Unstructured Finance

Morgan Stanley decides not to tell shareholders what “priorities” are, SEC agrees to play along

Reuters reported on Friday that the Federal Reserve is taking a closer look at precisely how Wall Street CEOs get paid. This week, the SEC released correspondence between itself and Morgan Stanley that sheds some more light on the topic, and suggests that the Fed isn’t the only one questioning how bonuses are calculated. The SEC gets good marks for effort here, but the final result may leave Morgan Stanley shareholders unsatisfied.

The correspondence is pretty jargon-filled so here is a simpler version of what was said, in Unstructured Finance’s own words:

SEC: You say you don’t set any specific targets for bonuses, but then you cut CEO James Gorman’s pay 25 percent  because his performance wasn’t up to snuff. So, uh, how do you figure out that math? (June 22, 2012)

Morgan Stanley: Gorman’s pay was cut mostly because our return-on-equity didn’t reach a number we wanted it to reach. But please don’t pay too much attention to that, because we also factor in things like “culture” and “stakeholder engagement.” Have you ever tried to measure stakeholder engagement? They don’t make rulers for that kind of thing.  (July 26, 2012)

SEC: Actually, you need to tell shareholders about stuff like that. You said you’d disclose performance targets, so please go ahead and do that.  (January 18, 2013)

Essential reading: TurboTax’s lobbying fight, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

 * How the maker of TurboTax fought free, simple filing. Liz Day – ProPublica. Intuit has spent about $11.5 million on federal lobbying in the past five years. Although the lobbying spans a range of issues, Intuit’s disclosures pointedly note that the company “opposes IRS government tax preparation.” Link 

 * Post analysis of Dow 30 firms shows declining tax burden as a share of profits. Jia Lynn Yang – The Washington Post. Most of the 30 companies listed on the country’s most famous stock index, the Dow Jones industrial average, have seen a dramatically smaller percentage of their profits go to U.S. coffers over time. Link    

 * On the second day, Supreme Court considers DOMA. Robert Barnes – The Washington Post. When Thea Spyer died in 2009, she left her estate to Edith Windsor. Because their marriage was not recognized, Windsor paid a tax bill of more than $360,000. She has sued for a refund. Link    

Daniel Loeb surfing to the top of the hedge fund charts again

Something must be in the water over at 399 Park Avenue, where Daniel Loeb’s hedge fund Third Point is headquartered. His Third Point Ultra fund has already gained 12.42 percent this year through the 13th of March, according to data from HSBC’s Private Bank.

The portfolio added 3.3 percent alone between March 1 and March 13. By comparison, hedge funds have returned about 4 percent year-to-date, according to HSBC.

The roughly $1.7 billion Ultra portfolio is a levered version of the firm’s flagship Offshore fund, which manages about $5.7 billion and has gained 8.5 percent over the same period.

Essential reading: Intangible assets under audit, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Intangibles targeted in tax audits. Emily Chasan – The Wall Street Journal. Intangible assets such as intellectual property, technology processes and copyrights have grown over the past decade to account for a greater portion of corporate profits, and tax regulators are taking notice. Link    

 * Tax panel: Democrats’ budget needs to cut more tax breaks. Siobhan Hughes – The Wall Street Journal. A congressional tax report found that President Barack Obama’s strategy for raising taxes won’t fly on its own since it couldn’t raise the $975 billion called for under the Senate Democratic budget. Link    

* Experts foresee no tax overhaul in United States. Conrad de Aenlle – The New York Times. while few dispute that tax reform is a good idea, it is an idea that policy specialists doubt will be acted upon soon. Link

Cash is king in housing

By Matthew Goldstein

It’s no secret that housing in the U.S. has become an investors market, especially if it’s an investor with cash to burn.

For more than a year now, we and just about everyone else in the financial media have been writing about how Wall Street-backed firms are looking to buy-up the wreckage of the housing bust on the cheap and rent out those homes until the time is right to sell them for a sweet profit. And it should come as no surprise that much of that buying is being done with cash because it’s the easiest way for an investor get a deal done quick.

Recent stats from the National Association of Realtors shows that 32 percent of all single family homes in the U.S. are being bought with that cash. But that’s not just foreclosures; it also includes homes listed by brokers. It’s a testament to how much money institutional investors like Blackstone and American Homes 4 Rent have been able to raise from high-net worth investors and others. all of whom are chasing yield in this low-yield world.

