peers

At least one hedge fund is thriving

Jim Kim — Mon, 06 Oct 2008 11:33:17 -0400

John Paulson rocketed to hedge fund fame and glory last year, when his prescient bets against anything subprime-related paid off in spades. He's having another good year, though it's doubtful he'll make another $3 billion. Through the end of August, Paulson's $7.4 billion Paulson Advantage Plus fund returned 19.43 percent, according to Reuters. He stands apart in several respects. For one thing, his big-name hedge fund manager peers are suffering through a really bad year. For another, he's one of the few big winners (most of whom won on credit-related bets) from last year to extend that into 2008. His latest surge seems to be the result of some short bets again British banks.

For more:
- here's the Reuters article

Merrill Lynch now grades stocks on a curve

Wed, 21 May 2008 06:59:59 -0400

Following the ground-breaking 2003 "global settlement" of tainted research charges, top banks with large retail units tinkered with their stock rating systems. Merrill Lynch became the latest to adopt a new plan that it calls an "an absolute system with a relative twist." This plan will enforce a grading system, as well as a grading curve--the net result of which, as the New York Times noted, will be an increase in the number of stocks with the lowest rating.

"Buy" recommendations, by definition, will sport a total return of at least 10 percent, and are the most attractive stocks among peers. "Neutral" ratings will be given to stocks that are expected to remain flat or increase, but be less than buys. "Underperform" stocks are expected to have a negative total return, or are the least attractive within the peer group. The transparency is nice.

The really interesting part is that stocks will be graded on a curve. In the universe of covered stocks, buys cannot exceed 70 percent, neutrals may not exceed 30 percent, and underperforms must be at least 20 percent of each coverage cluster. Twenty percent! That's significantly higher than the industry average the last time I checked. It looks as if Merrill Lynch aims to end the ratings-creep that has plagued the sell-side research industry for years, even after the settlement.

Retail investors should appreciate the changes. All in all, despite the business model woes, research that carries a brand name like Merrill Lynch still carries a lot of weight. These guys can still move markets. I'd like to see some research about the ROI to research units at big firms. - Jim

The real reason JP Morgan Chase bought Bear Stearns?

Tue, 06 May 2008 06:59:55 -0400

Here's an intriguing thought on why JP Morgan Chase bought Bear Stearns: because it had to. Seeking Alpha notes that the idea make sense when you consider that JP Morgan Chase's credit exposure to capital ratio hovers around 50 percent (a lot of which is in derivatives), which is quite high compared to its peers. For some, it follows that Bear Stearns likely was a big counterparty to all this exposure. "They would have had to step in to avoid a Bear bankruptcy so that they would not be forced to take toxic assets back onto their own balance sheet and avoid massive writedowns. Were JP's exposure to Bear large enough, then JP Morgan itself could have been left significantly impaired." Interesting theory.

For more:
- here's the Seeking Alpha item

Pimco sees hiring opportunity in Wall Street crunch

Thu, 01 May 2008 06:59:57 -0400

Pimco is making it known on Wall Street that it is hiring. It has apparently approached between five and 10 top banks, presumably via HR, and asked them to inform pink-slipped employees of openings at the big California fund manager, according to the Financial Times. Clearly, there are a lot of talented people who are out a job right now. A big mutual fund company may be the perfect spot to start over. Pimco plans to increase its workforce, currently 1,100, by more than a quarter as it expands, the article notes. It has conducted nearly 500 interviews, so far. Given the level of layoffs, it can afford to be very picky. As asset managers go, Pimco has fared relatively well, as many of its peers suffer outflows, especially from equity funds.

For more:
- here's the Financial Times article

Goldman Sachs looking a bit pricey?

