Posts tagged goldman sachs
Reheating Burger King won’t be another LBO whopper
Sep 2nd
It’s easy to see why private equity firms might salivate at the prospect of another bite at Burger King. The fast-food chain has made a fortune for a trio of buyout barons who acquired the company in 2002 and flipped it onto public markets four years later. But Burger King won’t be another LBO whopper.
Back then, nobody wanted Burger King. The business was in the hands of Diageo, the booze behemoth desperate to divest itself of any assets that couldn’t be consumed at a cocktail party. Not only did it have to cut the price from $2.3 billion to $1.5 billion, it guaranteed all the buyout’s debt at advantageous rates.
Diageo’s backing allowed TPG, Bain and Goldman Sachs to buy Burger King with just a sliver of equity — only 14 percent of the purchase price, or $210 million. Though they’ve since sold off chunks of their stake and harvested dividends from Burger King, they are still sitting on stock worth nearly four times the entire original investment.
Flash forward to the new and improved Burger King. With talk of a buyout spicing up the shares, plus about $1.8 billion of net debt, the company now sports an enterprise value of around $4.3 billion. That suggests a valuation of at least 9.5 times JPMorgan’s 2011 estimate for earnings before interest, tax, depreciation and amortization.
By contrast, the TPG-led crew paid just a little over five times Burger King’s 2002 EBITDA, according to the prospectus for its 2006 initial public offering. Moreover, without the backing of a sugar daddy like Diageo behind the debt, a new owner would need to inject at least twice as much equity as TPG, Bain and Goldman did.
That makes the next bite of Burger King look gristly. Sure, further expansion abroad remains an option if the international success of McDonald’s is anything to go by. And a revamped menu might help sales. But most of the costs have already been picked through and revenue growth from consumers eating cheap food in the weak economy has started to level off. Today’s Burger King just isn’t the value meal on which TPG, Bain and Goldman have already feasted.
Fuld may have a point mixed in with his Kool-Aid
Sep 2nd
Dick Fuld is still hung over from his home-brewed Kool-Aid. The former Lehman Brothers boss hasn’t stopped blaming his investment bank’s demise on “uncontrollable” market forces, false rumors and the lack of a government rescue. That neglects his own hubris and failure to buttress the firm. But he makes at least one fair point: U.S. regulators were damagingly inconsistent.
The Financial Crisis Inquiry Commission may not learn much new about the well-documented Lehman collapse from this week’s hearings. In written testimony on Wednesday, Fuld again argues he and his colleagues did what they could and were still unable to stop a run on Lehman or the dramatic Sunday night bankruptcy filing that ensued. In hindsight, they didn’t do enough. But even at the time, the pugnacious Fuld seemed too dismissive of skeptics like hedge fund manager David Einhorn.
Fuld is, however, justified in highlighting the government’s inconsistency, which plainly worsened the market reaction to Lehman’s failure. He stops short of saying other financial firms with bosses just as blinded by their own hype were given a helping hand rather than cut loose — but that was the case to differing degrees with American International Group, Bear Stearns, Citigroup, Fannie Mae, Freddie Mac, Goldman Sachs and Morgan Stanley.
Harvey Miller, a Weil, Gotshal & Manges attorney who advised Lehman, rightly notes in his own written FCIC testimony that the authorities’ explanations for refusing to rescue Lehman have been unpersuasive. They have mostly relied on strict legalities and small print. But rules were torn up or heavily bent in other situations. The timing of the AIG, Fannie and Freddie bailouts — all close to Lehman’s failure — and the stock of political capital in each case seems to have had at least as much to do with it.
The FCIC, due to report in December, is in many ways a lame duck. Legislation to overhaul U.S. financial regulation has already passed. Improved systemic monitoring and coordination between regulators is part of that. But there has been inadequate scrutiny of the interactions between administration officials, politicians, regulators and bankers that led to widely different outcomes. The commission could make its mark by figuring out what went awry in those dealings — and how to avoid it next time.
Wall Street Insiders Unload $100 Million Of Their Own Stock
Sep 1st
Officers and directors of Goldman Sachs, J.P. Morgan, Citigroup, and Wells Fargo have sold about $100 million worth of stock so far this year, amid relatively small buying activity, according to public stock filings with the U.S. Securities and Exchange Commission that have been analyzed by the research firm InsiderScore.
