006, one unnamed US finance firm was said to have held its London Christmas party at Madame Tussauds. Following the event, it was found that two of the waxworks had lost their heads and Jennifer Aniston was missing a finger. [eF]

30 Nov 2012 at 2:54 PM

You Can Add The FBI To The (Long) List Of People Impressed With Jeffrey Gundlach’s Brain

By Bess Levin

There is no denying that Jeffrey Gundlach is a hugely talented man whose IQ would rank among the highest in the world if he ever had it tested. “What’s it like having lunch with a genius,” he once asked a colleague, who presumably answered, “To be honest, it’s giving me an inferiority complex just breathing the same air as you, knowing that your brain is the standard for how intelligence will be measured from now until the end of eternity.” Until recently, however, the application of Gundlach’s brilliance was largely confined to bond management. According to a new profile by Bloomberg Markets, though, Gundlach’s intellectual prowess is just as if not more impressive when it comes to crime solving. Read more »

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Tags: art, brilliant, check the Internet, FBI, Google, Helen Fuchs, Jeffrey Gundlach, porn

30 Nov 2012 at 12:05 PM

James Gorman Will Say Something Nice About Wall Street When Wall Street Earns It

By Bess Levin

If you’re looking for a cheerleader, go bark up another tree.

“Say you want to be out ahead of it and give a lot of speeches and talk about all the good we’re doing,” Gorman said today at an industry conference in New York. “And then some trader does some stupid thing like this guy at UBS did and he’s in jail and all bets are off,” Gorman said. He was referring to Kweku Adoboli, the UBS AG trader convicted of fraud this month in the largest unauthorized trading loss in British history…Traders at New York-based Morgan Stanley had too much latitude in the past, “what I call having an outsized sandbox,” Gorman, 54, said at the conference, which was sponsored by the Securities Industry and Financial Markets Association. “Until we can be really confident we’ve got discipline around the sandboxes, I think you have to be really careful not to be holier than thou,” Gorman said. “We’re going to be in the doghouse for a while.”

Incidentally, this would a good time to mention that Gorman’s bonus policy instituted last January– STFU or GTFO– still stands. Read more »

30 Nov 2012 at 11:37 AM

New York Times Finds A Weird Way To Kick Steve Cohen When He’s Down

By Bess Levin

Get out your yardsticks.

As you may have heard, things have not been going tremendously well for Steve Cohen of late. Two days before Thanksgiving, the government went public with its case against a former SAC Capital employee, Mathew Martoma, who it accused of masterminding the largest insider trading scheme ever. Cohen was neither charged nor mentioned by name in the criminal complaint, but he did make an appearance playing the role of “Portfolio Manager A,” a part we have previously mentioned one does not want to portray, if it can be avoided. Then on Wednesday, it was disclosed that SAC had received a Wells notice, indicative of the SEC’s plan to sue the fund and if that wasn’t enough, sources also claimed investigators are considering naming Cohen personally in the suit, to boot. So things are not exactly going his way right now and what he could really use is a break. The government dropping all charges against Martoma and publicly stating it will stay out of the Big Guy’s business forever starting right this second seems out of the question but even some small act of kindness would probably help. Allowing him to pass you on 95. Telling him he looks nice today. Asking, “Have you been working out?” Sending him humorous YouTube videos with a sweet note like, “Hang in there, bud. You’re in my thoughts…”

On the flip side, you know what he doesn’t need? Wildly libelous claims that it’s going to take a lot more than a “Correction” to forgive. Read more »

30 Nov 2012 at 11:36 AM

Skeptical Investor Puts Trust In Ratings Agency

By Matt Levine

You may be aware that noisy Asia-focused short-seller Muddy Waters is in a fight with Singaporean agricultural commodity trader Olam. Muddy Waters thinks that Olam is “an extreme example of an increasingly important conflict in modern finance: the clash between accounting and business reality,” and that “it is instructive to view Olam through the lens of failed US trader Enron Corp.” Olam disagrees, vehemently and litigiously. You can read all about it at your leisure (pro, con); I am not an idiot so I will carefully avoid taking any position on who is right and by how much.

Our question today is instead: are S&P idiots? Here is Muddy Water’s latest offer:

We hereby make a bona fide offer to pay for Olam to have one of its public debt issues rated by S&P. … The Company has never before had a debt rating, and having Olam’s debt rated by S&P would be an important step toward improving the Company’s transparency. Because we will pay the expense, Olam has no good reason not to have a rating.

I love this move! On its surface this is a pretty straightforward proposal. Muddy Waters thinks that Olam is – to use simple words – a big fraud, but the only way to really know is to have inside information,¹ which Muddy Waters lacks. Olam has plenty of inside information but (1) has a vested interest in persuading people it’s not a giant fraud, whether or not it in fact is, and (2) can’t reveal every piece of inside information to everyone for reasons both practical and competitive-secrecy-y. Read more »

