Spitzer: S.E.C. still asleep at the switch
Seems like old times.
Eliot Spitzer, who rose to national prominence in 2002 when he forced a sleepy S.E.C. to crack down on conflicted analyst research, is none too pleased to hear that his old rivals recently joined 12 Wall Street banks in seeking to knock big holes in that wall.
Asked for his thoughts on this Wall Street Journal article that broke the news, this is what he had to tell Reuters in an exclusive interview:
“For the S.E.C. to join with the banks to diminish consumer protections with respect to the quality of advice and research is absolutely and fundamentally violative of their duty to the public. This one more example of the S.E.C. being in in the tank.”
It’s almost as if we turned the clocks back seven years. Spitzer gained his crusading “Elliot Ness” reputation in 2002 when he took the unprecedented step of probing banks and threatening to prosecute Wall Street executives, stepping around a passive S.E.C.
Yet even after Mary Schapiro replaced the ineffective Christopher Cox as the agency’s chairman, the Feds still appear reluctant to get tough, he said.
“Where has the SEC been in the last year? Are they dropping subpoenas and making the case for the accounting frauds we know are there, with respect to misleading statements? There’s been lot of talk at the SEC of ’We’re rebuilding. We don’t have enough people.’ Where have they been?”
from Funds Hub:
Icahn’t: Carl says no time for blogging, too little interest
Could Carl's silence be golden?
Our favorite billionaire blogger and corporate raider Carl Icahn is safely avoiding writer's cramp. His Icahn Report, launched to much fanfare as a hub for corporate governance and reform, has not been updated since April 16.
Reuters caught up with Icahn this week to discuss his intervention in CIT's attempted rescue. The legendary investor threw a bomb into the lender's efforts to strike a debt swap deal with its creditors, and to stay in business through a reorganization plan, by offering a $6 billion loan. Asked about the lack of production on his blog, Icahn explained he's been fully engaged this year:
"I've been sort of busy. And right now, with the market up, there's not as much interest in corporate governance like the were was a couple of months ago. I've been so busy, with all these positions we've got. There's a lot going on."
So we checked with Damien Park, who runs activist research group Hedge Fund Solutions LLC and has his own blog tracking activist activity. He observed that Icahn has been seeking board seats at Enzon Pharmaceuticals, Biogen, Amylin and Lions Gate. He was actively pestering Yahoo late last year and has remained a vocal shareholder.
"He's been livelier than most of the larger activist investors this year. That's for sure," Park said.
More interesting, perhaps, is Icahn's point that corporate governance fades as an issue when markets rebound. He announced the blog in 2007 and finally posted his first item on June 2008, as the credit crisis worsened. Perhaps his logging off is a good signal.
from Joseph Giannone:
Alpha Male: Goldman’s Carhart is back
More than a year after one of the hedge fund industry's best known managers departed Goldman Sachs, Mark Carhart re-emerged at a hedge fund conference and told Reuters the big news: he is coming back. You heard it here first.
Mark and his longtime partner, Raymond Iwanowski, retired last March and with research head Giorgio De Santis. More than 12 years of strong performance from Goldman's quant team had made Global Alpha the bank's flagship fund and one of the industry's largest at its early 2007 peak of $12 billion.
But a year before Wall Street imploded, computer driven funds had their own debacle. Global Alpha plunged in August 2007 as stock prices gyrated and interest rates jolted, prompting investors to pull out billions. That after the fund had lagged the average fund in 2006. And so Carhart "retired" at the age of 43.
Back in April this year, market wags speculated Carhart would land at buyout firm KKR to help build an asset management business. Instead, Carhart tells Reuters he intends to start his own firm and launch an "exotic beta" fund with an initial pool of $1 billion. Of course, fund-raising is tough these days, but Carhart, who is sporting longer hair and a easier smile, says he has been spending some rare time off touring the U.S.A. in his Airstream motor home with his family. If he can manage to keep two kids happy while logging thousands of miles, raising ten figures should be doable.
