At Bear, an Apology Is Met With Silence - NYTimes.com

At Bear, an Apology Is Met With Silence - NYTimes.com:

"The tally in support of the merger was 84 percent, Bear Stearns said....Inside the building, however, the mood was somber, if not tearful...The new entity will be much leaner....bout 7,500 Bear Stearns bankers have lost their jobs, along with as many as 3,500 employees of JPMorgan.

and later:

"I have no anger, only regret,” Mr. Cayne said...."I personally apologize. I feel an enormous amount of pain and management feels an enormous amount of pain.”

The audience of Bear employees, directors and investors, many of whom Mr. Cayne has known for years and who lost large parts of their savings and fortunes, received his remarks in dead silence."

Wow.

Study Casts Doubt on Key Rate - WSJ.com

Interesting...

Suppose you have two measures of something. One that is market driven (observable prices) whereas the other is based off reported data. Usually the two move together. However, when they diverge, someone must ask why and which is more correct.

That is essentially what the WSJ did in the following article. They look at LIBOR and teh credit spread to gauge the level of uncertainity in the market. Sure enough, the two usually move together, but not always.

Study Casts Doubt on Key Rate - WSJ.com:

"...beginning in late January, as fears grew about possible bank failures, the two measures began to diverge, with reported Libor rates failing to reflect rising default-insurance costs, the Journal analysis shows. The gap between the two measures was wider for Citigroup, Germany's WestLB, the United Kingdom's HBOS, J.P. Morgan Chase & Co. and Switzerland's UBS than for the other 11 banks. One possible explanation for the gap is that banks understated their borrowing rates."

Much of the paper is based on the fact that LIBOR is based BORROWING rates as reported by banks. This method of LIBOR calculation is not what I thought was done, so I learned somethig here. I always thought this was calculated by the rate banks were willing to lend at not what they were borrowing at. The two could have different numbers if the banks have an incentive to report lower rates for borrowing to assure the market their financial soundness.

How different cultures deal with free loaders

From the WSJ's Science Journal - WSJ.com:

"In the most sweeping global study yet of cooperaton, a team of experimental economists tested university students in 15 countries to see how people contribute to joint ventures and what happens to them when they don't. The European research team discovered startling differences in how groups around the world react when punishment is handed out for antisocial behavior."

Another look in:

"Among students in the U.S., Switzerland, China and the U.K., those identified as freeloaders most often took their punishment as a spur to contribute more generously. But in Oman, Saudi Arabia, Turkey, Greece and Russia, the freeloaders more often struck back, retaliating against those who punished them...."

The actual article is here.

Charges of Insider Trading for a Wall Street Luminary - NYTimes.com

Charges of Insider Trading for a Wall Street Luminary - NYTimes.com:

"Dr. Marshall, a retired professor at St. John’s University and a fixture on the Wall Street lecture circuit, was accused by the Securities and Exchange Commission in March of passing inside information about a multibillion-dollar corporate takeover to a professor at Pace University. The Pace professor, Alan L. Tucker, made more than $1 million trading on the tips in 2007, according to the S.E.C. The Justice Department has filed criminal charges"

While this was first reported back in March, the NY Times article now has nmany more details. Definitely one to use in class.

Bears Last Day on Earth - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Bears Last Day on Earth - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times:

"Bear Stearns shareholders are all but certain to approve the sale of the securities firm to JPMorgan in a vote Thursday morning. Bear will most likely be immediately merged out of existence as a public company. The Bear Stearns name will all but disappear, according to a report in Crain’s New York. To avoid the appearance of grave-dancing, J.P. Morgan will wait several weeks before etching its name on Bear’s headquarters on Madison Avenue, Crain’s said.

The Deal Professor takes the opportunity to consider what Bear’s downfall says about moral hazard, systemic risk and corporate governance."

Fear, Rumors Touched Off Fatal Run on Bear Stearns - WSJ.com

Fear, Rumors Touched Off Fatal Run on Bear Stearns - WSJ.com:

"Part One: Missed Opportunities As the firm's fortunes spiraled downward, executives squabbled over raising capital and cutting its inventory of mortgages.
Part Two: Run on the Bank Executives believed they were about to turn a corner, but rumors and fear sent clients, trading partners and lenders fleeing.
Part Three: Deal or No Deal? The Fed pressured Bear Stearns to sell itself, but a misstep in the hastily drawn agreement nearly scuttled the deal."