30 Nov 2012 at 9:30 AM

This Is Happening: Dealbreaker Dramatic Reading Night

By Bess Levin

Do you want to hear something that Matt and I have been up to the last couple weeks, when we aren’t writing stories for this website? Holding a series of auditions with actors, who we asked to read vintage Dealbreaker posts in a dramatic fashion. As much as I would like to say that we did this purely for our own enjoyment– and make no mistake, we enjoyed it tremendously and in fact relished getting into the role of casting director– we actually did this for your benefit. What I’m saying is, on the evening of Wednesday December 12th, we will be holding Dealbreaker Dramatic Reading Night at a bar somewhere in downtown Manhattan. We can’t reveal too many details at this time but all you need to know is: a professional actor who has made it through our grueling audition process will read selected highlights from the Dealbreaker canon. It’s highly possible that Matt and I will be the only ones laughing but that’s what makes it so exciting. We want to keep this intimate and will be capping the guest list at ~40 so get your tickets here NOW. Read more »

30 Nov 2012 at 9:29 AM
Posted in:
Opening Bell

Opening Bell: 11.30.12

By Dealbreaker

Germany Approves Greek Aid (WSJ)
German parliamentarians approved with an overwhelming majority a package of new aid measures for Greece Friday, clinching support for a plan to close a €14 billion ($18.17 billion) gap in the heavily indebted nation’s finances and to ready a near €44 billion tranche of promised aid. The vote shows that German Chancellor Angela Merkel has been able to consolidate the support of her center-right coalition of Christian Democrats and Free Democrats, many of whom have expressed skepticism that Greece can be saved without significant costs to German taxpayers. Her coalition voted 90% in favor of the measures.

Leave “fairy world” behind, Draghi tells euro zone (Reuters)
“We have not yet emerged from the crisis,” Draghi told Europe 1 radio. “The recovery for most of the euro zone will certainly begin in the second half of 2013.” “The crisis has shown that we were living in a fairy world,” the ECB chief later added at a conference with top financial officials, pointing to the unsustainable debts, weak banks and poor policy coordination that gave birth to the crisis three years ago.

Obama Takes ‘Fiscal Cliff’ on the Road; Republicans Stew (CNBC)
President Barack Obama, reapplying his re-election campaign theme of protecting the middle class, heads to Pennsylvania on Friday suggesting that Republicans could spoil Christmas by driving the country over the “fiscal cliff.” The president’s road trip, visiting a factory that makes Hasbro’s [HAS 38.60 --- UNCH ] Tinkertoys, is infuriating Republicans. House Speaker John Boehner called it a “victory lap” as he rejected Obama’s proposals to avoid the cliff, the combination of tax increases and spending cuts set to start taking effect in January.

Berkshire Hathaway, CaixaBank Agree to Reinsurance Deal (WSJ)
Berkshire Hathaway will pay CaixaBank SA million €600 million ($778.7 million) for the future cash flow from a portfolio of life insurance policies, the Barcelona-based bank said Friday, a rare dip into a fiscally stressed euro-zone country for the investment firm run by Warren Buffett.

If You Like Late Nights, Try Being an Analyst in Hungary (WSJ)
As the clock ticked toward midnight on a recent night, stock analyst Gergely Gabler sat sleepily in his pajamas at the small desk in his bedroom, waiting. Then, just after 12, he sprang into action, evaluating the newly released earnings report of Hungary’s largest bank. For the next two hours, Mr. Gabler worked on a report about OTP Bank’s performance for clients of his firm, Hungarian brokerage Equilor Investments, before catching some shut eye, only to awake about 3½ hours later so he could be in his office to field questions by 7 a.m. Burning the midnight oil is a painful quarterly tradition for analysts and financial journalists in Hungary, where the country’s biggest blue-chip companies publish their results in the wee hours, after markets in New York have closed and long before they open anywhere in Europe. “I’m a night owl, so I don’t mind staying up,” Mr. Gabler said. The hard part, the 28-year-old said, is getting out of bed the next day. That morning, he grabbed a red-and-black can of Hell, a caffeine-laden Hungarian energy drink, to fuel his workday.

Moody’s Puts Aston Martin on Watch for Downgrade (NYT)
“The review was prompted by a significant deterioration in Aston Martin’s liquidity profile as per end September 2012, caused by a much weaker cash generation and operating performance in the third quarter than anticipated by the company and compared to Moody’s expectations,” Falk Frey, a Moody’s analyst, said in a statement.

Harvard Approves BDSM Group (Crimson)
It started last October with a meal in Currier dining hall with a handful of friends who shared something in common: an affinity for kinky sex. More than a year after the group first began informally meeting over meals to discuss issues and topics relating to kinky sex, Harvard College Munch has grown from seven to about 30 members and is one of 15 student organization that will be approved by the Committee on Student Life this Friday. Michael, who was granted anonymity by The Crimson to protect his privacy, is the founder of Munch, an informal lunch or dinner meeting for people across the kink community. For him, the recognition will provide a sense of ease for current and future members, knowing they are receiving institutional support. “It’s a little hyperbolic for me to get teary-eyed and paternal about sophomores, but it’s really a joy to see the experience they will have now,” Michael said. Michael said there are many benefits to being officially recognized on campus such as being able to poster for events and promote Munch’s presence…But for Michael, the biggest advantage to being recognized comes with “the fact of legitimacy,” he said. “[Our recognition] shows we are being taken seriously.” Mae, a member of the organization who asked to be identified by her middle name, said since its formation the group has provided her with a comfortable space to discuss her interests. “I didn’t think that anyone was even remotely interested [in kink] on campus,” Mae said. “It’s a community where you can feel safe, and you can feel comfortable talking about [kink].” Read more »