R.I.P. Salomon Brothers
It’s official: Salomon Brothers has been completely picked apart.
Citigroup’s agreement to sell Phibro, its profitable but controversial commodity trading business, to Occidental Petroleum today puts the finishing touches on a slow erosion of a once-dominant bond trading and investment banking firm.
When Sandy Weill (pictured left) staged his 1998 coup – combining Citicorp and Travelers, Salomon Brothers was a strong albeit humbled investment banking and trading force. Yet little by little, a succession of financial crises, Wall Street fashion and regulatory intervention has whittled away at the once-dominant firm.
Not long after the Citigroup was formed, proprietary fixed income trading – once the domain of John Meriwether, was shut down after the Asian debt crisis fueled losses that Weill could not stomach.
The Salomon name disappeared long ago as investment bankers and underwriters were rebranded Citigroup Global Markets.
Now Phibro, the former Philips Brothers that merged with Salomon in the early 1980s, is to be cast off because its energy traders made too much money when the rest of the bank suffered losses and required a $45 billion of taxpayer bailout.
Goldman’s Viniar: Why pay twice?
Turns out Goldman Sachs is a staunch advocate of going organic — when it comes to the money management business.
As Barclays auctioned off its Barclays Global Investors unit this year, Goldman was widely seen as a likely acquirer. That is until Blackrock In under Larry Fink emerged as the buyer with a $13.5 billion deal.
Lots of other money managers are expected to be sold, as the industry consolidates and cash-strapped banks look for valuables to pawn. But Viniar told analysts Goldman’s preference is to grow the business without deals, and appeared to question the very idea of money manager deals.
“If there were an acquisition that made sense financially for us to do, we would certainly consider it,” he said, something he says every three months to calm down excitable analysts. “When we look at the prices of most of the acquisitions, we think that they haven’t made sense in that you’ve had to assume really heroic growth rates that we don’t think are realistic.”
Jefferies Putnam Lovell recently said it counted 35 management deals in the second quarter, compared with 52 deals a year earlier. Besides the BGI takeover, Aquiline Capital Partners acquired Conning & Co, JPMorgan Chase bought the remainder of its Highbridge Capital Management hedge fund unit and Woori Finance purchased Credit Suisse’s 30 percent interest in a joint venture.
Yet Viniar notes money management firm deals are tricky, since buyers have to pay a premium for the company and then put up more money to retain star managers. And even as billions of profits come sloshing into Goldman’s coffers, Viniar apparently doesn’t like to part ways with the firm’s cash.
“It has taken a while, but we’ve grown (the asset management business) quite successfully, almost exclusively organically.” he said. “And the high likelihood is that is the way we are going to continue to grow it in the future.”
from Funds Hub:
Dog Days at Cerberus
Embattled Cerberus Capital Management, a private-equity firm named for the mythological three-headed dog that guards the gates of Hades, has been overwhelmed by clients seeking to withdraw money from its $2 billion hedge fund, Cerberus Partners.
Website FINAlternatives said that fund investors representing 17 percent of the assets wanted to withdraw their money in December, the most recent month for which statistics are available. Now, with Cerberus's investments in Chrysler and GMAC going bad and unemployed investors needing to tap more funds, that figure may be heading higher.
Now, according to this Bloomberg report, Cerberus sent a letter to clients warning them that it could take "years" to meet all the redemption requests, which have stacked up since the firm imposed gates in December.
“The fund’s withdrawal requests have increased substantially since the fund suspended withdrawals, partially because investors wanted to reserve their place in line and partially due to individual investors’ own liquidity needs,” according to the letter.
Like some other hedge fund firms juggling the desires of investors who want their money, with trying to avoid gutting their portfolio with forced selling, Cerberus is considering creating a special vehicle that would carve out a portion of the fund to be liquidated and distributed to investors who want out. But it also says this would not be a quick fix. Company founder Stephen Feinberg told investors the fund “Would be managed by the general partner until it is fully liquidated, a process which might take several years.”
