Feeding frenzy for lawyers in botched Facebook IPO
By Tom Hals and Dan Levine
(Reuters) – Facebook Inc’s bungled initial public offering has gone from one of the most highly anticipated stock offerings to a hot legal opportunity for lawyers on both sides of shareholder litigation.
Court battles over the fizzled IPO could run for years, as the social networking company, the banks that took it public and the Nasdaq OMX Group Inc face claims that they short-changed investors.
Besides fighting off claims by Facebook shareholders, the defendants will also need lawyers to respond to inquiries from government investigators looking into how the IPO was handled.
All of this creates a growing legal headache that could pit defendant versus defendant in assigning blame for the IPO fiasco, said Jacob Frenkel, a partner at law firm Shulman Rogers Gandal Pordy & Ecker and a former enforcement lawyer with the U.S. Securities and Exchange Commission.
“I think we should expect a lot of finger pointing,” Frenkel said. “That’s the exact reason that this is going to be such an opportunity for law firms.”
Facebook’s IPO raised $16 billion and briefly put a $100 billion stock market value on the company. But the stock has slumped about 16 percent since the glitch-filled offering on May 18, and the legal problems are mounting.
UK watchdog should starve “free” banking
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By George Hay
LONDON, May 24 (Reuters Breakingviews) – Andrew Bailey has a point. The UK’s chief bank regulator-in-waiting has taken aim at one of the peculiarities of Britain’s retail banking system: customers generally do not pay for services like current accounts, using cash machines and writing cheques. As Bailey notes, this perpetuates the UK’s banking oligopoly. It is also fiendishly difficult to unwind.
Large UK banks spend billions of pounds a year on their domestic payment systems. When interest rates were well over 10 percent in the 1980s, lenders financed this by paying very little for deposits and deploying the surplus cash. As rates have fallen, however, this income has dried up. Instead, banks now impose eye-watering charges on unauthorised overdrafts. They have also focused on plying customers with duff products like Payment Protection Insurance – now the source of huge compensation claims.
This system is regressive and opaque. The logical solution would be to follow the example of many banks in continental Europe, which tend to levy a monthly charge for current accounts. But such a seemingly regressive move would cause a huge political stink that an already-unpopular industry can ill afford. Besides, the first bank to act would risk losing angry customers to its competitors. Any co-ordinated action would look like collusion.
If regulators imposed some minimum charge they would face a public and political outcry. But if they cap the overdraft charges that banks can levy, they would achieve two goals. First, they would look tough. Second, lenders would be forced to find other ways to fund their payments systems, giving them an incentive to charge.
Banks could then start “nudging” their customers. The right to not pay for basic banking services could be preserved. But banks could gradually introduce some fees, while simultaneously offering customers the opportunity to avoid those fees in return for a flat charge.
Eurovision a good metaphor for lack of euro vision
By George Hay
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The euro zone crisis is everywhere. The political and economic plight of Greece and Spain has reached fever pitch. And now awareness of the splintering currency area’s economic realities has reached the Eurovision Song Contest.
This annual musical cacophony, which dates back to 1956, features execrable europop sung by a succession of bizarre d-list pop stars who have somehow been deemed representative of their national culture. Voting takes ages and is conducted by hapless TV anchors of the host nation beaming live to all 26 participating countries in turn. In terms of efficiency, it has a lot in common with the actual euro zone.
This year it’s hard to resist hunting for subliminal messages in each nation’s songs. Part of the sober Finns’ entry translates as “Close Your Eyes”, summing up what most taxpayers in Helsinki want to do at the thought of fiscal transfers to the indebted periphery. On the other hand, Slovakia’s entry underlines the difficulty of getting all 17 members to reach a consensus: it’s called “Don’t close your eyes”.
Other entries are even more revealing. The Spanish have submitted “Stay with Me”, a transparent plea to German chancellor Angela Merkel to not abandon them. Germany’s own effort sums up its ponderous approach to the crisis. It’s called “Standing Still”.
But one entry actually addresses the crisis directly – and that country isn’t even in the euro zone. Montenegro’s song, “Euro Neuro”, is three minutes and five seconds of ostensible gibberish rapped by a middle-aged Montenegrin who goes by the unlikely name of Rambo Amadeus. But it contains a compelling message.
“Mini-Madoff” ordered to pay ex-partners $35 mln
May 22 (Reuters) – The founder of a hedge fund was found on Tuesday to have defrauded his former partners and was ordered to pay them $35 million in a case described by one lawyer as a “mini-Madoff.”
James Crombie, a one-time JPMorgan Chase & Co trader, was ordered by a Delaware Court of Chancery judge to compensate Peter McConnon and Timothy Lyons for their contributions to starting Paron Capital Management LLC and for lost future earnings.
