Tags: Equity Inns, Goldman Sachs, preferred stock, Private Equity, real estate, REITs
How shady is this morning’s delightful Journal story about the travails of Equity Inns preferred stockholders? I think the answer is “just the right amount of shady,” but you might disagree. The gist is that Goldman Sachs real estate private equity funds bought out Equity Inns but left almost $150mm of preferred stock outstanding. Once ENN was no longer a public company (because Goldman owned all its common stock and it had fewer than 300 shareholders), it delisted its preferred stock and stopped providing public financial information.1 This saddened the preferred holders and they expressed their sadness by bidding down the price of the preferred to under 40 cents on the dollar.
Also by complaining to the company, and the SEC, and the Journal, and anyone else who will listen. Also by doing this:
One of the preferred shareholders is responding by creating 300 separate trusts to hold his preferred shares. He argues that should qualify the company for reporting.
Should it? I don’t know but I love it. You gotta fight silly formalism with silly formalism. Read more »
Tags: Dragon Systems, due diligence, Goldman Sachs, Lawsuits, Lernout & Hauspie
I find the story of Dragon Systems hilarious and horrifying so I’m never going to miss an opportunity to tell you about it and one occurred today. The story, quickly, is (1) Dragon Systems, a closely held speech-recognition company, hired Goldman to advise it on a merger with Lernout & Hauspie, (2) Goldman assigned Dragon an extremely JV team of bankers, (3) Dragon sold itself to L&H in June 2000 in an all-stock deal, (4) L&H soon turned out to be a massive fraud, and (5) L&H filed for bankruptcy in November 2000 and Dragon’s shareholders lost $300 million. Dragon sued, Goldman won a trial in January, and today they won some more, for reasons I’m not clear on. That is, I’m not sure why they had to win again – the judge issued an opinion finding in favor of Goldman, even though a jury did the same thing in January. Also it’s not much of a stirring win: Read more »
Tags: CBOT, CME, Futures, Glenn Hadden, Goldman Sachs, Morgan Stanley
Umm so maybe someone wants to explain to me what happened to Glenn Hadden? He’s the head of rates at Morgan Stanley, formerly at Goldman, and he was just banned from all CME trading floors for ten days, which is a little funny because, like, what, was he going to walk around on an exchange floor? Like in a tour group? But actually he can’t use computers either,1 so basically, no Treasury futures for ten days. That starts in mid-July and, god, I’d like to be banned from a computer for ten days in July, but I guess the perks of being a successful rates trader include punishments like that.
Anyway the thing he did was … well here is the Notice of Disciplinary Action, which says that the thing he did was violate CBOT Rule 560, which requires that big “positions must be initiated and liquidated in an orderly manner.” So his offense was to trade in a disorderly way when he was at Goldman five years ago. Specifically:
December 19, 2008, during the final minute prior to expiration of the December 2008 10-Year Treasury futures contract, in order to cover the tail (a standard form of risk management activity associated with holding a Treasury futures position at expiry) for the position held by Goldman, Sachs & Co.’s Treasury Desk, Hadden, then a Treasury trader for Goldman Sachs & Co., executed a 100-lot market order, and then submitted a 50-lot limit order, which was only partially filled as a result of illiquidity in the market. During the course of these orders and subsequent fills, the market traded up 27+ ticks resulting in the final price of the December 2008 10-year Treasury futures contract settling above what was indicated by the December – March calendar spread.
So: he tried to buy a lot of Treasury futures real fast, and as a result of that he ended up paying too high a price for them. I guess that’s a little “disorderly” but also sort of underwhelming.2
What is going on? Obviously there are two possibilities: Read more »
Tags: arcana, foreigners, Goldman Sachs, GSS Jersey, GSS York, totally not a blow-off class
If not for some unnamed hero’s vague recollections of something called the Jones Act—leading to an otherwise unexplained new interest in improving corporate governance—Cap’n Lloyd’s Pleasure Cruisers might still be in drydock. Read more »
Tags: business standards, cdos, Derivatives, Goldman Sachs
I can’t find the quote but I recently read someone arguing that you should never worry about anything you see on the news. By definition, the argument goes, horrible things that make the news are newsworthy, and they are newsworthy because they are rare, and so the odds of you dying in a terrorist attack, bridge collapse, Ebola outbreak, or anything else you see on TV are basically nil.
