Goldman Sachs

The best way to regulate hedge funds

Jim Kim — Thu, 20 Nov 2008 13:35:01 -0500

AllAboutAlpha.com notes an interesting study--by Michael King of the Bank for International Settlements and Philipp Maier of the Bank of Canada--that suggests the best way to regulate hedge funds is by regulating prime brokers. Recently, the large prime brokers--Morgan Stanley and Goldman Sachs remain the top two-- dictated much of what went on in the industry. So by imposing on prime brokers some strict collateral and risk management, regulators could corral the excesses of the industry. AllAboutAlpha.com understandably wonders if this amounts to the fox guarding the hen house, but the fact remains that directly regulating hedge funds may be a non-starter. The government has failed even in its attempt to require registration. True, the government has more leverage in the post-meltdown era. And the prime brokers are basically part of commercial banks, so the moment maybe propitious for novel arrangements.

For more:
- here's the article

Who's paying the most for capital?

Jim Kim — Tue, 18 Nov 2008 21:06:11 -0500

The capital raising frenzy that Wall Street embarked on this year has been nothing short of phenomenal, Breakingviews notes that the capital raises took various forms--"an elaborate concoction of preference shares, warrants, convertible bonds, ratchets, cap-and-collars and other innovative instruments, as well as issuing plain old equity." Every company has a unique set of circumstance, which results in different costs.

So who is paying the most? Breakingviews offers an interesting ranking that has Morgan Stanley at the top of the heap. It's paying 9 percent on $9 billion preferred shares bought by Mitsubishi UFJ. These shares convert into shares valued at $25.25 when the common hits $37.88. Assuming a 10 percent average annual stock gain a year, Morgan's effective rate would be 17 percent. Goldman is not far behind with its deal with Warren Buffet. Same goes for Barclays and its deal with Abu Dhabi and Qatar.

For more:
- here's the Breakingviews article

What will Citigroup do about executive bonuses?

Jim Kim — Mon, 17 Nov 2008 21:21:14 -0500

This would appear to be a no-brainer. After four straight quarters of massive losses, the elimination of 53,000 jobs, the unsuccessful and embarrassing attempt to buy Wachovia, and the spurning of Goldman Sachs, you would think Citi CEO Vikram Pandit would be firmly in favor of foregoing exec bonuses for 2008. By even keeping this as an option, he has stumbled into yet another PR mistake. The bank's desire to forego a decision on exec bonuses until the new year now has the New York AG Andrew Cuomo issuing press releases stating that "it seems only fair that top executives should shoulder their fair share in these difficult economic times. It would send exactly the wrong message for Citigroup's top brass to collect bonuses while investors, taxpayers and, now, Citigroup's own employees suffer." To be fair, the AG also mentions AIG. If UBS and Goldman execs deem that their execs do not deserve 2008 bonuses--and Goldman may end the year profitable--it would be hard to argue that Citi execs deserve them.

For more:
- here's the Cuomo statement

The beginning of the end at Citigroup?

Jim Kim — Mon, 17 Nov 2008 14:17:44 -0500

What to make of the additional 53,000 jobs cuts at Citigroup? The cuts, part of an on-going effort to slash the head count by 20 percent from a high of 375,000, are certainly draconian, but they will not be enough. Cost controls alone will not be able to revive Citi. The fact that the company seems to be moving mainly on the expense side is not a good sign.

Even if Citi had agreed to merge with Goldman Sachs, these sort of job cuts would have happened, but the remaining core would have emerged in stronger shape. As it stands now, Citi will merely be smaller. The strategic equation has not changed, which raises the issue of accountability. Citi is starting to resemble the McCain campaign--as the inevitable becomes clear, the infighting really kicks up. Whenever a board is forced to issue a statement standing by its chairman, you know something is wrong. We'll get something dramatic fairly soon.

