Unstructured Finance

The new Goldman way: Less cushy compensation?

By Lauren Tara LaCapra

On a conference call to discuss Goldman Sachs’ new chief financial officer yesterday, an analyst asked departing CFO David Viniar why he was leaving when the stock is at a historic low.

Viniar avoided the question by joking that his successor, Harvey Schwartz, would trump that performance. But some investors think they have a better way to fix Goldman’s stock slump: cut back further on comp.

Goldman has brought compensation costs down, in part, by firing, nudging into retirement, or happily accepting the resignation of people who make a whole lot of money. (Viniar, whose salary clocked in at $15.8 million last year, is among that group.) Overall, the bank reduced comp costs by $3.2 billion last year and has cut 3,400 staffers from its payroll since the end of 2010.

But some shareholders think Goldman should be doing even more.

One prominent investor who focuses on financial stocks said Goldman is facing “the Lazard problem” — a culture where employees expect to get paid a lot, and will leave if they don’t. But, he says, management is not seeing things the same way as shareholders because they have fared much better financially, even in bad times.

To illustrate this gap, he compared return-on-equity for common shareholders against compensation as portion of common equity. (For ROE, he divided pretax earnings by common shareholder equity and for the compensation measure, he adjusted pay for estimated tax costs and divided that by common shareholder equity.)

Jamie Dimon’s teflon coating

By Matthew Goldstein and Jennifer Ablan

Jamie Dimon’s coat of teflon is wearing well, even as the criminal and regulatory investigation into the London Whale trading scandal deepens.

Shares of JPMorgan Chase, which plunged more than 20 percent in the days after the bank revealed in May that the trading losses were much worse than previously believed, have rallied back. The stock is now trading around $38.66 a share. On May 10, when the bank disclosed after the bell that it had lost at least $2 billion on derivatives bets made by a group of London-based traders, the stock closed at around $40.

When Dimon was called before Congress to testify on the trading scandal in June, he was generally treated like the king of Wall Street by congressman and senators. At the time, bank’s internal probe had not yet found evidence that the three traders may have tried to hide their losses, so the fallout from the scandal appeared limited. The bank disclosed those finding to federal authorities before releasing its second-quarter earnings and restating its numbers for the first quarter.

Investors to gang up on company boards

Britain’s largest investors are gearing up to take on troublesome boards. A new body will look at addressing investor concerns over some of the most contentious issues of the day, mainly pay and strategy. You can read the story here

This kind of collective action by UK’s biggest investors is exactly the kind of thing needed to make companies to sit up and take notice of  their views. After being ravaged by the credit crisis, companies have been forced to go, cap-in-hand, to investors for fresh capital injections, forcing them to at least listen to what their biggest shareholders are saying.

This is in stark contrast to the stance taken by some companies in the run up to the crisis. Last year, the IMA revealed that 21 fund firms had a total of 59 separate meetings with RBS over the roles of the chairman and CEO. And even a push from one of its its largest investor Legal & General Investment Management had little effect. The duo did not step down until after the government was forced to bail out the bank in October 2008.

Slaying Goliath to save the Dragon

In the blue corner – Emirates National Oil Company (ENOC), which recently hired proxy solicitation firm Georgeson to get out the shareholder vote in favour of its $1.9 billion bid to buy out the 48 percent of Dragon Oil it doesn’t already own. (Georgeson say they are the oldest and best shareholder consultancy in the business, and helped engineer a record turnout for the HBOS AGM that approved Lloyds’s takeover of the bank.)

In the red corner – retail investors keen to “Save Dragon Oil”. Armed with a website and a 3,000-page printout detailing of the Turkmenistan-focused oil explorer’s investors…

Target investors shoot down Ackman

ackmantarget

When an activist investor comes to town, it appears that Target security goes on high alert.

While Target had its shareholders, including hedge fund manager William Ackman, and the media fly to one of its yet-unfinished stores outside of Milwaukee to attend their annual meeting, it greeted them with a heavy security detail.

From guards zooming around the parking lot on segway personal transporters to chase down wayward  parkers, to Target employees scanning shareholders with handheld metal dectors when they entered its stores, Target made it very clear it was in no mood for fun and games at its annual meeting.  

Squeezing out a smaller premium

BRITAIN/PepsiCo Inc’s offers to buy the remaining stakes in its two largest bottlers came as a surprise, but the biggest surprise may be the scant 17.1 percent premium in the overtures.
    
PepsiCo’s bid to buy the rest of the bottlers it does not already own constitutes a so-called “squeeze-out,” or a transaction in which the buyer already owned some portion of the target and was seeking to own the 100 percent.
    
Even given that squeeze-out premiums are typically lower than cases where a buyer did not own any part of the target and was seeking to acquire 100 percent, this one looks particularly low, according to FactSet Mergerstat.
    
The average 1-day premium for a squeeze-out deal was 35.77 percent versus the average 1-day premium of 44.10 percent for a full acquisition, FactSet Mergerstat said.
    
Put another way, the PepsiCo premium was half the normal premium for a typical squeeze-out. Both Pepsi Bottling Group and PepsiAmericas rose above PepsiCo’s offer, suggesting that shareholders expect the deal to get a little sweeter.

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