Summit Notebook

Angelides: People make mistakes, take Alan Greenspan and Captain of Titanic

Phil Angelides, Financial Crisis Inquiry Commission chairman, says he’d rather see some taking of responsibility than hear another “I’m sorry.”

“Personally I don’t see my role as … to obtain apologies. What I don’t hear is a sense of responsibility and self-assessment about what occurred. There seems to be a disconnect between the practices that people undertook and the financial collapse,” he said at the Reuters Global Financial Regulation Summit.

“I’m struck by the extent to which all fingers point away generally from the person testifying,” Angelides said.

And it’s not just Wall Street executives that he’s talking about.

“When Alan Greenspan came in front of us he said he’d  been 70 percent right, 30 percent wrong. Well, you know, the captain of the Titanic was probably 99 percent right and one percent wrong. It’s the enormity of the mistake that matters,” he said.

(He is of course referring to the former chairman of the Federal Reserve who could do no wrong until the financial crisis hit, sinking his star along with the markets).

Was Greenspan asleep at the wheel?

Where disaster and compensation intersect you’ll find Kenneth Feinberg

You can call him mediator, or you can call him negotiator, but don’t call him pay czar.

Kenneth Feinberg says he doesn’t like the shorthand title that’s used to describe his role as the administration’s supervisor of compensation practices at firms that received money under the government’s Troubled Asset Relief Program.

“A very unfortunate term,” he said at the Reuters Global Financial Regulation Summit. “Pay czar implies that I’m issuing some sort of imperial edicts, arbitrary edicts on pay, without regard to consensus or the input of the beneficiaries of these decisions.”

Au contraire. Feinberg says he tries to develop consensus with the companies. “I’m the pay mediator, I’m the negotiator.”

Although with his next breath he does acknowledge having the power. “I must say the statute ultimately gives me final authority so if you don’t work something out I’m obligated by law to make the decision. But I’m not looking to impose my will on these companies.”

But one of the wonders of Feinberg is that he seems to end up in the middle of the crossroads of money and disaster, sometimes trying to make unthinkable equations as when he had to determine payments to the families of  September 11 victims or distributions from a  fund setup in the aftermath of the Virginia Tech shootings.

So why does he keep ending up at that intersection?

Restructuring calls heat up

After a cool few months, the phones are heating up again for restructuring advisors. 

Michael Kramer, head of restructuring at Perella Weinberg Partners, told the Reuters Restructuring Summit that the calls he gets from possible clients aren’t quite as panicked as early this year. 

“I think the new inquiries are picking up today — not nearly the way they were at the beginning of the year, and the emotion behind the inquiry is a little bit different.

“At the beginning of the year, it was desperation. We are in real trouble. We have to do this. How are we going to deal with this? We are going to have problems next week. We are running out of capital.” 

“Today it’s much more, ‘We think we’re going to have a problem in the future and how do we deal with that?’” 

Some distressed companies looking for buyers may want to take solace in the fact that it looks to Kramer like there might be some interested buyers out there now.

He says they’ve been calling to, saying “We’re fine, we’re healthy, but we want to take advantage of the overall situation.”

Zombie companies

In zombie films, the dead walk the earth and slowly annihilate the living. Such a frightening prospect may be in store for Europe, the Reuters Restructuring Summit was told.

Banks are one of the big problems, speakers said, as they are unwilling to take the size of write-downs necessary to cut firms’ debts down to a manageable size.

Firms owned by private equity, particularly the number two or three in their sector, are particularly at risk of becoming zombie companies because of their high debt levels and the lack of interest in such firms from equity investors, Simon Parry-Wingfield of Morgan Stanley said.

This may offer opportunities for distressed M&A, he said.

“The corporate world is beginning to see an opportunity … to pick up middle-market companies or sponsored companies which are stuck in a zombie world because of their balance sheets,” he said.

Those firms unable to attract new buyers or investors will be forced back into restructuring talks with lenders, he said, but their long-term future may not be bright.

“People are putting off the problem and the longer it takes to address operational issues, the harder and more expensive it is to fix them,” he said.

Tinkering whilst debt burns

What have Liverpool Football Club, French building materials firm Materis and German forklift truck maker Kion got in common?