Essential reading: Proposals to tax trades spark financial firm lobbying, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Trading clamps spur lobby effort. Jenny Strasburg and Scott Patterson – The Wall Street Journal. High-speed trading firms and exchanges are being forced into the lobbying game by taxes on trades in Europe, proposals for similar levies in the U.S. and beefed-up regulatory scrutiny. Link    

* U.S. seeks answers in Liechtenstein on tax cheats. Dylan Griffiths – Bloomberg. The U.S. has asked Liechtenstein to hand over data on foundations that may have been used to hide untaxed American money from the Internal Revenue Service, a step that may threaten Swiss banks. Link

* Email tax may slice spam and scams out of inboxes. George Skelton – The Los Angeles Times. An email tax — as part of a broader Internet tax — could raise money to help keep the Postal Service afloat, California Gordon Wozniak said of his proposal. Link    


Some important events in the week ahead:

Monday, March 25 – Tuesday, March 26

* American Institute of Certified Public Accountants’ workshop on fair value measurement of assets. New York.

 Wednesday, March 27

* Oral arguments in United States v. Windsor on the constitutionality of the Defense of Marriage Act under the equal protection clause of the Fifth Amendment. 10 a.m. ET, U.S. Supreme Court. Washington.

* John Sweeney, an IRS chief counsel, speaks to the American Bar Association webinar and teleconference on FATCA and intergovernmental agreements. 1 – 2:30 p.m. ET.

Essential reading: Athletes’ tough tax bills, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Figuring athletes’ taxes is, well, taxing. Callum Borchers – The Boston Globe. The complicating factor for pro athletes is not how much they earn — though they often make millions of dollars per year — but where they earn it. With few exceptions, athletes owe income taxes in every state where they play. Link

* Renewed tax credit buoys wind-power projects. Diane Cardwell – The New York Times. Beyond the next year or so, the industry’s future remains in doubt, given the uncertainty over whether Congress will again extend the tax credit as part of an 11th-hour budget agreement or take up its purpose and ultimate fate as part of a broader corporate tax overhaul. Link 

* President may be quarterback, but today Congress plays a different game. John Harwood – The New York Times. The long-term shift in how Congress operates casts doubt on prospects for a breakthrough from the people who lead the House and Senate tax-writing committees, Representative Dave Camp, Republican of Michigan, and Senator Max Baucus, Democrat of Montana. Link 

Natural (at) selection

The answer to the moderator’s question was a resounding: yes. The question, asked to several credit hedge fund managers during a conference on Thursday, was: did you make money last year? In fact, the managers from Pine River, BlueMountain, Cerberus and Brevan Howard made a lot. But 2013 is not going to be so easy, they said.

Hedge funds that specialize in credit, especially those who focus on mortgage-backed securities (MBS), blasted past their stock market competitors in 2012. One of those traders, Steve Kuhn, was on stage for the aforementioned credit panel at Absolute Return’s Spring Symposium. Kuhn, a portfolio manager for Pine River Capital Management, saw his fixed income fund rise 35 percent last year.

Kuhn doesn’t see a repeat of those monster returns in 2013. It’s all about security selection this year, he said and that that selection process is going to require a lot of work. It’s a view we reported in early March, and one that Scott Stelzer, a CMBS specialist for Cerberus Capital Management and David Warren, the CEO of DW Investment Management and CIO for a Brevan Howard credit fund also echoed at the conference in mid-town Manhattan.

Essential reading: Senate votes on tax hikes in budget, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* As Senate passes spending measure, stark budget views are on display in House. Jeremy Peters and Jonathan Weisman – The New York Times. House Republicans brought to a vote the budget proposed last week by Senate Democrats in the hope that they could divide their opponents’ ranks and put them on record supporting its $1 trillion in tax increases. Link

* Rewrite of partnership tax rules could shake real estate. Richard Rubin – Bloomberg. The more dramatic of two tax proposals from Dave Camp, the top Republican tax writer in Congress, would remove some of the flexibility that has made partnerships attractive legal structures for real estate investors and hedge funds. Link

* Some Republican governors find a tax they’d like to raise rather than cut. The Associated Press. Although a break from the GOP’s anti-tax ideology, Michigan Gov. Rick Snyder’s gas tax increase proposal shows a dicey willingness among some Republican officials to begin raising more revenue. Link