Commentaries

Now raising intellectual capital

from Rolfe Winkler:

Lunchtime Links 2-1

President's budget (gpoaccess.gov)

Barney Frank: The poor should rent, not own (Indiviglio, Atlantic)

Citigroup said to plan sale of private equity unit (Keoun/Keehner, Bloomberg) Citi cites raising cash to pay down debt as the reason to sell this unit. Of course this would also get Pandit some brownie points with Paul Volcker, who wants commercial banks out of private equity, hedge funds and proprietary trading...

HCA owners get $1.75 billion payout (Lattam, WSJ) Speaking of private equity...a nice payout for investors in one of the biggest LBOs in history.

All those little Stuy towns (Morgenson, NYT) Bullying as a business model...

Goldman Sachs and the $100 million question (Times UK) This is a thinly sourced article that claims Lloyd Blankfein will get a blowout $100m bonus for 2009. If true, talk about giving the finger to, well, pretty much everyone.

Five myths about America's credit card debt (Manning, WaPo)

Happy palindrome day! (imgur)

Barefoot running: How humans ran comfortably, and safely, before the invention of shoes (Science Daily)

True confessions

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Journalists are suckers for a confessional story.

There’s belief among journalists that confessional stories carry more resonance with readers because they often are narrative tales about insiders fessing-up to the truth.

And so today we have Andrew Ross Sorkin in The New York Times telling us the great confession of British private equity chieftain Guy Hands. What’s Hands’s great admission? That private equity firms charge excessive fees to investors and that highly-leveraged takeover artists aren’t always the great managers they purport to be.

Tax high earners (but not me) says Ronald Cohen

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Ronald Cohen, friend of Gordon and multi-millionaire founder of Apax Partners, would like to put something back into society. More accurately, he’d like those who are trying to replicate his own career to put something back into society, in the form of higher taxes.

Plugging his latest private equity venture, which promises to look at social as well as financial returns, in the Sunday Telegraph, he is quoted as urging “higher levels of taxation for very high levels of remuneration.”

Moulton’s parting shot at Alchemy

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- Jon Moulton Reuters file photoReal Business is running a copy of what it says is Jon Moulton’s resignation letter from Alchemy.

It is full of wonderful nuggets about the private equity boutique he set up in 1997 and gives insight into a wider malaise in financial services.  Moulton is not saying if the letter — which is addressed to investors — is authentic.

The letter’s parting words capture the tone: “I would do it again – but better“.

Take the L out of LBO

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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.

The FDIC plays hide the ball too

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The Federal Reserve is fighting hard to keep details about the $2 trillion in emergency loans it has made during the financial crisis from seeing the light of day. And now it seems the Federal Deposit Insurance Corp. also has started playing the game of keeping secrets from the public.

The American Banker earlier this week reported that the FDIC is holding back on disclosing information about failed bids for troubled banks the government agency has taken over. The industry newspaper reports the FDIC is delaying the processing of Freedom of Information Act requests seeking such information, while the agency reviews its disclosure policy.

from Rolfe Winkler:

FDIC lowers capital rule, but there’s a twist

FDIC concluded its quarterly board meeting earlier this afternoon and the big news is it approved lower capital requirements for private equity shops looking to buy failed banks.*

But the weaker requirements come with a silver lining.

The previous proposal was that banks in the hands of private equity would have to maintain Tier 1 capital of 15%, triple the standard of 5% that is currently considered "well-capitalized."  [Your humble columnist thinks that threshold is way too low, but that's another discussion].

from Neil Unmack:

Bond investors won’t bail out private equity

Private equity and European high-yield bond investors have an awkward relationship. Investors recoiled from the market after telecom companies went bust in the dot-com crash. Issuance picked up during the recent credit boom, but PE firms raised most of their funding through private bank loans, many of which were repackaged into collateralised loan obligations (CLOs).

Now that banks won't lend and the CLO machine is broken, financial sponsors need to find a way of refinancing the hundreds of billions of euros of loans that will come due over the next five years (S&P estimates over 500 by the end of 2015).

The right route for National Express

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NATIONALEXPRESS/    It’s hard to get too excited about bus and coach travel. So why is there so much interest in taking over British bus and rail group National Express?
    Buses, including ferrying kids to school, and coaches are relatively recession proof. National Express ran into trouble by running more than a billion pounds in debt by expanding too far in the U.S. and Spain. It also over-bid for a British rail franchise, the east coast main line, and ended up such big losses that it was forced to surrender it.
    The business faces a potential liquidity crunch. It must repay a 540 million euro loan maturing in September 2010, which is daunting given its market capitalisation is only 515 million pounds. Moreover its two other rail franchises are under threat if the government tries to exercise a “cross-default” clause because of the east coast surrender.
    These mistakes cost its chief executive, Richard Bowker, his job. They now threaten its independence, with opportunistic bidders — including its largest shareholder, a private equity firm and its biggest competitors Stagecoach, FirstGroup and Go-Ahead — all sniffing around.
    The latest bidder to declare an interest, Spain’s Cosmen family, which already holds some 18.5 percent of National Express, has even teamed up with a private equity bidder, CVC, in order to offer cash. The Cosmens know the value of the Spanish business. After all, they sold Alsa to National Express in 2005.
    There is more than an air of vultures descending. After all, broker UBS puts a sum-of-the-parts enterprise value of almost 1.6 billion pounds on National Express, while Cazenove reckons it is worth 1.8 billion to 2 billion pounds. Strip out the debt and the equity is worth 530 to 909 million pounds, with a per share value of 350 to 530 pence.
    That’s above the current price of 344 pence. It also puts into perspective a putative offer price of 400 pence, which is the level at which the National Express board is reported to be willing to start talking.
    Fear of being lowballed may explain why shareholders are talking about stumping up for a rights issue of as much as 350 million pounds ($586 million) rather than cashing out.
    This would eliminate the liquidity crunch risk and buy National Express some time, while the company appoints a new chief executive. It would eliminate the need for a fire sale.
    Whether investors are serious about shutting bidders out and letting National Express trade on to recovery remains to be seen. It could of course just be a negotiating tactic to squeeze out a higher price.
    It will be intriguing to see how the Spanish, or indeed any of the other bidders, react.

CIT doomed by PE

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The most compelling argument for saving CIT Group from collapse is the impact it would have on small- and mid-sized business that depend on the New York-based lender for financing. But it’s increasingly looking like that argument is more hype than anything else.

First of all, CIT pretty much hasn’t been doing any new lending for the past six months, when its financial troubles really began to mount. Most of the lines of credit the firm has out to hundreds of thousands of small companies were arranged long before the collapse of Lehman Brothers.

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