Read More…
More on Goldman Sachs
Raymond J. Learsy: Wall Street Guiding America Toward Third World Status. Now Instructing China As Well
Aug 31st
Wall Street will not let up. In spite of the Financial Regulation Bill passed last month, the Wall Street casino continues at full tilt. Just last week the New York Times reported (“Despite Reform, Banks Have Room for Risky Deals”08.25.10) that the likes of JPMorgan Chase and Goldman Sachs are continuing to squander hundreds of millions on bets, purportedly on transactions handled for their customers, (they are now passing themselves off as “croupier” at the roulette wheel) bets that seem to serve little or no economic value other than to further pressure an economy already in distress, pushing a deeply burdened American middle class further into third world status, and taking the entire nation along for the ride. It is a phenomenon all too real and has been authoritatively set forth Arianna Huffington’s recent book, “Third World America”.
Among the most malign effects of Wall Street’s workings on our economy has been its ruthless focus on the bottom line and its grim focus on its self enrichment, irrespective of the societal cost visited on workers, communities, the nations economic sinews and the nation’s entrepreneurial vision. Millions of workers have lost high value and productive jobs in manufacturing, trade and the professions. Jobs having been sent overseas and many destroyed through the brutal and self-serving leveraging of debt by the financial engineers, pledging the assets of the companies of which they have taken control before flipping them or dressing them up for an IPO. Many were enterprises with years of tradition created by the hard work of entire communities that have now been closed down entirely or moved offshore after having dismissed its workers en masse. All to the rapacious benefit of the Wall Street Mergers and Acquisition teams and their banking enablers, and the hedge fund honchos.
South Africa has work cut out to reach BRIC goal
Aug 27th
South African president Jacob Zuma wants to join the BRICs. The likely deluge of foreign investment from membership of the club representing the biggest fast-growing economies would bring huge benefits. But Zuma has plenty to prove — including that he can avoid the BRICs’ worst failings.
The BRIC concept coined by Goldman Sachs, referring to Brazil, Russia, India and China, has attracted heavy global investment flows. That has speeded the four countries’ growth — although sometimes, as in Russia in 2007, it has also produced dangerous bubbles. With 25 percent unemployment and one of the world’s biggest gaps between rich and poor, South Africa would greatly benefit from a similar surge in foreign investment to employ its people and improve their living standards.
South Africa is already included in an emerging market grouping known as the CIVETS — the first five being Colombia, Indonesia, Vietnam, Egypt and Turkey — and its economy is too small to fit comfortably among the far larger BRICs. South Africa also lacks the massive natural resource base of Russia or Brazil. However its literacy rate at 86 percent is much higher than India’s 61 percent and quite close to China’s 92 percent.
Qualitatively, at least, BRIC membership therefore seems plausible. But South Africa is not currently achieving BRIC-like economic growth rates — the Economist panel’s growth projections of 2.8 percent in 2010 and 3.7 percent in 2011 are well below its projections for the BRICs. To boost investment and growth, Zuma needs to improve South Africa’s investment climate. Ranked 55th in the world for corruption by Transparency International and 72nd for economic freedom by the Heritage Foundation, South Africa beats all four BRICs on both counts, so the potential is there. But Zuma can’t safely copy China’s overbearing state apparatus or Russia’s disregard for property rights.
Zuma’s efforts to build closer links with China will be helpful, given China has plenty of money and a thirst for natural resources. But to reduce poverty, South Africa needs investment in manufacturing and services as well. That points to a need for Western-style private sector investors also — and Zuma should align his polices to welcome them.
Goldman Sachs’ Goal: ‘Kill China,’ New Chinese Bestseller Claims
Aug 25th
Goldman Sachs & Co., reviled in the U.S. for its role in the financial crisis, is now getting hammered in the world’s No. 2 economy with a sensationalist new book accusing the investment bank of trying to destroy China.
The failure of HAMP
Aug 24th
ProPublica’s Paul Kiel crunches the latest HAMP numbers, and gets Treasury’s Herb Allison on the record saying the kind of things which so upset Atrios and others:
Allison put a positive spin on the fact that hundreds of thousands of homeowners have waited for several months for a final answer from their servicers. Homeowners in the trials have “benefited from lower payments … for many months” and from “having time to obtain other solutions to their needs,” he said. And that relief has come “at no cost to taxpayers.”
Kiel also links to an older ProPublica piece, from May, which spells out exactly what the weakness is in this argument:
Once they’ve been denied a permanent modification, homeowners owe the amount they were discounted during the trial. Banks often demand that the entire amount be paid as a lump sum right away or over a short period of time, causing a homeowner’s payments to swell beyond the original monthly payment.