According to Tuesday’s 36-page opinion by Judge Donald Parsons, McConnon and Lyons left lucrative jobs at financial firms in 2010 and teamed up with Crombie to market his quantitatively based trading program, which was producing returns of 25 percent to 38 percent.
Less than a year after founding Paron, the two learned that Crombie was “a mini-Madoff,” according to Noah Hagey, of BraunHagey & Borden LLP, who represented the former partners.
Crombie had forged account statements, investment statements and had hidden personal debts.
Accounts that Crombie claimed held $24 million in fact held $40, according to Parsons’s opinion. “Many of the representations Crombie made about his track record, employment history, and personal financial situation were outright lies,” Parsons wrote.
Crombie, who represented himself, could not be reached for comment.
Martin Marietta appeal moved to eve of Vulcan meet
By Tom Hals
(Reuters) – Martin Marietta Materials Inc’s (MLM.N: Quote, Profile, Research, Stock Buzz) appeal of a lower court ruling that halted its $5 billion hostile tender for rival gravel maker Vulcan Materials Co (VMC.N: Quote, Profile, Research, Stock Buzz) was postponed to May 31, the day before a key Vulcan shareholders meeting.
The Delaware Supreme Court had originally scheduled the oral argument for May 25.
Martin Marietta hopes to overturn a decision by Delaware’s Court of Chancery that barred for four months both the tender offer and a proxy contest for Vulcan’s board as punishment for violating a confidentiality agreement.
Martin Marietta hopes to elect four board members at Vulcan’s June 1 annual meeting. While that would be a minority position, Martin Marietta hopes the new board members could convince its bigger rival to accept the merger offer.
Martin Marietta said merging the two companies would produce $250 million in annual cost savings.
If the Supreme Court overturns the lower court ruling, it could take an “aggressive” move and order the Court of Chancery to postpone the Vulcan meeting until new proxy materials could be prepared, according to Larry Hamermesh, a professor at Widener University School of Law in Wilmington Delaware.
Cyprus’ bank bailout may not be the last
By George Hay
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Is nomen omen? Last month Cyprus appointed an economist called Panicos Demetriades as central bank governor. On Friday, the euro zone minnow committed to pump 1.8 billion euros, or 10 percent of GDP, into Cyprus Popular Bank (CPB) if its second largest lender can’t raise it privately. What’s more, this may just be a holding operation. If Greece quits the euro, Cypriot banks and the state itself will need more help.
CPB’s immediate capital deficit stems from the stress test conducted last December by the European Banking Authority, which left it needing to find 2 billion euros by the end of June. Given that its market capitalisation is now only 211 million euros, don’t count on shareholders lending a hand.
The good news for Cyprus is that CPB’s slightly larger peer Bank of Cyprus is only 200 million euros away from hitting its own 1.6 billion euro EBA target, following a rights issue. The bad news is that just sorting out CPB alone will put a serious dent in the country’s finances. If all 1.8 billion euros is used, the state’s debt would rise from 72 percent of GDP to 82 percent.
And looming over everything is what’s happening in Greece. Bank of Cyprus and CPB each have about 10 billion euros of Greek loans, of which already 13 percent and 19 percent respectively are non-performing. In the event of a Greek exit from the euro, they would both need further capital. Although the central bank’s data from the end of March doesn’t show any deposit flight, the lenders might also require help on liquidity.
Even without a Greek exit, the government’s finances are stretched. Last year it had a 6.3 percent budget deficit and received a 2.5 billion euro loan from Russia, with which it has close financial ties. The IMF thinks the economy will shrink 1 percent this year. In the long run, offshore oil deposits may provide some salvation. But if Athens brings back the drachma, Nicosia will be hard-pressed to avoid its own bailout from the euro zone.
Greek banks’ twin crutches are rickety
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By George Hay
LONDON, May 16 (Reuters Breakingviews) – Greek banks are in suspended animation. The stricken state’s lenders had been waiting for elections on May 6 to deliver not only a new government, but also much-needed details on how they will be recapitalised. Instead, domestic political deadlock means they will have to wait another month for a new election. In the meantime, deposit flight has accelerated. The country’s president revealed that depositors had taken 700 million euros out of the system on Monday alone.
The country’s banks are kept afloat by the promise of a recapitalisation from euro zone/IMF bailout funds and emergency liquidity assistance (ELA) from their own central bank. But both crutches would be kicked away if Greece pulls out of its bailout programme.
Look first at capital. The recent haircut on Greek sovereign debt left huge holes on banks’ balance sheets. The February bailout earmarked 48 billion euros to repair them. Of this, 25 billion euros has already been handed to a Greek government-run pot of money called the Hellenic Financial Stability Fund
(HFSF).
If Greece rips up the bailout deal, it will certainly not get the remaining 23 billion euros. What’s less clear is what will happen to the 25 billion euros sitting in the HFSF. The euro zone couldn’t just grab the money back. On the other hand, the HFSF wouldn’t have a free hand to pump it into Greek lenders as the euro zone and IMF oversee the process – and have some rights to cancel the facility in the event of a sovereign default. Expect a messy wrangle.
