Unstructured Finance

The confession season

By Matthew Goldstein and Jennifer Ablan

The year is not yet over and already the confessions are starting to roll in from some of the biggest U.S. money managers.

Bill Gross, manager of the world’s biggest bond fund, sent out a “mea culpa” letter late Friday to his many mom-and-pop investors, saying he’s sorry for putting up such bad numbers this year. Mea culpas from Pimco’s guiding light and the self-styled “bond king” are rare, largely because his Total Return Fund has long been one of the industry’s top performers.

But this year has been a tough one for Gross, who guessed wrong by betting heavily against U.S. Treasuries, which have turned out to be one of the biggest out-performers of 2011. The fixed income guru, who helps manage more than $1.2 trillion at Pimco, wasn’t farsighted enough to foresee a flight to Treasuries prompted by events like the European debt crisis, the battle over the U.S. debt ceiling and the general anemic state of the global economy.

Gross positioned his firm’s flagship fund for modest economic growth and that move left him putting up a “stinker,” as he says in his letter (hat tip to Dealbreaker.com). So, as things stand right now, the Pimco TRF fund with $242 billion in assets, is up only 1.06 percent year to date, compared to 3.99 percent gain for the benchmark BarCap U.S. Aggregate Index.

As we’ve reported, Gross now has repositioned his mammoth fund for zero economic growth. He’s levering up to buy longer-dated bonds with higher-yields and betting that a weak economy will keep interest rates low for a good long while. The way things are going that would seem to make sense. But as we know in the markets, timing is everything.

M & A wrap: Sony going solo?

Sony is in talks to buy out Ericsson’s stake in their mobile phone joint venture, a source said, in a bid to catch up with rivals.

Belgium’s federal government and its regions clashed over the fate of the Belgian banking activities of stricken Dexia, delaying a joint Franco-Belgian rescue of the group.

Bloomberg digs into the changing value of the Deutsche Boerse-NYSE merger and the potential return for investors.

M & A wrap: Time to buy EMI?

Warner Music Group Chairman Edgar Bronfman Jr. has tried to buy rival record label EMI Group for the last six years. Now, his time may have come, reports Yinka Adegoke.

Communications equipment maker Comtech, under pressure from an activist investor to evaluate a sale, is attracting potential takeover interest from several government contractors, people familiar with the situation said.

“This is the froth-filled rumor that just won’t die. Shares of SABMiller rose 5.5 percent today in London on a report that Anheuser-Busch Inbev is talking about a takeover of the brewer of Miller, Coors and Peroni,” reports the WSJ.

The law catches up to TL Gilliams

By Matthew Goldstein

Tyrone Gilliams Jr. wanted to live a larger than life story–with much of it playing out last year in videos he had produced and plastered all over the Internet. A year later, Gilliams true life drama has him fighting to maintain his freedom.

On Oct. 5, federal authorities arrested Gilliams and charged him with wire fraud in connection with a $4 million investment scheme that Reuters chronicled in a Special Report in May. As noted in yesterday’s arrest story, U.S. prosecutors in New York didn’t begin looking into Gilliams until Reuters reported that he allegedly had used some of his investors’ money to reinvent himself as a Philadelphia-area philanthropist.

Some might dismiss Gilliams as the architect of bizarre but  small-time scheme–especially when so many people across the country are suffering economic hardship. But as I point out in the below video, which  our ace online production team put together,  the sage of TL Gilliams may say more about our culture than we’d like to admit.

Absolutely Fabulous?

Among the side-effects of the financial crisis, the importance for European wealth managers and other intermediaries of both managing investors’ expectations and understanding fully what those expectations are, has been underlined.

This is not entirely new. The rise of absolute return products largely reflects intermediaries’ efforts to deal directly with client expectations that, for many, have taken a severe blow. It is worth looking back at the level of inflows to funds seeking absolute returns before and after 2008 (the nadir for the industry in terms of sales activity) to see how this has evolved.

To view the chart, click here.