What’s more, homeowners’ credit scores are damaged because trial payments are reported to credit agencies as delinquent or as part of a payment plan.
“Being in a trial modification if you don’t get a permanent modification is worse than having not been in a trial modification. Period,” said Diane Thompson, an attorney with the National Consumer Law Center. Worse yet, people “may have a hard time finding alternative housing because some renters check credit scores,” she said.
This is the real problem with the fact that 629,751 eligible home loans — 43% of the total — have been cancelled. In some cases, such as that of Goldman Sachs subsidiary Litton Loan Servicing, cancelled trials account for more than two thirds of the total. Treasury is trying to persuade us that those loans were still, on balance, a good thing. But I haven’t yet heard anybody outside Treasury attempt this line of argument, which indicates to me that it’s pretty unconvincing.
HAMP might well have been a success in the ways that Treasury enumerates — helping out banks on the solvency front, reducing the rate of foreclosures, that sort of thing. It was almost certainly a good idea politically, as well: you don’t hear much about the plight of homeowners being foreclosed upon, these days, certainly compared to the huge amount of noise on the subject around the time that Obama was elected president. The government is perceived to have Done Something, and the circus has moved on.
But it’s still a tragedy that hundreds of thousands of people who signed up for loan modifications — and who made all of their modified loan payments in full and on time — have had their modifications cancelled. Many of those people blame the servicers; Treasury, meanwhile, is more prone to blaming the borrowers themselves, claiming they’re incapable of verifying their income.
My feeling is that even if income hasn’t been verified, servicers shouldn’t simply cancel the loan mods if they’re performing well. And that if that’s what the servicers are doing, the incentives within HAMP have been designed very badly. That’s a Treasury failure, and it’s impossible to credibly spin it as any kind of success.
Chart of the day: Goldman’s integrity
Aug 20th
My Reuters colleague Robert Fullem had a really bright idea a few days ago: he went through all of Goldman Sachs’s annual reports and counted how many times the word “integrity” was used in each one. And the results are pretty interesting. The reports have been getting fatter and fatter: that’s the red line in the chart. But all those extra pages don’t seem to give the bank any more opportunity to talk about integrity: quite the opposite.
In fact, the Goldman Sachs integrity index peaked in 2002, when the word was used 12 times. Since then it has been on a steady decline, appearing just twice in 2008’s 162-page report. Sad.
Incidentally, the word “honesty” appears exactly once in every report. But the word “ethics” has only ever appeared once since Goldman went public. And that was back in 2002.
GM Files SEC Papers To Be Publicly Traded Again
Aug 19th
by Frank James
Paul Sancya/AP
General Motors filed its initial public offering paperwork with the SEC.
Another milestone in the U.S. auto industry’s return from its near-death experience was reached Wednesday with GM saying it filed with the Securities and Exchange Commission to become a publicly traded company once again.
The initial public offering will be a case of bailed-out Wall Street firms helping the bailed-out automaker as GM’s IPO will be underwritten by a number of financial firms that received taxpayer funds at the height of the financial meltdown.
A snippet from GM’s press release:
The amount of securities offered will be determined by market conditions and other factors at the time of the offering. The number of shares to be offered and the price range for the offering have not yet been determined.
Morgan Stanley and J.P. Morgan (representatives of the underwriters), BofA Merrill Lynch, Citi, Goldman, Sachs & Co., Barclays Capital, Credit Suisse, Deutsche Bank Securities, RBC Capital Markets, and UBS Investment Bank will be the joint book-running managers for the offering.
The irony is that selling shares like this is called “going public.” GM is arguably already public since the federal government currently owns about a 61 percent stake in GM, hence the nickname Government Motors.
That sounds pretty public to me.
ANALYSIS-Regulation may dim growth of ‘dark pools’ in Asia
Aug 18th
By Kevin Lim and Adrian Bathgate
SINGAPORE/WELLINGTON, Aug 17 (Reuters) – “Dark pools” and other alternative trading systems are not as big a threat to Asia’s bourses as they are for their western counterparts, given regulators’ reluctance to grant them a free reign and due to structural differences in markets.
Dark pools, so named because they represent large pools of “buy” and “sell” orders not visible to regular investors, operate relatively freely and match billions of dollars in stock transactions each day in the west.
But in Asia, where stock exchanges are often seen as national assets, regulators are likely to curb their activities to protect incumbents as well as ensure markets remain wholly transparent.