So should Cerberus investors lump the hedge fund in with its auto wrecks? The Cerberus Partners fund lost 16 percent in the year ended last November and fell 3 percent to $1.99 billion in the first two months of February, but at least one private equity investor tells us they are not any worse at this business than their competition. Still, investors may want to tread warily around the three-headed dog when Feinberg says the current mess has created some great new distressed debt opportunities for his firm.
Cerberus spokesman Peter Duda declined to comment for this post.
UBS dodges bigger bullet in tax pact
Embattled Swiss bank UBS struck a deferred prosecution agreement with the U.S. Justice Department that will cost them $780 million. It could have been worse.
Though paying a hefty fine, the Swiss bank is paying ZERO punitive fines, despite conceding that they helped U.S. residents – estimated to number 250 — avoid paying income taxes over an eight year period.
The agreement announced on Wednesday specifies that UBS will give up $380 million of profit from eight years of cross-border business — of which $200 million will be paid to the U.S. Securities and Exchange Commission and $180 million to the Department of Justice — and $400 million for back taxes, tax penalties and restitution for unpaid taxes and interest .
But it will not pay a penalty. In addition to wining points for its cooperation, Uncle Sam evidently took pity on a bank that has already suffered billions of losses from fixed-income trades and investments during the credit crunch. Halfway down Page 3 of the agreement Reuters found this little nugget:
“In recognition of the current international financial crisis and after consultation with the Federal Reserve Bank of New York, the government will forgo additional penalties.”
Not bad considering the 43-page agreement spells out some seriously naughty behavior.
“Beginning in 2000 and continuing until 2007, UBS, through certain private bankers and managers in the United States cross-border business, participated in a scheme to defraud the United States and its agency, the IRS…”
UBS means “you and us”…according to UBS’s latest television commercial. Somehow, UBS is trying hard to connect UBS’s message of “hope” to Senator Schumer’s videotaped remarks that the American taxpayer supposedly doesn’t care about “pork” or earmarks attached to congressional legislation.
We don’t get the connection. We don’t think that UBS Warburg gets the connection either.
We of the Middle & Working Class don’t get UBS at all, Mr. & Mrs. Reader. Our average IRA/401(k) was cut in half when the stock market tumbled from a Dow of 14,093.08 on October 12, 2007, to where the Dow Jones Industrial Average is now, i.e., hovering around 7,000.
We think that President Obama is absolutely correct. That is, in his remarks last night he said that the wealthy few are simply going to have to pay higher taxes. He has drawn the line at taxable incomes above $250,000.
Okay, that takes care of the line in the sand.
Now the question is what will the top marginal rate being increased to? It was lowered to 70% from 91% in 1964. Messrs. Reagan, Rostenkowski, Stockman, O’Neill and others of the so called Reagan Revolution lowered the top rate even further to 50% in 1981, and then to 28% in 1986.
That’s when the progressive tax system was flat out broken.
George H.W. Bush attempted a repair in 1990, raising the top rate to 31%. Bill Clinton went further in 1993, raising the top marginal rate to 39.6%. Something clicked and the deficit was gone by 2000. The U.S. Public Debt was being paid down, and the Social Security Trust Fund ceased to be raided to mask the annual federal budget deficit.
Unfortunately, George W. Bush and William Marshall Thomas reversed course and lowered the top marginal rate to 35% in 2001. Now we’ve got a $3 trillion deficit, a $5.6 trillion FY 2009 federal budget & a $13 trillion U.S. Public Debt. The U.S. Public Debt at the beginning of the Reagan administration in 1981 was $1 trillion (about $2.3 trillion after inflation today). The annual budget in 1981 was a mere $700 billion ($.7 trillion)…jumping to $3.1 trillion in FY 2001…even before adding the bailout, the stimulus & Mr. Bernanke’s toxic waste buyout program (the additional $2.5 trillion altogether).
