Unstructured Finance

Steven Cohen in his own words

By Matthew Goldstein and Jennifer Ablan

The thing about deposition excerpts—even lengthy ones—is that some of the tantalizing material gets left on the cutting room floor. And that’s certainly the case with hedge fund billionaire Steve Cohen’s two-days worth of  testimony in the long-running Fairfax Financial litigation.

Now don’t get us wrong—there is plenty of great and illuminating stuff in the 242 pages of deposition testimony Reuters obtained through a court motion to unseal documents in the civil lawsuit. As we noted in our story, Cohen is pressed at great length for his views on insider trading—he thinks the laws are “vague”. And as we highlighted in our blog, there’s even an amusing little feud between the lawyers over how the SAC Capital founder should addressed.

Still, it makes you wonder what was said by Cohen in the more than 400 pages of deposition transcript that wasn’t unsealed. And we’d love to see Cohen on videotape as sometimes body language can be revealing.

One of the more intriguing tidbits in the deposition is a very brief line of inquiry by Fairfax’s lawyer about whether Cohen had an early discussions in September 2008 about the Federal Reserve’s plan to backstop the commercial paper market. The Commercial Paper Funding Facility, or CPFF, was one of the most important steps taken by the Federal Reserve to keep liquidity following in the financial system after the collapse of Lehman Brothers.

Indeed, between July 2007  and the failure of Lehman Brothers, the relative use of commercial paper fell 10 percentage points, according to a research paper by the Federal Reserve Bank of Dallas. The Fed’s CPFF program, which was announced in October 2008, “helped prevent commercial paper from imploding by as much as it did in the 1930s,” the paper added.

Deals wrap: AgBank’s IPO causes frenzy

It’s hard to find fault with the second-largest IPO in history, but analysts were only lukewarm about this week’s $19.3 billion IPO debut by Agricultural Bank of China.

Despite the tepid debut, AgBank’s IPO is only overshadowed by Industrial and Commercial Bank of China’s (ICBC) world record $21.9 billion public float in 2006. More interesting than the monetary value attached to its IPO was the fact that AgBank was even able to pull it off in the first place, given the global downturn and a very short three-month completion process. In a Reuters special report, one banker involved in the deal said: “It’s the last of its kind.”

Apparently cats aren’t the only species with nine lives – hedge-fund advisers do too. Bloomberg reported that Neuberger Berman Group LLC, which was part of Lehman Brothers Holdings Inc., has “reassembled a team of executives to invest as much as $1 billion in firms that run hedge funds.”

Graphic: How “Repo 105″ worked

A look at “Repo 105,” a series of transactions that Lehman Brothers is alleged to have used to make its balance sheet appear stronger.

- Text: Dan Wilchins, llustration: Silvio DaSilva

Reuters HedgeWorld webinar on prime brokerage

By Chris Clair

On Nov 10, Reuters HedgeWorld will present a 90-minute web seminar all about prime brokerage.

rtr21wwdIt’s been a little more than a year since the prime broking industry changed forever with the demise of Lehman Brothers and Bear Stearns … or did it change forever? Certainly there are more small and mid-size players in the space, but what has that actually meant for the hedge fund industry? Moreover, how can hedge fund managers ensure they’re choosing the right prime broker to suit their needs and get the most out of the relationship?

Joining HedgeWorld will be three experts on the subject: Sameer Shalaby, chief executive of technology company Paladyne Systems; Glen Dailey, managing director at prime brokerage firm Jefferies & Co.; and Craig Stein, partner at the law firm Schulte, Roth & Zabel LLP. Each will share his insight into:

Should banks or regulators come up with “living wills”?

USBROKERS/RESEARCH-CITIGROUP The idea that financial firms whose collapse could create trigger broad economic problems should come up with their own living wills has been gaining traction lately.

After the confused attempt to bailout or save Lehman Brothers, Bear Stearns and AIG in 2008, some regulators have been suggesting that banks and important financial institutions plan for their own demise.

A senior Canadian finance official said on Wednesday that the Group of Twenty (G20) are thinking about the idea as a way to avoid financial meltdowns.

Lehman and its aftermath, by the numbers

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With apologies to Harper’s Index, some collected statistics on the collapse of Lehman and the roller-coaster year that followed.

Add your own significant digits in the comments section.

***

Number of siblings who made up the original Lehman Brothers, founded as a dry-goods store in 1844: 3

Age of Bavarian immigrant Henry Lehman when he founded the business: 23

Percentage difference between the DNA of former Lehman CEO Dick “The Gorilla” Fuld and an actual gorilla:

Who raised the risk budget?

Risky businessThere’s been much debate about recent prop trading profits at banks including Goldman Sachs, JP Morgan and others in the first half of the year, but one important question remains unasked.

 

How, just over half a year after some market observers pronounced prop trading perpetually and eternally dead, did the prop desk at these banks bounce back to life in a fashion that would have turned Lazarus green with envy?

 

After all, after taking huge writedowns on subprime securities, many of them directly attributable to their prop desks, throughout the financial crisis, a large number of the chastened banks slashed their prop desk staff and put strict risk limits on trading.

Einhorn: Moody’s broadside lacks usual punch

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David Einhorn again sent markets scurrying last week when he told investors he was shorting Moody’s Corp, but the Greenlight Capital manager’s latest thumbs down packed a weaker punch than his past, celebrated broadsides.

To be fair, Einhorn had a tough act to follow. A year ago, he boldly said Lehman Brothers was in much worse shape than its management would admit. Four months later — the bank went bankrupt and the shares were wiped out. It took more than six years, but his warnings about business lender Allied Capital also proved accurate and ultimately very profitable.

Last week, the soft-spoken Einhorn turned his sights on the parent of credit rating agency Moody’s Investors Service. Investors dutifully followed Einhorn’s lead and sent Moody’s shares down as much as 8 percent before they closed at $26.89.

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