Monday, June 30, 2008

What Really Killed Bear Stearns? - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Remember a month or so ago when the WSJ had a series of articles on Bear? I thoght they were great. Well this may be better! By Bryan Burrough who helped write "Barbarians at the Gate" (one of my all time favorites).

What Really Killed Bear Stearns? - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times:

One look in:
"According to Mr. Burrough’s account, Bear did not have a liquidity problem, at least at first. In fact, he said it had more than $18 billion in cash to cover its trades when the week began. There were no major withdrawals until late in the week, after rumors flew that the company was in trouble.

A top Bear executive told Mr. Burrough, “There was a reason [the rumor] was leaked, and the reason is simple: someone wanted us to go down, and go down hard.”

Bear executives frantically tried to find the source of the rumors, but failed to do so in time. They have their suspicions, and they have turned over the names to federal authorities that are investigating the matter."

If that was all the article would be great, but there is so much more. Granted some is based on rumor and sort of one sided and designed to sell magazines, but who cares? A very good read!

And the NY Times Deal Book goes even further providing links to Fed meetings on the collapse. This will definitely be used in class!
Fed's Minutes from March 14 Meeting (PDF):

Fed's Minutes from March 16 Meeting (PDF)

Thursday, June 26, 2008

A Hedge Fund Struggle for CSX Is Left in Limbo -

Update: A few weeks ago we saw the case of The Childrens' Investment Fund (TCI) vs. CSX. If you remember the hedge fund was in the midst of a proxy battle with CSX. Here is that story.

Well the vote was yesterday and while the vote was close, TCI is acting like the victor.

A Hedge Fund Struggle for CSX Is Left in Limbo -
"After the shareholders cast their votes, the funds, which together control at least 8.7 percent of CSX, claimed four of five contested seats and said that CSX had held the voting open in the hope of wrangling a few more votes. But CSX said that the vote was too close to call and that the results would take a month to tally and certify."
I doubt we have heard the end of this one!

Wednesday, June 25, 2008

Dealbook - A ‘Bonfire’ Returns as Heartburn -

The NY Times has a gloom and doom article on the future of Wall Street one year after Blackstone went public. It is through eyes of Tom Wolfe the author of Bonfire of the Vanities.

Dealbook - A ‘Bonfire’ Returns as Heartburn -
"Blackstone’s stock has gone nowhere but down since it went public, dropping nearly 50 percent from its high the day it started trading. But that’s the least of it.

The once mighty Wall Street investment banks have been brought to their knees, sending out pink slips to more than 83,000 employees worldwide, racking up billions of dollars in losses as a results of their foolish forays into subprime mortgages. Bear Stearns all but went out of business before being “saved.” Some hedge funds have gone belly up.

Those lords of private equity, many of which were preparing to follow Blackstone into the public markets, have been put on semipermanent hiatus...."

As Mr. Wolfe nicely put it, “It sounds like even the firms that aren’t in trouble are in trouble.”"
To me what makes the article interesting is not the historical look back over the past 12 months, but the potentially prophetic look ahead:

"Wall Street is in for a radical makeover. Fewer people, lower margins, lower risk, lower compensation — and ultimately, fewer talented people. It is likely to change the culture of an industry that for nearly a century has been the money center of the world. “There would be a lot of firms leaving New York if it wasn’t for lunch,” Mr. Wolfe said"

Thursday, June 19, 2008

Bear Stearns managers indicted; emails could be smoking gun - MarketWatch

Obviously many have been watching the recent arrests of former Bear hedge fund managers Matthew Tannin and Ralph Cioffi. My first reaction was that they were being made scape goats so I was somewhat surprised when I saw this article that suggests there may be a case.

Bear Stearns managers indicted; emails could be smoking gun - MarketWatch:
"'If we believe the [collateralized-debt obligation report] is anywhere close to accurate I think we should close the funds now,' wrote Tannin, according to the indictment. 'The reason for this is that if [the CDO report] is correct then the entire subprime market is toast. If AAA bonds are systematically downgraded then there is simply no way for us to make money -- ever. ... Caution would lead us to conclude the [CDO report] is right -- and we're in bad bad shape.'

But Tannin, Cioffi and other high-ranking Bear Stearns executives met with investors April 25 and assured them the funds had plenty of liquidity to survive any upcoming pressure."
Ouch. But is this just speculation? The whole thing is conditioned n an "if". Maybe they concluded that things were not as bad as suspected prior to the April 25th meeting? Would not want to be a juror on this one, it could go a while. Stay tuned.

Tuesday, June 17, 2008

Banking: Still a top priority in a fast-changing world / In depth - Banking: Still a top priority in a fast-changing world:
"Steve Kaplan, professor of entrepreneurship and finance at the University of Chicago Graduate School of Business...uses the snappy acronym CFIMITYM – cashflow is more important than your mother – and points out that the subprime market crashed and burned because investors had bought something that had “less cashflow than they thought there was”.

As for the school, it does not “teach the latest and greatest fad” but feels it is more important to give a thorough understanding of the essentials of economics and finance, for both entry – and higher-level financial training."
Whenever a professor the caliber of Kaplan is mentioned in a article that focuses on teaching finance, it is clear that it must be "blogged".

