By Richard Beales and Rob Cox
Prudential’s bosses have taken the heat for the UK insurer’s failed bid for American International Group’s Asian unit, AIA. But Bob Benmosche, AIG’s strong-willed chief executive, tried to steamroll the deal through a lukewarm board. He is respected as an insurance executive. But his future credibility — and AIG’s ability to repay U.S. taxpayers in full — depends on how he goes about fixing the AIA mess.
Benmosche can’t help that Pru executives oversold their ability to close the original $35.5 billion deal for AIA. And on the face of it, the sale was an attractive way for AIG to repay a big chunk of taxpayers’ cash faster than would have been possible with the initial public offering of AIA that AIG was also considering. That’s a valid objective given the running criticism of the bailout, most recently on Thursday from the Congressional Oversight Panel.
Did Goldman Sachs sabotage the blowout preventer on BP’s doomed Deepwater Horizon well? Of course it didn’t. But the British oil giant’s troubles in the Gulf of Mexico have certainly handed Goldman a public relations reprieve. Similarly, the Wall Street firm’s travails following accusations of fraud took Toyota Motor’s recall woes off the front pages.
There’s no obvious link between a bank, an oil driller and a carmaker. But the reputational struggles of these three global giants suggest one lesson that won’t be lost on shrewd corporations: the court of public opinion — led by the political class and including the press — only appears capable of coping with one villain at a time.
By Rob Cox and Rolfe Winkler
Nielsen’s planned $1.75 billion IPO will be keenly watched by its core demographic: buyout barons. Six private equity firms — including industry biggies KKR, Blackstone, Carlyle and THLee — own the business, which dominates the market for tracking media viewership. The question is whether the new Nielsen can attract similar audience awareness from stock market investors.
If it can, the business led by former General Electric wunderkind David Calhoun may chalk up decent returns for its current investors. They injected about $3 billion of equity into the $10 billion buyout of the Dutch-listed business formerly called VNU. An IPO that comes close to doubling their money would help dispel criticism that buyout firms are nothing more than overpaid financial engineers.
By Rob Cox and Richard Beales
Timothy Geithner can’t put his money where his mouth is. The U.S. Treasury secretary, who is joining fellow G20 finance ministers this weekend in Busan, South Korea, has lately been urging other countries to conduct bank stress tests. But his credibility falls short in at least one important respect: future tests are absent from America’s financial reforms.
Geithner’s message is spot on. Subjecting America’s 19 biggest banks to tough scenario analyses, disclosing the results and requiring subsequent capital raises helped draw a line under the financial panic. The exercise gave comfort to customers and regulators about the health of the banking system and led to banks adding nearly $200 billion in new capital.
BP’s deepwater debacle is shaping up as Lehman Brothers in the oil patch. The toxic ingredients that led to that Wall Street firm’s implosion are abundantly present in the British energy giant’s Gulf of Mexico fiasco: flawed risk management, systemic hazard and regulatory incompetence.
And as in the financial industry, the policy response will almost certainly lead to energy’s biggies getting even bigger.
By Rob Cox and Christopher Swann
Eventually, BP will definitively stop the flow of oil from its deepwater mishap in the Gulf of Mexico. That’s when the autopsy will begin in earnest. But if the information dribbling into the public domain proves correct, the British energy giant will be a weakened creature — so weak it will be vulnerable to a takeover.
Royal Dutch Shell and Exxon Mobil are almost certainly running the numbers. Governments ought to be plotting their strategy, too.
Witness the power of Facebook. About a month ago, one of the social networking site’s users set up a discussion forum entitled “No I will not pay $3.98 a month to use Facebook as of July 10th 2010!” Within a few weeks, more than 825,000 people joined his page. Trouble is the whole thing was based on a faulty premise: Facebook has no such intention to charge.
This perfectly illustrates the so-called network effect that is both Facebook’s greatest strength, and its potential Achilles heel. In its most positive iteration, the network effect works like this: the more people who join Facebook, share their information and make friends, the more compelling the proposition becomes. This creates a virtual barrier to entry in a business where conventional barriers should, theoretically, be very low.
By Rob Cox
Carol Bartz’s potty mouth may play well in the purple bleacher seats at Yahoo , the demoralized Internet business she runs. But investors should be wary of executives spouting expletives at critics – even the pain-in-the-neck blogger that Bartz addressed Monday with an F-bomb. As Enron’s Jeff Skilling can attest, there’s a fine line between robust discourse and shooting the messenger. Bartz looks to have just crossed it.
True, salty language can sometimes be a mark of earthly candor or pugnacious leadership. And frequently such responses are provoked. That was perhaps the case with Bartz. She told Techcrunch founder, and Silicon Valley gadfly, Michael Arrington to “f– off” after he asked if her marketing pitch about Yahoo’s strengths relative to rival Google was “BS.” Still, that’s odd behavior at a voluntary event sponsored by Techcrunch.
German Chancellor Angela Merkel has vowed that Greece will not be Europe’s Lehman Brothers. Yet her country’s unnecessary short-sale restrictions are eerily redolent of the paranoid and fruitless campaign that the Wall Street firm’s chief executive waged from his 7th Avenue aerie before Lehman collapsed. Fighting the market like Dick Fuld won’t solve Europe’s woes.
The German Ministry of Finance on Tuesday banned naked short selling of the stock of Germany’s ten largest financial institutions as well as government bonds and sovereign credit default swaps. Rather than reducing volatility, it sent markets into a tizzy. One worry is that Germany’s government fears things are about to take a turn for the worse.
The rich may be different. But they could also be a leading economic indicator. The corridors of wealth and finance are alive with new optimism. The Federal Reserve, though, doesn’t seem to share it. The U.S. central bank seems to have no intention of raising interest rates any time soon. The trouble is, if the Fed is behind the game there’s a good chance the rich will not be the only ones to suffer.
All seems very well indeed at the top of the food chain. Whole Foods Market, the purveyor of richly priced organic onions, last week raised its best estimate for same-store sales growth this year to as much as 7 percent from as little as half that much. Its stock has gained 45 percent this year while that of price-conscious Wal-Mart is down a bit.