“Emerging market regulators have bad memories about the Asian financial crisis and are concerned about speculators,” said Richard Kang, CIO at New York-based Emerging Global Advisors, who manages about $120 million in exchange-traded funds.
“Liquidity pools, dark pools, alternative trading systems etc are still relatively new…they (Asian regulators) will wait for cues from the U.S. to see if dark pools are beneficial or a burden to their capital markets.”
Dark-pool operators acknowledge Asian markets will be harder to crack, but they remain keen to expand in the region where they account for just 1-3 percent of trades in the larger, more liquid markets and close to zero in smaller bourses.
Chi-X, a unit of Nomura and the biggest dark pool operator in Europe, last month launched a service in Japan and has plans to do the same in Singapore and Australia. Tora, a trading technology firm part-owned by Goldman Sachs, recently announced plans to set up a pan-Asian dark pool.
CHI-X says it hopes to gain 5-10 percent share of the Japanese market.
Bourse operators such as Hong Kong Exchanges and Clearing and Singapore Exchange also benefit from market structures that make it difficult for dark pools to bypass them when clearing trades, ensuring they will continue to earn fees regardless of how orders are matched.
Even in Australia, where the government has decided to expose ASX <ASX.AX> to competition from as early as next year, dark pools can expect strong resistance from the incumbent operator.
To fend off competition, the ASX has taken steps, including lowering fees for matching and settling stocks trades and the creation of its own dark-pool facility that traders can use to key in orders worth more than A$1 million ($913,200).
“You may not see the same impact in this market as you have in other markets,” said Shane Delphine, an investment manager at Karara Capital in Melbourne, referring to the dark pools.
MATCHED TRADES
Dark pools let brokers and fund managers place and match large orders anonymously to avoid influencing the share price. Matched trades are subsequently shown on the stock exchange while unmet orders remain invisible to other investors.
In the United States, dark pools and other alternative platforms account for about 22 percent of all shares traded. And in the UK, the London Stock Exchange has lost more than a quarter of the market to alternative platforms, in particular Chi-X.
NYSE, LSE and many western exchanges have since set up their own dark pools to fend off competition.
Chi-X has secured a provisional licence to operate in Australia once the rules regulating new entrants are ready.
ASX shares have fallen 16 percent since the start of 2010 on concerns margins will fall and that it would lose market share to new entrants, underperforming the around 10 percent decline in SGX and 8 percent fall in HKEx, which have both lost ground amid the global drop in stock trading volumes.
Most analysts regard ASX and the Tokyo Stock Exchange, which is unlisted, as the two Asian bourses that are most vulnerable to competition from dark pools because of their high trading volumes and relatively liberal regulatory environments.
Celent, a financial services consultancy, estimates dark pools could, in the next 3-4 years, grow their market share in these markets to as much as 5 percent from the current 1 percent, well below the 30 percent levels in some European markets.
Richard Murphy, ASX’s general manager for equity markets, said regulators will not allow dark pools to make similar inroads in Australia as they did in North America and Europe.
“I don’t see dark pools per se being a threat to ASX because it’s too much of a threat to the concept of displayed, centralised markets for regulators to let them get out of hand.”
The Australian Securities and Investment Commission (ASIC) declined to comment.
Dark-pool operators also face obstacles in Hong Kong, where operators of alternative trading services are required by law to report and clear their trades through HKEx, and in Singapore where shares of listed companies are held by a central depositary owned and managed by SGX.
This means that while dark pools can earn fees from matching orders, they cannot make money from clearing and settling trades either directly or by outsourcing the service to third parties.
“In Europe, there is competition among different clearing houses unlike in Asia where the clearing houses are linked to the exchanges,” said Lee Porter, Hong Kong-based CEO for Asia at Liquidnet, a large U.S.-based dark pool operator.
For smaller Asian bourses such as Bursa Malaysia, their relatively thin trading volumes and Asia’s fragmented stock markets may actually insulate them from competition.
“Asia is still 12-13 different markets with different rules, different regulations and different currencies. The market structure here does not allow one to trade all of Asia at once,” said Ned Phillips, CEO of Chi-East, a venture of Chi-X and SGX.
“In Europe, charges for alternative trading systems are already below a basis point so you need to do a lot of liquidity. It would be challenging for dark pools to enter a smaller market.”
($1=1.095 Australian Dollar)
(Editing by Muralikumar Anantharaman) ((kevin.lim@thomsonreuters.com; +65 6403 5663; Reuters Messaging: kevin.lim.reuters.com@reuters.net))
((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))