Wow. Possibly the best series of articles I have seen in the WSJ in years. One Look-in:

""Do you have any idea what is going on?" Mr. Minikes asked, cutting off his boss. "Our cash is flying out the door. Our clients are leaving us."

It was the beginning of a frantic 72 hours that would bring the Wall Street firm to its knees and threaten the stability of the global financial system. Interviews with more than two dozen current and former Bear Stearns executives, directors, traders and others involved show how quickly a company that took 85 years to build could unravel."

Bloomberg.com: Exclusive

Bloomberg.com: Exclusive: "

Credit-default swaps are derivatives, meaning they're financial contracts that don't contain any actual assets. Their value is based on the worth of underlying loans and bonds. Swaps are similar to insurance policies -- with two key differences.

Unlike with traditional insurance, no agency monitors the seller of a swap contract to be certain it has the money to cover debt defaults. In addition, swap buyers don't need to actually own the asset they want to protect.

It's as if many investors could buy insurance on the same multimillion-dollar home they didn't own and then collect on its full value if the house burned down

."

Yahoo Nominates Existing Board - NYTimes.com

Although the stakes are lower, this may be more exciting than the presidential election!

Yahoo Nominates Existing Board - NYTimes.com:

"Yahoo nominated 9 of its 10 existing directors for re-election to the company’s board on Thursday, setting the stage for a showdown with dissident shareholders at its annual shareholder meeting."

Court Upholds Tax Exemptions for Municipal Bonds - New York Times

Court Upholds Tax Exemptions for Municipal Bonds - New York Times:

"The Supreme Court on Monday upheld the preferential tax break that nearly all states give their residents who invest in bonds issued by the state and its municipalities. By a vote of 7 to 2, the justices rejected the argument that a state engages in unconstitutional discrimination against interstate commerce by exempting the interest on its bonds from residents’ taxable income while taxing the interest earned on the bonds of other state"

Five Basics for Building a Solid Financial Future - New York Times

Five Basics for Building a Solid Financial Future - New York Times:

"“In Defense of Food” that provides clarity amid the bounty of choices on supermarket shelves: “Eat food. Not too much. Mostly plants.”

Boiling down investing is a similar exercise: Index (mostly). Save a ton. Reallocate infrequently.

Good advice.

The rise of Islamic finance | Islamic Finance and Banking

The rise of Islamic finance | Islamic Finance and Banking: "

Finance that complies with Shariah, or Islamic law, is still a niche within the ethical investing niche. In all, there are at least $500bn worth of Islamic finance assets worldwide. That's not much in terms of global banking - US banks alone hold about $12.7 trillion in assets.

But the industry's growth is eye-catching: Islamic banking has expanded by more than 10% annually over the past decade, according to Standard & Poor's. It's grabbing the attention of some of the biggest banks in the world and changing how they do business."

The story continues...Microsoft and Yahoo

From Bloomberg.com: U.S.:

"Microsoft Corp., the software maker that scrapped a $47.5 billion bid for Yahoo! Inc. this month, may forge a partnership with the Internet company on search advertising to challenge Google Inc.

Microsoft, which abandoned its takeover attempts May 3, said yesterday that it's exploring a transaction with Yahoo and may renew attempts to buy the entire company. The two may combine units that sell ads that run next to Internet search results, said Morningstar Inc. analyst Toan Tran.

Billionaire investor Carl Icahn is pressuring Yahoo to ally itself with Microsoft to compete with Google"

From a teaching perspective, this one just gets better and better. Stay tuned.

Debating the CBS-CNET Deal - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Debating the CBS-CNET Deal - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

"CBS’s $11.50-per-share deal for CNET seems expensive by at least two measures. Its 45 percent premium is unusually high, and Mr. Bazinet of Citi calculates that the price is 18 times CNET’s projected 2008 Ebitda, above the multiples recently paid for Bankrate (12 times Ebitda) and WebMD (14 times)....And on the question of price, CBS said it believes that the deal will have an internal rate of return of 13 percent and will not have any effect on its dividend, which it just increased last quarter."

Given the weeks and weeks we spend on valuation and is close cousin capital budgeting, I thought my students might like to see some of the things are actually used ;)

Text of Icahn’s Letter to Yahoo Board - New York Times

This is good. Yet another case of "this will be used in at least some classes!"

Text of Icahn’s Letter to Yahoo Board - New York Times:

"It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company"

Does anyone know of anyone writing a case on this? I would like to but don't want to reinvent the wheel.