Wed, 06 Feb 2008 06:59:57 -0500

While Richard Bove was busy upgrading several of the top investment banks (including Goldman Sachs), Meredith Whitney of CIBC--she of recent Citigroup fame--has decided that Goldman Sachs had gotten a bit ahead of itself, according to this Fortune item. She changed her call to perform from outperform. She's not bearish on Goldman's near-term future. She still thinks the bank will out-execute its peers. She just thinks at the 40 percent premium at which it trades relative to Merrill Lynch and Lehman Brothers is bound to narrow. We've said it before that Goldman Sachs may have a tough time repeating its stunning performance in 2007. Others may come around to that view as well.

For more:
- here's the Fortune item

Meredith Whitney on Citigroup -- again

Thu, 06 Dec 2007 06:59:57 -0500

We've all heard Meredith Whitney's views on Citigroup. The CIBC analyst's latest missive contains a look at a different metric. She reckons Citigroup has more exposure to mortgages with high loan-to-value ratios than its peers. (Specifically, the ratio looks at mortgage on a home against the assessed home value.) According to the AP, her note says that mortgages with a ratio of 80 percent or more is considered significantly risky. And Citigroup has more than $75 billion in exposure to such loans. It has an additional $50 billion in exposure to loans with ratios of 90 percent or more. Needless to say, she's maintaining her sell.

For more:
- here's the AP update

Related articles:
- Analyst gets death threats over Citigroup note
- Meredith Whitney still swinging at Citigroup

UBS in hot seat with big bet

Tue, 06 Nov 2007 06:59:54 -0500

While the big guns in the industry are saddled with lots of "hung" leveraged loans, smaller players may be sensing a rare opportunity. Consider UBS. It took relatively small write downs on its leveraged finance positions for the third quarter, and now aims to take advantage of its peers' pain. According to Financial News Online, it will underwrite the "largest debt package on a private equity deal by a single bank since the summer credit crisis." UBS was the only debt underwriter on Dubai International Capital's acquisition of German company Almatis in a $1.2 billion deal. We'll see how much it can actually place. The European backlog is even worse than the U.S. backlog. So the going may be tough. But it is a gutsy move.

For more:
- here's the Financial News Online article

Read more on: UBS

Is Citic the answer for Bear Stearns

Wed, 24 Oct 2007 06:59:55 -0400

Jimmy Cayne describes Citic Securities as the New York Yankees of Chinese brokerage firms to the Financial Times, noting also that it was the best deal to cross his desk in 40 years. A lot has been written about the deal. Most of Monday morning quarterbacking holds that the deal is not the long-term answer. But it will help open up a lucrative market and perhaps close the gap in terms of global business that has opened between Bear and its peers. You do have to wonder what this means for other potential deals. Many were convinced the firm would soon announce a large equity investment. But that no longer seems the case. In fact, the deal may actually reduce the chances of a big equity stake, if partners are not comfortable with the Citic cross investment. So the jury is still out on Bear Stearns.

For more:
- here's the Financial Times article

Related articles:
- China bank to bid for Bear Stearns
- Behind the Bear Stearns hedge fund fiasco
- State-owned China banks on the rise?

Read more on: Bear Stearns

SPOTLIGHT: Mid-market banks feeling heat?

Thu, 20 Sep 2007 06:59:52 -0400

Investment Dealers' Digest points out that while mid-market commercial and investment banks have been spared the really large headaches being suffered by their larger peers, they are not immune to the credit crunch. That said, they are in relatively good shape. Article

Private equity exec favors higher taxes

Tue, 18 Sep 2007 06:59:54 -0400

Leo Hindery, the managing partner of InterMedia Partners, is standing alone among private equity big shots right now. He actually thinks various proposals to raise taxes on "carried interest" is a good idea. He's an advisor to John Edwards. But his arguments are less economic than pragmatic. His main point is one of simple fairness. In a congressional hearing, he was blunt: "A tax loophole the size of a Mack truck is right now generating unfair windfalls to a privileged group of money managers." The issue will be tricky, and I still do not think it will ever become law. Whether that is a good thing will be endlessly debated. But you have to admire the man for sticking to his guns. I'm sure he's getting an earful right now from his peers.

For more:
- here's a Fortune article