For more:
- here's an AP article
- CEO Vikram Pandit on the cuts. Video

Goldman profiting from naked shorting of leveraged loans

Jim Kim — Mon, 17 Nov 2008 13:49:18 -0500

The hits keep coming for Goldman Sachs, the one-time Teflon firm of Wall Street. The latest: Two funds have told the Loan Syndications and Trading Association that they think Goldman Sachs helped drive down prices of leveraged loans via naked short selling, reports Bloomberg. If true, that would mean Goldman is acting contrary to its clients' best interests. This sort of trading is not illegal per se, but given the political moment, it would not go over well. Of course, it's hard to ascertain exactly what is going on. The leveraged loan market is still a source of anxiety across the Street. Shorting was once unheard of in the market, Bloomberg notes, but times have changed. It seems like it would be hard to short the market, because it would require finding someone to speculate they would be poised to rise.

for more:
- here's the article

Goldman Sachs executives to forego bonuses

Jim Kim — Mon, 17 Nov 2008 13:37:22 -0500

Lawmakers are livid that TARP funds may be contributing to big bonuses at some banks. And that has put some banks in a very awkward position. Goldman Sachs has responded by deciding that the top executives will not get bonuses for 2008. The list includes Lloyd Blankfein; Jon Winkelreid and Gary Cohn, Goldman's co-presidents; chief financial officer David Viniar; and Michael Evans, Michael Sherwood and John Weinberg, all vice-chairmen, according to the Financial News Online. This is a savvy move, and a costly one. Of all the banks that could make a case for continuing to pay bonuses it was Goldman Sachs. Unlike others, it looks like Goldman will turn a profit for the year, which in itself is a decent case for paying commensurate bonuses. But PR issues are important and the executives realized that. It looks like employees will still be eligible for 2008 bonus payments.

For more:
- here's an article from Financial News Online

Should revolving Goldman-government door be investigated?

Jim Kim — Mon, 17 Nov 2008 13:36:14 -0500

It's a grand tradition at Goldman Sachs: Retire wealthy and go into public service. Henry Paulson is but one example of a former Goldman exec who moved into the highest echelons of government. But so many execs have made the move that some wonder if all this creates some conflicts of interest. Is it possible that they are still looking out for their ex-colleagues?

The Financial Times reports Chuck Grassley, the most senior Republican on the Senate finance committee, has asked Eric Thorson, inspector-general of the Treasury, to investigate the "independence" of several Treasury officials who once worked at Goldman Sachs. The issue is the appearance of preferential treatment, specifically regarding the appointment of Robert Steel, a former Goldman Sachs exec, as CEO of Wachovia. Until recently, Steel also worked at the Treasury. Another issue is the tax-code change that seemed to benefit Wells Fargo as it sought to buy Wachovia.

For more:
- here's the article

Goldman Sachs refutes 'Columbia Journalism Review'

Jim Kim — Sun, 16 Nov 2008 08:17:12 -0500

Goldman Sachs has taken issue with Dean Starkman, the author of The Audit for the Columbia Journalism Review, about Goldman's stake in AIG. Here's the exchange.

Lawmakers seek answers on TARP funds

Jim Kim — Thu, 13 Nov 2008 14:14:57 -0500

Congressmen got their chance to ask banking executives what they were going to do with their loans. The answers were not surprising. execs from Goldman Sachs, JPMorgan Chase, Bank of America and Wells Fargo told the Senate Banking Committee that they were not using TARP funds for bonuses and were using the funds to expand credit. But lawmakers seemed a bit skeptical and reiterated that they wanted the banks to make loans--which we can all sympathize with. But you have to be circumspect, you certainly don't want to make bad loans with TARP funds. This isn't a great environment for lending. Using funds to modify mortgages, however, seems wise. All in all, as more money from the $750 billion TARP is doled out, more restrictions may be put in writing.

For more:
- here's the article

What's up at Citigroup? Regional deals coming?

Jim Kim — Thu, 13 Nov 2008 08:23:38 -0500

Well, it's not quite Wachovia, now is it? For that matter, it's certainly not Goldman Sachs, with which Citigroup had a chance to merge. The news that Citigroup is negotiating to buy Chevy Chase Bank, a mid-Atlantic bank, is sort of a let down. It indicates that growing its deposit base will require a piecemeal approach of bidding on multiple, smaller banks with uncertain results. Small wonder then that the Citigroup board is starting to put the heat on top executives. The infighting is heating up and that it has spilled into the media is a strong sign that all is not well. While some directors are reportedly in favor of replacing chairman Win Bischoff, the real issue is CEO Vikram Pandit. His honeymoon ended long ago. In hindsight, was passing on the Goldman Sachs opportunity a huge mistake?

For more:
- here's a Reuters article