Financial news is endearing because it’s the opposite of that: it consists mostly of pointing at perfectly unexceptional market-standard practices that happen every day and saying “holy fuck, did everyone know about that? That’s messed up.” As Matthew Klein has said, “many things that are considered normal in finance look like fraud to almost everyone else,” so the vein is rich. Libor manipulation, Apple’s taxes, really take your pick. Or today’s Times article “Banks’ Lobbyists Help in Drafting Financial Bills”; my impression is that an article titled “Financial Bill Written Without Drafting Help From Banks’ Lobbyists” would, for sheer unlikeliness, be the financial-regulatory equivalent of a news report about terrorists blowing up a bridge using the Ebola virus.
Closest to my heart among these scandals of differing perceptions might be the “you built me a CDO designed to fail” cases. For starters: the fact that they come out of market-standard practices is reflected in the fact that pretty much every bank has one of them.1
But while every other bank seems to have come out of the CDO scandals with a reaction along the lines of “it’s a fair cop, here is a pile of money,” Goldman, who sort of originated the idea,2 has spent the last few years putting together increasingly convoluted committee structures and online animations to make sure it’ll never happen again, for some “it.” Here is the latest 26-page report on Goldman’s business standards improvement, and here is a genuinely delightful “lifecycle of a transaction” animation that I am tempted to replace with this: Read more »
Tags: Goldman Sachs, research, Too Big To Fail
I feel like I’m on the “the too-big-to-fail subsidy is negative!” beat, even though I only kind of believe it, so in that spirit here is a fun paper from Goldman Sachs’ Global Markets Institute1 that finds that the too-big-to-fail subsidy is negative. That is, Goldman concludes, contrary to popular belief, that the biggest U.S. banks actually don’t have a funding advantage over smaller banks due to the possibility that they’ll be bailed out by the government. Here is the money picture:
If that’s hard to read: the bonds of the six biggest U.S. banks – the ones whom everyone thinks the government would rescue if they blew up, JPM-C-BAC-GS-MS-WFC – yielded on average 6bps more than the average non-TBTF-bank bond before the start of the crisis in 2007. They traded hundreds of basis points tighter during the crisis (TBTF subsidy!), but now are back to trading wider: Read more »
Tags: ABACUS, ACA, Goldman Sachs, Lawsuits
Everyone knows the story of Abacus 2007-AC1 by now: Goldman Sachs sold some mortgage-backed-security CDOs to some people, and those people thought that the underlying mortgage-backed securities were chosen by an outfit called ACA Management to be Good, but in fact they were chosen by Paulson & Co. to be Bad, and they turned out to be Bad, and that was Bad. The SEC sued Goldman over it, and Goldman settled for $550 million, and then everyone else sued too because they had been lied to about who picked the mortgage-backed securities (Paulson, not ACA) and why (to fail, not to succeed).
Among the people who sued was ACA, whose role in the transaction was (1) pretending to pick the underlying RMBS and (2) issuing a financial guaranty policy (to Goldman) referencing the super senior tranche of Abacus. That tranche more or less went poof, and ACA ended up owing $840 million to Goldman (though, really, ABN Amro paid the $840mm, and Paulson got it).1 Since ACA was in the business of writing terrible financial guaranty policies, it blew right up and ended up paying only $30 million. Then it sued Goldman for the $30 million back, plus punitive damages. ACA’s claim is that, while it knew that Paulson had selected the underlying RMBS, it thought Paulson was net long Abacus, because Goldman schemed and lied, and that it wouldn’t have insured Abacus if it’d known the truth about Paulson’s position.
Yesterday ACA lost when a New York appellate court dismissed its case. The court split 3-2, and the opinion is short and pretty weird; basically the majority says “it doesn’t matter that Goldman lied to ACA about Paulson’s position, because ACA should have kept asking until it got the truth,” which is a funny law.2 The two dissenting judges seem to have rather the better of it.3
Still the result seems right. Read more »