Yet even with such a mess, the Privileged Class doesn’t want to even pay the Bush top rate of 35%…so here comes UBS for wealth management and tax avoidance. Wow!
The original ratio of bottom marginal rate to top marginal rate in 1913′s first tax rate schedule was 7:1.
That’s what America needs again. The top rate should be 1964′s 70% and the bottom marginal rate should be 10%…thus 7:1 again, i.e., the 15% and bracket should be merged with the 10% bracket and a “line in the sand” on the bottom end of the scale being $250,000 (at most $300,000).
OKJackGroup
oklahomajack.com
Morgan Stanley: Et tu, Mack?
It’s not every day we have to dust off our Latin texts to cover Wall Street news, Morgan Stanley’s plan to acquire Citigroup’s Smith Barney brokerage over the next five years inspired eclectic Bernstein Research analyst Brad Hintz to invoke Julius Caesar: “Alea Iacta Est” “The Die is Cast!”
Hintz, in a client note, draws a parallel between the ambitious young conqueror, who uttered the above while leading his army across the Rubicon to reclaim Rome, with Morgan Stanley CEO John Mack, who with this latest move accelerates the investment bank’s expansion into retail financial services.
He argues the new strategy is not unlike the one advanced by former CEO Philip Purcell, whom Morgan’s board threw overboard in 2005 as the bank lost ground to Goldman Sachs. Purcell launched the Discover credit card and merged his middle-class Dean Witter brokerage with Morgan Stanley & Co in 1997. Over time, he frustrated the white shoe bankers with his aversion to taking investment and trading risks.
Mac, who replaced Purcell in 2005, pushed Morgan Stanley to find its old swagger. He spun off Discover, expanded its mortgage business and deployed more capital to finance leveraged buyouts. But the credit crunch and the collapse of Lehman last fall has forced Morgan, which suffered some major losses, to change gears once again.
“Morgan Stanley has reversed course and revived the old “Phil Purcell strategy” of pursuing retail brokerage and tightly constraining trading risk,” Hintz told his clients in a note.
The Morgan Stanley, once associated with the likes of investment banking stalwarts Dick Fisher, Bob Greenhill and Joe Perella, will become a Federal Reserve-regulated bank that relies on asset management fees, margin lending and commissions from individual investors. It will look a lot like Merrill Lynch or, dare we say, the Purcell-led Morgan Stanley Dean Witter.
(Picture credit:Bust of Julius Ceasar REUTERS/Alessia Pierdomenico, Morgan Stanley Chairman and CEO Purcell gestures during his speech at Fortune Global Forum in Beijing, May 18, 2005. REUTERS/Alfred Cheng Jin)
Morgan Stanley: Word Wise
Investors hang on their every utterance. When bank CEOs and finance chiefs offer their forecasts, stock prices can rally or flop.But Reuters looked back at past predictions made by Morgan Stanley’s chairman and CEO, John Mack, and CFO Colm Kelleher, and discovered that they’re hardly infallible. Consider these classics from a firm which has seen its stock price slammed this year, was forced to raise $19 billion of fresh capital and just posted its second loss in five quarters:“While we expect 2008 to be another growth year, we do not expect the current growth trajectory in revenue and return on average common equity to continue.”(Nov. 13, 2007 –Kelleher at Merrill Lynch banking conference) ”It looks like the Fed and everyone else is determined to keep the economy from entering into a prolonged recession.”(March 19, 2008 — Kelleher told Reuters in an interview) ”If you look at the subprime problem in the U.S., you would say we’re in the eighth inning or maybe the top of the ninth. Leveraged lending, as we know it, is in the ninth inning.” (April 8, 2008, Mack told Reuters in a sideline interview before the firm’s annual meeting. ) ”We’re in the zone.”(Jun. 18, 2008 — Kelleher told Reuters, explaining the firm was done reducing leverage and was considering boosting assets again as opportunities arose) ”The diversification of the businesses in capital markets is what drives the broker-dealer model … More important, investment banks have the ability to reinvent themselves and innovate many times throughout a cycle.” (Sept. 16, 2008 — Kelleher told Reuters. Five days later, the firm sought Federal Reserve permission to become a bank holding company) It just goes to show you, investors should heed the wise words read out before every conference call:“You’re cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made and which reflect management’s current estimates, projections, expectations or beliefs, and which are subject to risks and uncertainties that may cause actual results to differ materially.”No kidding…
Goldman $ach$ names partner$
It’s not all bad news on Wall Street, at least not for those at the top of the heap.