Dimon’s ‘stupid’ admission: catnip for lawyers?
WILMINGTON, Del, May 14 (Reuters) – Jamie Dimon sounded more like a plaintiff’s attorney than a chief executive when he described JPMorgan Chase & Co over the weekend as “stupid” and “sloppy” for its $2 billion trading loss.
But for any shareholder seeking to seize on those comments as grist for a securities lawsuit against the bank and its executives, it likely will be tough to use Dimon’s words against him, according to lawyers and legal experts.
“I guarantee someone will put in their complaint that he said ‘we screwed up,’” said Steven Toll, a plaintiff’s attorney with Cohen Milstein Sellers & Toll PLLC in Washington w h o specializes in bringing shareholder lawsuits. “It’s good color, but is it an admission of fraud? No. For a fraud case, it won’t carry the day.”
Investors may have potential federal securities fraud claims against the bank if they can prove that JPMorgan and its managers knew of the potential for such a large loss and recklessly hid that from investors or misled them about it. The loss has tarnished the bank’s reputation for risk management and turned embarrassing attention on Dimon, a critic of heightened financial regulation.
Plaintiff’s attorneys said they were discussing with unspecified institutional investor clients possible legal action, including lawsuits or dialogue with the bank on ways to improve governance.
JPMorgan on Monday did not immediately respond to a request for comment on possible litigation. A search of public court records in New York and Delaware, where the company is incorporated, did not reveal any investor lawsuits against the bank over the trading loss as of Monday afternoon.
Dimon said in a television interview broadcast on Sunday that “we know we were sloppy. We know we were stupid. We know there was bad judgment.”
Ford jests CEO Mulally will stay until he’s 80
, May 10 (Reuters) – If Warren Buffett can run a company in his 80s, why can’t Ford’s Alan Mulally?
Top executives at Ford Motor Co have fielded questions for months about just when Mulally, 66, plans to retire as the company’s chief executive. So far the No. 2 U.S. automaker has kept his plans quiet – mostly.
“Well, we said 2025,” Chairman Bill Ford Jr joked to reporters after the company’s annual shareholder meeting in Wilmington, Delaware, on Thursday. “Maybe 2030.”
Mulally turns 85 in 2030. If he stays, he would be among a handful of corporate octogenarians like Buffett, the CEO of Berkshire Hathaway Inc. Buffett will turn 82 this year and said two years ago that he would like to work past 100.
Analysts, however, expect Mulally to leave within about two years. At the meeting Thursday, Mulally simply said, “We have a robust succession plan for every member of the team.”
The prospect of Mulally’s exit is one factor that has hurt Ford’s stock this year, Morgan Stanley analyst Adam Jonas said in a research note last week. So far in 2012, Ford shares have been flat, while the S&P 500 has risen about 8 percent.
Mulally took the reins at Ford in 2006, when the company was mired in a financial crisis. But the automaker rallied around the “One Ford” motto, Mulally’s strategy to unify Ford’s once-disconnected business units to drive down costs and build a global brand.
Dresdner bonus ruling thankfully won’t spark trend
By George Hay
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Investment bankers have just found a way to make themselves even less popular. Over a hundred former Dresdner Bank employees on May 9 won their claim in London’s High Court against Commerzbank, for non-payment of almost 52 million pounds of bonuses awarded in 2008. The case is likely to enrage taxpayers. Thankfully, though, it won’t spark a trend.
On the face of it, the ruling sounds like a disturbing victory for pre-crunch selfishness. The bankers launched their legal action after Commerzbank slashed bonuses by 90 percent shortly after it took over Dresdner during the financial crisis. Given that Dresdner lost more than 6 billion euros in 2008, that seems entirely reasonable. The bankers might not have had jobs, let alone bonuses, if Commerzbank hadn’t stepped in.
But the case wasn’t about fairness. Instead, it rested on whether a verbal pledge made to Dresdner staff at a town hall meeting in August 2008, which promised they would share a 400 million euro “guaranteed minimum bonus pool”, constituted a binding contractual obligation. The judge ruled that it did. Commerzbank plans to appeal.
With taxpayers and shareholders up in arms about financial sector compensation, the prospect of investment bankers successfully winning payouts through the courts is disconcerting. Fortunately, however, the chances of others making similar claims are slim. The great flaw of pre-crunch bank pay was that it gave employers no comeback when previously profitable bets turned sour. These days, most bonuses are deferred and subject to clawback. If the same scenario was repeated today, the bonuses would have been reclaimed, or not awarded in the first place.
That probably won’t make German taxpayers any happier. But at least the victorious Dresdner bankers are the last of an entitled breed.
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