The data not only show the relative level of in- and out-flows for absolute return funds in Europe since 2005, but serves as a means to illustrate how activity has shifted in Europe.

M & A wrap: Yahoo on the block?

Yahoo’s long-time advisers Goldman Sachs and Allen & Co are preparing to give potential buyers financial information, in a sign the troubled Internet giant is ready to put itself on the block, sources said.

Australian coalminer New Hope Corp put itself up for auction after receiving several bid approaches, sending its market value surging 15 percent to almost A$5.1 billion.

Executives at Research in Motion have refrained from buying the company’s shares for the longest period in at least six years; investors are wondering if RIM is skittish about its own prospects, Bloomberg reports.

M & A wrap: D.Boerse/NYSE deal trouble

European Union regulators will formally object to the proposed merger of Deutsche Boerse and NYSE Euronext this week, two sources with knowledge of the case said, which may force the companies to offer concessions to ease competition concerns.

Private equity firms see only limited scope to invest in Europe’s under-capitalized banks, as they could run the risk of losing their shirts and face political resistance.

Europe’s food and consumer goods groups are on the verge of a new wave on acquisition activity as they exploit exposure to emerging markets to protect themselves from the looming downturn.

Wall Street protesters just want to be heard

Early morning at Occupy Wall Street

Updated Oct. 5

By Matthew Goldstein and Jennifer Ablan

There’s been a lot of talk that other than rallying against bankers and corporate greed, the message coming from Occupy Wall Street isn’t a clear one. And many of the college students, artists, unemployed, transients who’ve set-up camp in a concrete plaza in  lower Manhattan wouldn’t disagree with that assessment.

In fact, many of the young protesters–mostly in their 20s–seem to embrace the notion that it’s hard to define just what Occupy Wall Street is all about and what it hopes to achieve. For many, sleeping on the streets and staging a “Zombie March,” or getting arrested for blocking traffic on the Brooklyn Bridge is enough to bring attention to the fact that too many Americans are still suffering from the financial crisis.

“I’m here because in this recession, the rich have become richer — and it ties in to the bank bailouts,” says Dylan Bozlee, a college student from Hilo, Hawaii, who booked a one-way ticket to New York to join the protest. “Think about it? Wall Street got us into this huge mess, enabled by our government, and we are in the same state of affairs–recession.”

Debts no honest man could pay

By Matthew Goldstein

For months now we’ve been hearing a lot about the $14 trillion in debt owed by the U.S. government. But there’s been far too little talk about the almost equally high debt tab owed by U.S. consumers.

The Federal Reserve recently reported that total outstanding debt owed by U.S. consumers was $11.4 trillion, down from its third-quarter 2008 peak of $12.5 trillion. At that pace, it could take years for U.S. consumers to delever, or in plain English–reduce the debts they owe on their homes, credit cards, autos and student loans. But when it comes to the staggering sum of consumer debt in this country, it’s pretty clear that time is not on our side.

In fact, the longer it takes for consumers to pay-down their debts, it simply means demand for homes, autos and other big ticket goods will remain lax. And that means the unemployment rate won’t get much lower than its current 9 percent rate anytime soon. In fact, with all the signs pointing to a double-dip recession, unemployment could very well inch higher in the next few months.

M & A wrap: Alibaba interested in Yahoo

Jack Ma, CEO of Chinese e-commerce giant Alibaba, is keen on buying Yahoo if the opportunity presents itself and has held discussions with other potential buyers about options. The potential deal is raising privacy concerns, reports the Financial Times. The WSJ also looks at what role Beijing would play in a merger.

Private equity funds in the Middle East and North Africa, under increasing pressure to produce returns for investors, have strategic buyers, including sovereign wealth funds, looming larger on their deal radar.

Pharmaceutical Product Development said it agreed to be acquired by private equity firms Carlyle Group and Hellman & Friedman in an all-cash deal valued at $3.9 billion, the latest in a string of private equity takeovers in the healthcare industry.

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