lawyers

How should reverse break-up fees be valued?

Jim Kim — Fri, 05 Sep 2008 13:44:43 -0400

If we were to assign reverse break-up fees an actual market value, such fees would constitute a bull market. How long would it be before banks started making markets in options and swaps on such fees? TheDeal.com notes that there are some who indeed think that target companies should value such fees more along the lines of a put for buyers. That put would be quite pricey in the current environment, and it might do a better job of dissuading buyers from walking away. Recall that Cerberus was able to walk away from its deal for United Rentals by simply by paying a $100 million reverse termination fee. So far, we haven't seen a rush by boards of selling companies to change the model. But lawyers in the field are more supportive of the put concept, and may be able to persuade more clients.

For more:
- here's TheDeal.com article

SPOTLIGHT: Icahn's blog

Mon, 19 May 2008 06:59:52 -0400

We were excited to hear that Carl Icahn was planning to start blogging with something called the Icahn Report. But TheDeal.com reports that his lawyers have put that on hold. Article

Kerviel a folk hero? Ouch

Wed, 30 Jan 2008 06:59:55 -0500

This is the risk banks run when dealing with rogues. The Times writes that Kerviel "has become something of a global folk hero, with songs, videos and Internet sites devoted to him, was portrayed by his lawyers as the victim of unscrupulous employers." The villain, of course, will be the bank. Kerviel is now saying that he "can't believe" that his superiors had no idea what he was doing. The danger for top executives is that they end up looking really bad for allowing this to happen. There are already calls being heard for top execs to step down. There will be questions about risk controls and whether they were up to par for a global banking operation. He was making bad trades as far back as 2005 and no one noticed until the losses hit $7 billion. So this is a cautionary tale for all U.S. executives. The question remains: Can it happen on Wall Street?

For more:
- here's an article from The Times
- here's an article from the AP
- here's a New York Post article

How Kervial did it

Mon, 28 Jan 2008 06:59:55 -0500

The question on everyone's mind is: how did he do it? Societe Generale believes that, Jerome Kervial placed large long bets in one portfolio and then created fake hedges in another portfolio. So instead of hedging, as he was supposed to do, Kervial was effectively speculating that various stocks and indexes were poised to rally. The New York Times notes that risk managers saw several red flags but were apparently satisfied with Kervial's explanations--that some trades were mistakes that he would then cancel. He apparently used access codes pilfered from others to help game the system. Kervial is in custody, and his lawyers are saying that the bank is using the incident to divert attention from its subprime-related woes.

For more:
- here's the New York Times article
- rogue trader in custody Article
- background on the rogue of SocGen Article

Power in deals to shift to sellers?

Fri, 04 Jan 2008 06:59:57 -0500

It has been a buyer's market--and contractual terms reflected that. But after a nasty spate of busted deals, headlined by the on-going Sallie Mae blow up, ClearChannel and others, the New York Times notes we're likely to see some contractual tinkering that will shift some power back to the sellers. We'll likely see even bigger break up fees and additional guarantees on financing. Sellers of course want to compel their buyers to actually finish deals, not wrangle out of them. Until now, sellers were confident that buyers had the financing and desire to consummate deals. Like the rest of us, their deal lawyers failed to see the crunch coming.

For more:
- here's the article

Merrill Lynch wins WSJ correction

Thu, 29 Nov 2007 06:59:58 -0500

When the Wall Street Journal--still the paper of record in the industry--suggested Merrill Lynch was using some Enron-like techniqies to minimize writedowns, it hit like a bombshell. I imagine the PR staff and lawyers going into a frenzy that resulted in what Merrill Lynch called a "rare correction of a page-one story." A memo to employees noted that a deal that would have called for a hedge fund to buy CP issued by a Merrill entity was nixed by the "control group." The point being that the process held. The deal was not allowed to go through.

For more:
- here's a New York Times write-up that includes the memo

Related articles:
- How Goldman envy felled Merrill Lynch
- The future of Merrill Lynch

At issue: timing of Citigroup announcement

Tue, 13 Nov 2007 06:59:58 -0500

Did Citigroup wait too long to announce its massive writedowns? That is the question posed by Fortune magazine's Carol Loomis. She suggests the delay may not have been in keeping with disclosure rules, which allows only 4 days. The delay was apparently from Saturday, October 27th through Sunday, November 4th. That's five trading days. The company says it did nothing wrong, and that all moves were vetted by lawyers and others step by step. It also said it wanted to be confident of the range. Loomis doesn't find that persuasive given the large range announced. Yet another headache for Rubin and his team.

For more:
- here's the Fortune article

Why young people want to be bankers

Wed, 05 Sep 2007 06:59:58 -0400

According to a recent government report, investment banking pay is hitting absurd levels. The weekly pay in the profession is $8,367, compared with $841 for all private sector jobs. Are investment bankers worth 10 times more than everyone else? Let the debate begin. In various hot spots, where hedge fundies are concentrated, the pay is even higher. In Fairfield County, Conn., residence of choice for many hedge fund employees, the average weekly pay is $23,846. In Manhattan, weekly pay averages $16,849. There was a time when the brightest wanted to be doctors, then lawyers, the traditional investment bankers, then Microsofties, then dot.com types, but there is no question what young people want to do these days: make as much as possible and--hopefully--"give back" later.

For more:
- here's a New York Times article

Is Eliot Spitzer changing his tune?

Tue, 29 May 2007 20:01:37 -0400

Eliot Spitzer's wars, on mutual funds and sell-side research among other targets, really shook up the industry, to the glee of lawyers. But now that he is governor of New York, is he changing his tune? He is certainly savvy to the issue surrounding the fate of New York as a financial center. Spitzer just signed an order creating the New York State Commission to Modernize the Regulation of Financial Services. It will focus, according to The New York Times on "streamlining regulation." At the state level, it seems like a lot could be done. No fewer than four entities regulate the industry. It really isn't an abrupt change of tune. It makes a lot of sense to streamline, just as it did to properly disclose various fund sales arrangements. In the end, hopefully everyone benefits.

For more:
- here's the article from The New York Times

ALSO NOTED: UBS banker also a filmmaker; New force: Icahn's son?; and much more...

Sun, 22 Apr 2007 20:01:30 -0400

Company News:
> UBS banker also a filmmaker. Article
> New force: Icahn's son? Article

Industry News:
> Are lawyers too conflicted in deals? Article
> Ready for a Suze Orman Cruise? Article
> Now this is office golf. Article

Regulatory News:
> Former KeyBank exec sentenced. Article

And Finally... How to deal with unwanted advances at work. Article