They have all been beneficiaries of European banks’ preference to tinker with company balance sheets rather than fundamentally restructure indebted businesses, one speaker said at this week’s restructuring summit.

However, such easy conditions — primarily because banks are reluctant to take big hits on their balance sheets — will not last long if banks’ balance sheets continue to strengthen, speakers said.

“Come the new year there will be a new spate of companies being allowed to go to the wall,” Blackstone’s Simon Davies said.

Tony Lomas, who heads the business recovery services group at PricewaterhouseCoopers, said many companies would need to go back to their banks for restructuring.

“I cannot see an upturn in the UK, Europe or the world that will be quick enough or healthy enough to sort these problems out,” he said.

“Rich, retired and gone”

Veteran insolvency expert Nick Hood gave the restructuring summit a sobering reminder of the shortcomings of corporate finance.

“Every time we have a recession I sit down with the head of workout for bank clients and ask what banks are going to learn,” said Hood, who first qualified as an accountant in 1970.

“Absolutely nothing” was their response when asked during the last recession in the early 1990s, Hood said.

“Within three years, they said, there will be high loan to value (ratios) on commercial property, covenants will be loosened and lo and behold it happened … the odds are against any learning,” he said.

He explained: “What happens is when the cycle turns, everybody’s gone — they are rich, retired and gone.”

To make things worse, Hood told the summit, there is a global shortage of turnaround specialists.

Welcome to the 2009 Reuters Restructuring Summit

The U.S. recession and global credit crisis pulled a stunning array of corporate giants into bankruptcy court this year. Automakers General Motors and Chrysler, real estate company General Growth, and chemicals maker Lyondell all sought protection from their creditors after being brought down by rapidly changing economics and customer demands. 

While the sudden shift in fortunes for some of the world’s biggest companies wiped out the savings of some equity investors, the changes have paved the way for new and interesting investment or takeover opportunities for other investors.      

The restructuring professionals who help rebuild failed businesses are also learning on the fly–designing dramatically new ways of reorganizing companies and taking note of groundbreaking bankruptcy cases like Chrysler.     

Video – Engine may stall for auto suppliers

AUDIO-”Lost Decade” is not in the cards for U.S. economy — Sun Capital

Enough with the view that the current credit crisis will drag the U.S. into a “lost decade” similar to the one that Japan suffered in the 1990s, says Gary Talarico, managing director of Sun Capital Partners.    Talarico lived in Japan for 12 years and worked with Ripplewood Holdings as an adviser on the hugely profitable Shinsei Bank rescue deal. He says the U.S. is much more willing to take the pain of the crisis and emerge much stronger because of it.    Japan’s strategy to cope with their crisis leaned more to the left, Talarico told the Reuters Restructuring Summit in New York. And because of that, the Japanese economy stagnated for years.   As for what is happening in the U.S. right now?    “Creative destruction is a good way to describe it,” Talarico said in reference to the failure of Lehman Brothers, the buyout of Merrill Lynch and the government takeover of AIG.    “These things have to happen. I’m very sad about Lehman. I worked there for 15 years and I absolutely loved the firm. It’s a possibility that if the government moved faster, they might still be alive today. A lot of things might be different. Unfortunately, it is very hard to see the future.   But things have to fail, he said.   “There is no doubt that reckless things were done. Reckless people have to take their pain. But what we can’t afford is a systemic meltdown. It has global implications as well. So, unfortunately, tax payers have to carry some of that burden.”   To hear Talarico’s view on why the U.S. is not headed for a Japan-style slowdown, click here

AUDIO-$700 bln bailout sparks inflation, moral hazard fear

Martin Fridson — known as the “Dean of the high yield bond market” — is concerned about what we don’t know when it comes to consequences of the U.S. federal government’s $700 billion bailout to help move toxic mortgage debt off their balance sheet.   Fridson, the Chief Executive of Fridson Investment Advisors,  told the Reuters Summit on Tuesday that beyond the unforeseen consequences that scare him most, moral hazard and inflationary pressures from the historic government action top his list of concerns.  To listen to Fridson’s comments, click here