Alexander Hamilton's B-day bash?

Alexander Hamilton's Bday party:

"The Museum of American Finance, in association with the Smithsonian Institution, will commemorate the 250th (or, some scholars say, 252nd) birthday of Alexander Hamilton, the first U.S. Secretary of the Treasury, with a symposium and reception on January 11, 2007. The event will be held in the Museum's new home at 48 Wall Street - appropriately the former headquarters of the Bank of New York, which Hamilton founded in 1784."

Hamilton played a very critical role in the estabilishment of the US economic prosperity. If you are in NY, it might be worth stopping by to the "symposium".

Toll of the stock options scandal heavy in 2006

Trying to catch up on finance news before I leave for Mississippi for another rebuilding effort.

Toll of the stock options scandal heavy in 2006:

"Eighteen chief executives swept out. More than 100 public companies under
federal investigation and more than $5 billion in profits erased by
restatements. Indictments so far: five former top executives at two companies,
Brocade Communications Systems Inc. and Comverse Technology Inc.
The toll of the stock options timing affair -- corporate America's scandal of the year --
has been heavy. Federal officials say more prosecutions will be brought in 2007
over manipulation of the timing of stock option grants to enrich top company
executives."

Is your fund manager deceiving you? Read on | TheNewsTribune.com | Tacoma, WA

Is your fund manager deceiving you? Read on TheNewsTribune.com Tacoma, WA:

"The final week of every quarter is known as “window dressing week.” It’s when
portfolio managers sell stocks that have done poorly during the quarter and
replace them with ones that did well.

The idea is to make themselves look good: Reports to investors include snapshots of major fund holdings at the end of the quarter. So packing the big winners into the fund makes the manager look like a great stock picker.

But if those winners were added to the fund at only the last minute, it was too late. Most of the gains came earlier – so your fund didn’t benefit. Moreover, the winners often are sold soon after the reporting period ends"

Firms cook the books to set executive pay

From the St. Petersburg Times Opinion: Firms cook the books to set executive pay:

"Grasso was a poster child for the abuse. His $140-million compensation package was rationalized, in part, by comparing his job to those at companies with median revenues 25 times the size of the exchange, assets 125 times and employee bases 30 times the size.

Grasso was hardly alone. Executives have learned that the path to personal riches is paved by 'peer groups' that include big and profitable companies"

This is not real news. At least since 2000, the idea has been documented in academic literature. For instance, see Bizjak, Lemmon, and Naveen. The NY Times article that is referenced is here.

Grades are in so I can get back blogging

Finals, correcting projects, and all-around chaos have kept me from writing much of late, but I think things are settling down so I will try to catch up.

Hope everyone is doing well. Happy Holidays!!

jim

Google Gives Employees Another Option

Google Gives Employees Another Option:

"Google (GOOG) plans to give employees a novel method of cashing in their options starting next April. The search giant will let employees sell their vested stock options, which give the holder the right to reap the difference between the initial price and the current price, to selected financial institutions in an auction marketplace it's setting up with Morgan Stanley"

Home Depot may see fallout over options backdating | Reuters Recommends | Reuters.com

Home Depot may see fallout over options backdating | Reuters Recommends | Reuters.com:

"On Wednesday, Home Depot said a review by outside counsel found that, for certain stock option grants from 1981 through November 2000, the stated grant date was earlier than the actual time the grants were approved. Errors tied to the grants resulted in unrecorded expenses of about $200 million.

'The most dramatic take-away is how distressing it is to see how long these practices have been going on in some major companies,' said James Owers, a finance professor at Georgia State University"

Wow..that is a long standing practice!!! Shows how little we really know about inner workings of firms!

Andrew Metrick: Governance Index Data

I was recently asked where a reader could find the corporate governance index, so I figured others might like to know that it is available through Andrew Metrick's website.

Andrew Metrick: Governance Index Data: "Governance Index Data by Firm, 1990-2006

"For details on the construction of the Governance Index, see Gompers, Paul A., Joy L. Ishii, and Andrew Metrick, 'Corporate Governance and Equity Prices', The Quarterly Journal of Economics 118(1), February 2003, 107-155."

TownOnline.com - Local News: BC’s Barry Is best prof on campus

TownOnline.com - Local News: BC’s Barry Is best prof on campus: " Corny jokes and tough tests are the hallmark of the B.C. finance professor, voted as one of the nation’s 'favorite professors' in a recent Business Week magazine student poll. Barry was one of only 22 management faculty members in the country to earn the A+ grade from his students. "

Econbrowser: The yield curve and foreign purchases of U.S. debt

Econbrowser: The yield curve and foreign purchases of U.S. debt:

"Some new research that suggests that the current negative spread between long-term and short-term yields may be a little less worrisome than earlier studies had led us to conclude, to the extent that the negative spread in part results from an unusually low term premium on U.S. bonds rather than an expectation of future declines in short-term yields. One factor that may be depressing that term premium is foreign holdings of U.S. securities."