Goldman Sachs, who pays out the most in bonuses each year, on Wednesday named 94 new members to its elite club of partner managing directors. This group of 443 men and women typically share a fifth of the firm’s bonus pool, which is nothing to sneeze at, even if compensation is down this year.
Below is the memo and the list:
—
October 29, 2008
Goldman Sachs Announces the Partner Class of 2008 We are pleased to announce that the following individuals have been invited to become partners as of November 29, 2008, the start of our next fiscal year. These appointments recognize the contributions and potential of some of the firm’s most valued senior professionals.
Paul R. Aaron
Sean J. Gallagher
David M. Marcinek
Heather K. Shemilt
Sanggyun Ahn
Gonzalo R. Garcia
Blake W. Mather
Magid N. Shenouda
Philip S. Armstrong
Paul E. Germain
John J. McCabe
Suhail A. Sikhtian
Charles Baillie
Paul Graves
John J. McGuire Jr.
Gavin Simms
Philip R. Berlinski
E. Glenn Hadden
Milton R. Millman III
Marshall Smith
Robert A. Berry
Jonathan J. Hall
Christopher Milner
John D. Storey
Oliver R. Bolitho
Jan Hatzius
Christina P. Minnis
Patrick M. Street
Patrick T. Boyle
Martin Hintze
Takashi Murata
Ram K. Sundaram
Stephen Branton-Speak
Todd Hohman
Todd G. Owens
Robert J. Sweeney
Anne F. Brennan
James P. Houghton
Craig W. Packer
Michael J. Swenson
Samuel S. Britton
Paul J. Huchro
Gilberto Pozzi
Jeffrey M. Tomasi
Jason G. Cahilly
Hidehiro Imatsu
Lora J. Price
David G. Torrible
Martin Cher
Alan S. Kava
Lorin P. Radtke
Frederick Towfigh
Denis P. Coleman III
Dimitrios Kavvathas
Richard M. Ramsden
Greg A. Tusar
Kevin P. Connors
Larry M. Kellerman
Michael J. Richman
Andrea A. Vittorelli
James V. Covello
Hideki Kinuhata
Michael Rimland
Paul Walker
Jeffrey R. Currie
Michael E. Koester
Luigi G. Rizzo
Alasdair J. Warren
Albert F. Dombrowski
J. Christopher
A. Kojima
Scott A. Romanoff
Dominic A. Wilson
Thomas M. Dowling
Michiel P. Lap
Julian Salisbury
Steve Windsor
L. Brooks Entwistle
Brian J. Lee
Paul D. Scialla
Martin Wiwen-Nilsson
Stephan J. Feldgoise
David A. Lehman
Peter E. Scialla
Denise A. Wyllie
Benjamin W. Ferguson
Deborah R. Leone
Peter A. Seccia
Han Song Zhu*
Wolfgang Fink
John S. Lindfors
Rebecca M. Shaghalian
Timur F. Galen
H.C. Liu
Devesh P. Shah * Employee of Goldman Sachs Gao Hua Securities Company Limited
We congratulate all of those selected and wish them continued success in their careers. These decisions are extremely difficult and we would like to acknowledge the contributions of those who were not selected this year. We are confident that many of them will be selected in the future. Lloyd C. Blankfein Jon Winkelried Gary D. Cohn
Wow that is a long list. Wonder what it will look like next year.
It may be nice to know why the SEC is reluctant to go after the bank?