Are you a stock or a bond? - The Wealthy Boomer

Interesting angle on personal finance.

Are you a stock or a bond? - The Wealthy Boomer:
"...Your human capital is "bond-like" in nature if you're a salaried employee with a Defined Benefit pension plan.... On the other hand, the human capital of an entrepreneur or investment banker is more like a stock.the implications for personal finances are clear. If you're a 'bond' you might want to balance your human capital by adding more stocks to your growing financial capital. If on the other hand you're a 'stock,' you might consider adding more bonds to your financial capital to offset the risk you take in your day to day work.

Many of us are not 100% a stock or 100% a bond; we are a blend"

Monday, June 16, 2008

Strategies - The Perils of Investing Too Close to Home -

Well we knew of home COUNTRY bias, but home STATE bias? Apparently. That is the latest from Korniotis and Kumar.

Strategies - The Perils of Investing Too Close to Home - "
Americans tend to put a disproportionate share of their money into shares of companies based in their own states, new research has shown, and that bias that can be exploited by sophisticated traders.

These insights come from “Long Georgia, Short Colorado? The Geography of Return Predictability,” a study by George M. Korniotis, an economist on the staff of the board of governors of the Federal Reserve, and Alok Kumar, an assistant professor of finance at the University of Texas, Austin."

The actual paper can be found on SSRN.

Offer Says, ‘This Bud’s for InBev’ -

‘This Bud’s for InBev’ -
"Anheuser-Busch, which responded to InBev’s bid by saying it would review the proposal, has been exploring ways to thwart InBev’s $46.4 billion takeover offer. Busch is based in St. Louis. Anheuser-Busch, the maker of Budweiser, owns 50 percent of Grupo Modelo, the brewer of Corona, and might try to make itself too expensive to take over by purchasing the remaining half....,"
In response to this plan, InBev has asked Bud to refrain from any further acquisitions:

"“It is our strong belief that no alternative transaction that you could effectuate would create more value for your shareholders,” said Carlos Brito, the chief executive of InBev, in a letter Sunday to August Busch IV, chief executive of Anheuser-Busch, according to a statement."

Sirius-XM: It's about time - Jun. 16, 2008

Might the deal finally get approved? From CNN:
Sirius-XM: It's about time - Jun. 16, 2008:
"The two companies announced their merger nearly 16 months ago. Shareholders approved it in November. Many customers have been eagerly awaiting the chance to sign up for one package that would give it Sirius and XM programming.....And the Department of Justice gave the deal its blessing almost three months ago. So the only hang-up for the merger is a green light from the Federal Communications Commission....According to several published reports today, FCC chairman Kevin Martin has indicated that he would support the deal. The next step is for Martin to call for the remaining members of the FCC to vote on it this week."
From the NY Times:

"If the deal is approved, it would be a major reversal of the commission’s rules, the Post noted: The F.C.C. gave licenses to XM and Sirius in 1997 on the condition that the two satellite companies never merge.

Consumer groups have expressed concern that the merger would allow the combined entity to raise prices." "

Tuesday, June 10, 2008

Dealbook - CSX Grasping at Straws to End Battle -

Yeah this one will definitely make it to class! Fighting a proxy vote, CSX management has turned it political. How? By making it a matter of national defense. Uh, yeah. And for good reason, you never know when the British (where the hedge funds are located) are going to launch a surprise attack to get the return of Fort Niagara.

A few highlights from the NY Times:

Dealbook - CSX Grasping at Straws to End Battle -
"CSX has managed to turn a proxy contest for 5 of 12 board seats (it is hardly a takeover, at least not yet) into a debate about national security.”"

"The column writes itself: CSX delayed its annual meeting — without first telling its shareholders — and then moved the meeting to a rail yard in the middle of nowhere...."

"Two of the six senators who sent the letter ....receiving $5,000 each this year....[the] chairwoman of the House subcommittee with jurisdiction over the rail industry, has been particularly vocal in trying to prevent TCI from getting on CSX’s board. She has received $38,750 since 1989, including $5,000 in the 2008 election cycle, from CSX....And CSX gave $25,000 to Edward Waters College, in Jacksonville, her alma mater. And then CSX’s chief executive, Michael J. Ward, personally donated another $1 million to Edward Waters College"
Yep. It will make class as a great example of how management can fight takeovers and proxy votes even if it hurts shareholders.

Saturday, June 07, 2008

ETFs dominate Canada Cup -- and a looming threat to Canada's mutual funds - The Wealthy Boomer

ETFs dominate Canada Cup -- and a looming threat to Canada's mutual funds - The Wealthy Boomer:
"Seif said ETFs are popular because they're good for investors: 'They provide the ability to get exposure to the market and use them in multiple ways, whether for asset allocation or as a complement to stocks or active managers.'

Near the end of the session Seif took a direct shot at traditional mutual funds: 'High-fee index-hugging general mutual funds charging 2.5% a year that underperform the market just don't cut it any more. That's the reality.'"
I am always surprised that some still pay mutual funds such high fees for performance that mirrors (or worse) indexed performance.