Pretty interesting stuff! Thanks to Financial Rounds for pointing this one out!

A look at Amaranth's Brian Hunter

Sounds much like Nick Leeson at Barings back in 1995.

Bloomberg.com: Canada:

"Hunter, within 17 months, would be responsible for $6.6 billion in losses, detonating the biggest hedge fund implosion ever. Since Amaranth's sudden collapse, investors have questioned the unusual trust Maounis put in his star trader, now 32. They say Maounis gave Hunter too much latitude and that Hunter, trading more than half the firm's assets, was blinded by a bet that had worked like a charm for two straight years.

``Amaranth's demise is not due to some complicated quantitative reason -- it's about human failing and frailty,'' says Hank Higdon, who runs New York-based Higdon Partners LLC, a recruiter for hedge funds and other money-management firms."

Billy Beane comes to Wall Street

Thanks to the SportsEconomist for pointing this one out!

FT.com / Markets / Wealth - Faith in figures proves to be a big hit:

"Beane’s great contribution to baseball – he is quick to admit – has been to apply to it techniques that were first honed by investors on Wall Street. Now, to his evident enjoyment, Wall Street is interested by the lessons it can learn from the world of professional sports. "

and later:

"By the time he took over as a general manager, baseball statisticians had worked out that on-base percentage – measuring the amount of the time a hitter avoids making an out and gets on base, including walks – was much more relevant to the number of runs that would be scored.

Hence, there was a mispricing in the market. Players with a gaudy batting average, who hit strongly for power, were over-priced. Patient hitters who walked a lot were undervalued. So he filled his team with under-priced patient hitters. Rather than trust the observations of scouts sent out to watch youngsters playing, he would trust the numbers."

Interestingly last year (i.e. 2005) the SBU financeClub met Beane on a trip to NYC when he was presenting at Bear Stearns.

If you want to keep up on Business news, try DealBook

I know I have mentioned DEALBOOK many times before, but it is just so good and recently when I mentioned it in class no one was using it. So I figured I would give it another plug.

Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times:

"DealBook is a financial news service produced by The New York Times. It is published daily, Monday-Friday, except on U.S. Market holidays and during the last week of the year. A daily digest of DealBook is also available via email, delivered before the market opens."

Buffalo News - Despite convictions, Rigases live in the lap of luxury

Buffalo News - Despite convictions, Rigases live in the lap of luxury:

"Nearly two and a half years after being convicted of bank fraud and other corporate crimes, former Buffalo Sabres owner John J. Rigas and his son Timothy remain comfortably at home in Coudersport, Pa., awaiting the results of their appeal.

Meanwhile, many other executives who found themselves on the government's rap sheet in recent years - Andrew Fastow of Enron, Bernard Ebbers of WorldCom, Dennis Kozlowski of Tyco are all behind bars.

What's more, lawyers close to the Rigas case and independent experts are now entertaining a possibility that, to trial-watchers, seemed laughable at the time of the Rigases' conviction in July 2004: that they could win their appeal and thus face a retrial."

Wow, talk about timing! On Wed my MBA class is covering the Adelphia case and one of their assignments was to give an update on where everyone is now. I guess the students' lives just got easier!

Incentives and the timing of takeovers

I reader brought this cookl article to my attention:

From the NY Times:

"...8 of the 20 largest deals in the last four years have taken place in November and December, according to Thomson Financial.

How to account for this? ....The urge to merge may be influenced by bonuses for all involved in the deal, especially the bankers. Corporate America’s biggest cheerleaders and boosters need to get paid.:

"In the byzantine office politics that decides how to dole Wall Street bonuses — expected to be a cash pile of more than $100 billion across the Street this year — a banker can receive a little extra bonus money for a deal announced this year, and get paid a little extra again next year when the deal closes."

Interesting!!

I'd also add if you think you may be switching companies next year, you may push for deal now in order to get the bonus.


Thanks JH

Cost of Nymex trading seat falls as screen trading surges

Don't think electronic market is changing the market landscape? Think again! case in point, the price of a seat on the NYMEX fell by a staggering 75%!

Cost of Nymex trading seat falls as screen trading surges:

"THE cost to lease one of the 816 seats on the New York Mercantile Exchange, the world's largest energy market, has plunged 75 percent as electronic trading overtakes the traditional open-outcry system.

