Archive
Reuters blog archive
from Stories I’d like to see:
The compensation racket, Al Jazeera’s plans, and Boston health costs
1. Looking at ‘Ratchet, Ratchet and Bingo’:
In his 2006 annual report to shareholders , Warren Buffett had this to say about compensation consultants:
Too often, executive compensation in the U.S. is ridiculously out of line with performance. That won’t change, moreover, because the deck is stacked against investors when it comes to the CEO’s pay. The upshot is that a mediocre-or-worse CEO – aided by his handpicked VP of human relations and a consultant from the ever-accommodating firm of Ratchet, Ratchet and Bingo – all too often receives gobs of money from an ill-designed compensation arrangement.
Buffett went on to explain how these consultants simply make outsized pay in any industry the norm by ratcheting up the average, so that all executives in a given “peer group” have to get what everyone else gets:
Additionally, the committee is told about new perks that other managers are receiving. In this manner, outlandish “goodies” are showered upon CEOs simply because of a corporate version of the argument we all used when children: “But, Mom, all the other kids have one.” When comp committees follow this “logic,” yesterday’s most egregious excess becomes today’s baseline.
from Breakingviews:
Goldman and Buffett scratch each other’s backs
By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Goldman Sachs and Warren Buffett have found a way to scratch each other’s backs - again. The mutual assistance started during the crisis when the Sage of Omaha stepped in with a $5 billion rescue investment in 2008 that provided him with a healthy 10 percent yield on Goldman preferred shares. Now, they’re amending terms of warrants granted to Buffett in the same deal that also works well both ways.
from Breakingviews:
Warren Buffett’s no-dividend policy on thin ice
By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Warren Buffett’s stance against paying Berkshire Hathaway shareholders a dividend looks to be on thin ice. In his annual letter to shareholders the Sage of Omaha defended his long-held objection to cash payouts. But the firm performance over the past four years has been disappointing and Buffett reckons it won’t match its glory days again. That’s likely to increase the chances of a cash payout, whether from Buffett or his successor.
from Breakingviews:
M&A advisers get a lot of Valentine’s Day love
By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Cupid emptied his quiver in Wall Street’s direction on Thursday. Over $36 billion of corporate affection, in the form of mergers and takeovers, was announced this Valentine’s Day. Two transactions alone, the buyout of H.J. Heinz by private equity firm 3G Capital and Warren Buffett’s Berkshire Hathaway and the union of American Airlines parent AMR and US Airways, required the services of two dozen banks and law firms. Hearts must be racing for M&A advisers everywhere.
from Breakingviews:
Heinz deal gives taste of new buyout secret sauce
By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Heinz ketchup is giving markets a taste of private equity’s new secret sauce. Buyout firm 3G Capital is swallowing the condiment king for $28 billion with Warren Buffett’s help. In the past, such mega-LBOs required multiple firms to work. With so-called club deals all but dead, the Heinz takeover shows the new way forward.
from Chrystia Freeland:
Income inequality: Government, Warren Buffett and growth
When Branko Milanovic, a World Bank economist, published "The Haves and the Have-Nots," a study of global income inequality last year, one of his most striking observations was the extent to which the subject was taboo in the United States.
As Milanovic explained, "I was once told by the head of a prestigious think tank in Washington, D.C., that the think tank's board was very unlikely to fund any work that had 'income' or 'wealth inequality' in its title. Yes, they would finance anything to do with poverty alleviation, but inequality was an altogether different matter."
from Breakingviews:
Wells Fargo in mortgage mire, just like the others
By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Wells Fargo is stuck in the mortgage mire, just like other big U.S. lenders. Warren Buffett’s favorite bank trades at a premium to U.S. rivals like Bank of America and JPMorgan, partly thanks to a carefully cultivated “not Wall Street” image. But the West Coast bank had no trouble cooking up its own questionable home loans during the housing boom.
from MuniLand:
Warren Buffett’s municipal weapons of mass destruction
A lot of ink has been spilled recently over Berkshire Hathaway's move to close out $8 billion worth of municipal credit default swaps. Journalists and market commentators have wondered whether Warren Buffett has soured on municipal bonds as an investment vehicle and whether other investors should as well. The latest bit of speculation comes from Charles Gasparino, who writes that the move was most likely political and had to do with disagreements with President Obama over the politics of welfare. Gasparino's piece in the New York Post may be the most convoluted thing that I've ever read about municipal bonds:
"And even if, when you dig deeper, the move suggests Buffett wasn't making a bet against all munis but only those that adopt some of the same policies he and President Obama are advocating on a national level."
from Breakingviews:
BYD caught in two Chinese economic traps
By Wei Gu
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Warren Buffett doesn’t usually like companies in which the top managers are selling when the share price falls. By that standard, the Omaha investor must not be too happy with his Berkshire Hathaway’s 2008 purchase of 9.9 percent of Chinese electric automaker BYD.
from Jack Shafer:
The great newspaper liquidation
In his 2004 book The Vanishing Newspaper: Saving Journalism in the Information Age, Philip Meyer imagined "the final stages" of a "squeeze scenario" by a newspaper owner who wanted to exit the business but didn't want to actually sell the title: He would start charging more for his newspaper and delivering less, commencing the "slow liquidation" of his property. This slow liquidation would not be immediately apparent to observers, Meyer wrote, because the asset "being converted to cash" would be "goodwill" – the newspaper's standing in the community and the habit of advertisers and subscribers of giving it money.
One reason an owner would want to extract a newspaper's goodwill value before selling its physical assets – its real estate, presses, computers, trucks, paper, ink, etc. – is that traditionally, goodwill is where most of a newspaper's value has resided. When Meyer asked two newspaper appraisers to estimate how much of a newspaper's value was locked up in goodwill versus physical assets, both gave him the same answer: 80 percent goodwill, 20 percent physical assets.
