Commentaries
Now raising intellectual capital
John Meriwether writes to investors (again)
This purports to come from the hedge fund investor John Meriwether but mysteriously carries a Nigerian postmark:
Dear friend,
Greeting,
Permit me to inform you of my desire of going into business relationship with you. I got your contact from the International web site directory. I prayed over it and selected your name among other names due to it’s esteeming nature and the recommendations given to me as a reputable and trust worthy person I can do business with.
My name is John Meriwether and I am a very wealthy financier in Greenwich, Conneticut, the economic capital of US. I have been managing investment funds for welthy business associates, taking advantage of relative value arbitrage strategies. This is 100 per cent guaranteed safe way to make double digit investment returns every year and was revealed only to me by internationally renowned Nobel prize winning economists. My track record – with LTCM and JWM Partners – speaks for itself.
I have now identified new investment opportunity, that has caused the need for another big transfer of funds. If you would assist me in this, it would be most renumerative to you. Sir, I am honourably seeking your assistance. I need the funds as quickly as possible. I am offering a double digit return on these funds, net of my 2 and 20.
Take the L out of LBO
In a perfect world, we would simply ban leveraged buyouts. The vast majority of these debt-laden corporate takeovers are no less predatory and value-destroying to a company than a loan shark who charges usurious rates of interest.
Realistically, a prohibition on private equity deals will never happen, given the big dollars involved in these transactions and the sizeable campaign contributions that private equity chieftains shower on politicians from both parties.
from Rolfe Winkler:
When genius (finally) gets wise
The people who brought you the Long-Term Capital Management debacle want banks to get serious about cutting their own leverage, applying fair value accounting to a wider range of assets.
Writing with two colleagues in the Financial Times on Tuesday, Nobel Laureate Robert Merton said banks, their regulators and legislators are conspiring to conceal depressed asset prices in order to avoid dealing with the consequences of insolvency. He wants wider adoption of fair value accounting to force banks to fess up to losses and raise more capital.
from Rolfe Winkler:
Banks still need bigger cushions (Q2 TCE update)
It was a surreal moment two weeks ago when analysts on Goldman Sachs’ earnings conference call pressed CFO David Viniar to jack up leverage. They seem to think that the worst of the credit crisis is behind us, so Goldman should goose its risk profile to increase returns. This is remarkably short-sighted.
Yes, leverage is down, but only relative to the obscene levels reached a year ago. Measured by tangible common equity, the biggest banks are still levered over 20 to 1. If banks learn nothing else from the financial crisis, it’s that they should err on the side of prudence, carrying substantially more capital than appears necessary.
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The Wall