Three new seat leases, which give the holder the right to trade on the Nymex floor in Manhattan, were issued starting on Friday at US$5,000 a month, and several renewals were also signed at that price. Last month, seats were leased for as much as US$20,000 a month, according to data on Nymex's Website."

and later:

"The shift to electronic trading is drying up liquidity on the floor," said Robert Webb, a finance professor at the University of Virginia and a former trader on the Chicago Mercantile Exchange. "It's totally a reflection of a lack of potential profit opportunity by trading on the floor.""

And from Bloomberg:

"As part of the IPO process, seatholders were issued 90,000 shares in Nymex for each seat they owned. Those shares are now worth about $11 million. Prior to the IPO, Nymex members traded the shares among themselves, often for about $45 each, valuing a seat at about $4 million just a month ago.

The trading right component of a Nymex seat yesterday sold for $500,000, according to Nymex's Web site."

So while trading is still taking place, it is migrating more and more to electronic markets and not the floor.

The mergers continue

The mergers continue! The last few months have been very busy for the takeover (err- Market for corporate control market). And today is no different:

Bank of New York to Buy Mellon for .5 Billion - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times:

"Bank of New York plans to acquire Mellon Financial of Pittsburgh in a $16.5 billion stock transaction that would create the world’s largest securities-servicing firm, the companies said early Monday. The combined entity would be called Bank of New York Mellon and have annual revenue of more than $12 billion, according to a joint press release on the two banks’ Web sites.

The boards of both banks have approved the deal, which is expected to close early in the third quarter of 2007, the companies said."

A few M&A links that might be beneficial/fun:

* Gregg Jarrell's into piece on takeovers (virtually required reading for my class!)
BTW I took Jerrell for a class, it was one of my favorite all time classes!
* A classic look at takeovers from Michael Jensen
* A more recent look at the takeover literature by Burkart and Panunzi that also has more of an international flavor.
* A look at some cartoons that focus on takeovers

Accounting Snags Push Dresser to Restate - - CFO.com

Some local ties to this one. Dresser is a major employer in the Olean NY area.

Accounting Snags Push Dresser to Restate - - CFO.com:

"Dresser Inc. said it will restate its financial statements for 2001 through 2003 based on a host of accounting errors. In May, the industrial engineering company had warned that it would restate its 2004 annual filing, its 2004 and 2005 quarterly financial statements, and would be evaluating the potential need to restate prior periods.

The accounting errors relate to inventory valuation and derivative transactions under the Financial Accounting Standards Board's FAS 133. Other accounting errors relate to the company's businesses which were sold in November 2005."

While I do not know the root cause of the Dresser restatements, In a at least somewhat related article, CFO.com reports on the causes of accounting restatememts. A quick quote:

"Scott Taub, deputy chief accountant of the Securities and Exchange Commission. Taub...lays the abundance of problems squarely at the door of simple human bungling....Taub said that 55 percent to 60 percent of the errors triggering recent misstatements were "simple misapplications of [generally accepted accounting principles] or books and records problems."

Study says index fund investors pay more with broker - Nov. 30, 2006

While not exactly ground breaking (I am sure every finance professor in the country has been saying this for years), it is an interesting article and good for introductory investment classes etc.

From CNN: Study says index fund investors pay more with broker - Nov. 30, 2006:

"Investors who rely on a broker to recommend an index mutual fund could be paying a whole lot more that they have to, according to a study released Thursday.

The study, produced by the Zero Alpha Group, a network of financial advisory firms, and Fund Democracy, an advocacy group for mutual fund shareholders, contends that investors that use a broker are typically sold index funds with higher operating expenses, without necessarily offering a performance premium....

"Brokers are supposed to work for their clients, but when recommending a generic product such as an index fund, they refer their clients to more expensive funds and then collect sales charges to boot," said Mercer Bullard, president of Fund Democracy and a professor at the University of Mississippi School of Law."

What can investors do? One solution is to buy your funds directly from the fund company (eg. Vanguard, Fidelity, etc).

Top 25 Web 2.0 Apps for Money, Finance, and Investment

What a useful site! It has apps that help you do everything to find out good deals if you are renting an apartment to how much you should expect for a salary, to find real estate values to personal budgeting tools.


Top 25 Web 2.0 Apps for Money, Finance, and Investment:

"This guide to the top 25 web 2.0 applications should help you with the above will come in handy when it comes to managing all your money concerns. [If you're not familiar with 'web 2.0', read: what is web 2.0, or the compact definition.] Many of these apps have a community nature to them, so if you need some friendly advice from members, or wish to give it, you can."

(Be forewarned some of the sites are a too commerical for my tastes, but there are enough really cool sites to check it out!)--

Thanks JimmyA for the tip!