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Rights and wrongs at Lloyds Banking

If you’ve ever wondered how the big-shot investment bankers “earn” their bonuses, the document launching Britain’s biggest rights issue will give you a clue. Lloyds Banking Group is issuing 36,505,088,579 new shares, to add to the 27,161,682,366 currently in issue.

The new shares will raise 13.5 billion pounds, of which 500 million pounds will disappear in the expenses of the offer. Much of this is paid to the banks which are guaranteeing that Lloyds gets its money, a reward for the risk they are taking that the shareholders will fail to take up their rights.


So just how big is this risk? Here’s one way to look at it. The rights price is 37 pence, and as long as the Lloyds share price remains above that, the risk is minimal. At 37 pence, engorged Lloyds, with 63,666,770,945 in issue, would be capitalised at 23.5 billion pounds, including the 13.5 billion pounds of new money. On Tuesday, the day the issue was priced, with Lloyds old shares at 91 pence, the business was valued at 23.5 billion pounds.

 In other words, for the underwriters to pay up, the value of old Lloyds would have to slump from 23.5 billion pounds to 10 billion pounds – and all by December 11, the day on which the new money is due.

Bye bye Mack

John Mack is making way for a changing of the guard at Morgan Stanley.

The Wall Street firm says Mack is stepping aside as CEO at year’s end to make way for James Gorman, long seen by many on Wall Street as Mack’s heir apparent.

Mack will remain as chairman.

The move is not surprising. The past year, of course, has been a grueling one for Mack and Morgan Stanley. But his energy level has been running on low and it’s clearly time for a new direction at the firm.

from Rolfe Winkler:

SEC should get tougher with BofA

In the Bank of America Merrill Lynch bonus imbroglio, the SEC has proposed a settlement in which, once again, the defendants neither admit nor deny wrongdoing.

Once again, the corporation would pick up the fine while responsible individuals escape uninjured. And once again, the public would be left wondering what actually happened. This isn't justice, nor will it deter fraud.

The SEC is still lame

Don’t believe the hype about the new sense of “urgency” at the Securities and Exchange Commission.

The Wall Street Journal reports that the SEC’s recent string of enforcement actions against Bank of America, General Electric and former AIG chieftain Hank Greenberg is part of a new get tough campaign by SEC Chairman Mary Schapiro. But don’t believe it.

from Rolfe Winkler:

Judge Rakoff wants facts! Notes from yesterday’s hearing

Hopped over to courtroom 14-B at 500 Pearl Street yesterday afternoon where I saw Judge Jed Rakoff hammer SEC and Bank of America lawyers over the proposed settlement regarding Merrill Lynch bonuses.

The news is that Rakoff refused to approve the settlement.  He ordered the lawyers to get to the bottom of the "who/what/where" of the case, saying the settlement "seems to be lacking in transparency."  He's asked them to file briefs answering those questions on the 24th, and then responses on September 9th.

Judge Rakoff’s People’s Court

Judge Jed Rakoff’s courtroom at the federal district court in Manhattan will turn into a people’s court of sorts as he looks to get to the bottom of the paltry $33 million Bank of America settlement with the SEC, which was looking into whether the bank misled shareholders about bonuses paid to Merrill Lynch employees.

The settlement amount is peanuts next to the $5.8 billion in authorized Merrill bonuses and the billions the government injected into the bank to keep it afloat.

Time for BofA to come clean

It may be outrage fatigue, but it is surprising that there has not been more of a public outcry over whether Bank of America misled investors about its acquisition of Merrill Lynch.

Yes, there were three House committee hearings about the deal, but the focus of those was on whether the Treasury and Federal Reserve bullied Ken Lewis, the Bank of America, into closing the deal for the good of the financial system.

Come on Massey: man or mouse?

Bank of America’s settlement with the Securities and Exchange Commission sheds some light on the shambolic merger agreement the bank struck with Merrill Lynch last autumn, and how it neglected to inform its own investors of the monster bonuses it then allowed Merrill to carry off.

The word “allowed” is the mot juste here, by the way. The key schedule to the merger agreement (undisclosed by BofA but revealed by the SEC) makes it clear that BofA authorised what was in the end a payola of $3.6 billion in accelerated bonuses to Merrill bankers, 60 per cent of which was paid in cash.

John Thain was right

John Thain has been pilloried for the billions of dollars in bonuses paid to Merrill Lynch employees despite the firm’s $27.6 billion loss for 2008. He has taken the brunt of the criticism because Bank of America has said that the decision to pay $3.6 billion in Merrill bonuses before the end of the year, before the deal closed, was solely Thain’s. The former Merrill CEO has protested, telling the Wall Street Journal in April that “the suggestion Bank of America was not heavily involved in this process, and that I alone made these decisions, is simply not true.”

It turns out that true to his reputation as a straight-arrow Boy Scout, Thain was telling the truth. BofA was not forthcoming on the bonus process, according to the Securities and Exchange Commission, which says that the bank made “false and misleading statements” about bonuses in its joint proxy statement on the deal. The S.E.C.’s complaint, which BofA agreed to settle by paying a $33 million penalty, says:

Apocalypse Then

How bad was the financial crisis in the bleak depths of September?

At today’s House Oversight subcommittee hearing on the Bank of America/Merrill Lynch merger, Representative Paul Kanjorski, the Pennsylvania Democrat, tried to coax Hank Paulson, the former Treasury secretary, to describe the potential doom and gloom policy makers were contemplating as the TARP proposal was being drafted.

Paulson was reluctant to be drawn out on what he and others had feared, but said that “when a financial system breaks down… the number of unemployment we were looking at was much greater than the number we are looking at now.”