The Agonist - Business

Comcast Said to Be Close to Gaining NBC Universal

Tue, 03 Nov 2009 19:16:55 -0800

Michael J. de la Merced & Andrew Ross Sorkin | November 1

NYT - General Electric and the cable giant Comcast have moved closer to a deal giving control of NBC Universal to Comcast, and a formal announcement could be made sometime next week, people briefed on the talks said Sunday.

After a series of meetings last week, the two companies reached a tentative agreement on Friday over the main points of a deal, these people said. Comcast would own about 51 percent of NBC Universal, contributing several billions of dollars in cash and its own stable of cable networks to the new venture.

G.E., which currently owns 80 percent of the entertainment company, would retain the other 49 percent and would contribute about $12 billion in debt to the new entity, though it is expected eventually to sell its ownership interest over several years.

Much work remains before the deal can be completed. The main issue is the negotiations with Vivendi, the French conglomerate that owns 20 percent of NBC Universal. Talks with Vivendi are continuing, focused largely on how to reach an acceptable valuation of NBC Universal, these people said. The French media company gained its stake in NBC Universal in 2004 through a deal with G.E., which combined NBC with Vivendi’s Universal Entertainment.

Buying Into Big Media's Recovery

Broadcasting & Cable, By Claire Atkinson, November 2

The dealing, however, may not be done. One Wall Street player confirmed market rumors that bankers have already descended on the MSO's Philadelphia headquarters to work with management on selling the NBC Network and stations to a third party. Comcast had no immediate comment on that still-hypothetical possibility.

CIT’s Bankruptcy May Help Bondholders and Erase Taxpayer Stake

Mon, 02 Nov 2009 06:21:54 -0800

Linda Shen | Nov 2

Bloomberg - CIT Group Inc.’s decision to seek court protection probably will keep money flowing to bondholders and 1 million customers of the 101-year-old commercial lender. Shareholders and taxpayers won’t be as fortunate.

CIT’s Chapter 11 bankruptcy may give bondholders new notes at 70 cents on the dollar plus new common stock, and Chief Executive Officer Jeffrey Peek said clients will be able to get funds. Common stock owners could be mostly wiped out, and the U.S. Treasury Department said it won’t recoup much, if any, of the $2.33 billion of taxpayer money that went into CIT, the largest firm to go bankrupt after getting a federal bailout.

“It doesn’t look too good for the government preferred or any preferred holders,” Brian Charles, a debt analyst at New York-based brokerage RW Pressprich & Co., said yesterday. “It’s unlikely common shareholders realize any value.”

Hey Obama

Sun, 01 Nov 2009 01:16:54 -0800

Nov 1

BBC - UK: Government to create bank chains

The government is to create three new High Street banking chains by 2015 as part of a major overhaul of the sector.

They will be set up by selling off parts of Royal Bank of Scotland, Lloyds and Northern Rock - the banks which had to be bailed out by the taxpayer.

Ministers and the European Competition Commissioner are in talks over the move, which would go some way to recoup the public money invested in the banks.

There is speculation that buyers might include Tesco and Virgin.

The new chains will be standard retail banks concentrating on deposits and mortgages.

In order to boost competition, they will only be sold to new entrants to the UK banking market and not to existing financial institutions.

Ministers say that creating more competitors on the High Street in this way will invigorate the mortgage market and ultimately lead to a better deal for customers.

How Goldman secretly bet on the U.S. housing crash

Sun, 01 Nov 2009 00:04:29 -0700

Greg Gordon | Nov 1

McClatchy - In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers that it also was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting. Now, a five-month McClatchy investigation has found that Goldman's failure to disclose those secret bets may have violated securities laws.

Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."

Bill would force financial firms worth $10 billion or more to pay for rivals’ failures

Wed, 28 Oct 2009 00:55:50 -0700

Washington | Oct 28

AFP - Financial companies with more than 10 billion dollars in assets will have to pay for rivals' failures or rescues, under draft legislation which has been released by the US Treasury and lawmakers.

The plan to address systemic risk in the financial sector will wind down failing institutions and end "too big to fail" bailouts that have been borne by taxpayers, the Treasury and the House Financial Services Committee said Tuesday.

The proposed Financial Stability Improvement Act "provides for the orderly wind-down of failing firms and ends 'too big to fail' to ensure that industry and shareholders absorb the risks and costs of failure, not taxpayers," they said in a statement.

The measure would be a cornerstone of President Barack Obama's commitment to reform financial regulation and avert costly taxpayer bailouts of banks and other financial firms.

"The Financial Services Committee and the Obama administration are committed to ensuring that the taxpayers are never again called upon to take responsibility for Wall Street's business decisions," the bill's sponsors said.

In a letter to committee chairman Barney Frank, Obama congratulated the panel for the progress made "in designing a strong package of financial reforms."

The 253-page draft legislation would create a federal resource fund to deal with failures or rescues that would recover expended funds that had not been recouped, by imposing assessments on firms with more than 100 billion dollars in assets.

The bill would set up an interagency council to monitor and oversee the stability of the financial system and address any related threats.

It would also provide the Federal Reserve and other federal financial agencies greater authority to "regulate for financial stability purposes" and quickly address potential problems.

Among its other provisions, the bill would subject thrift holding companies to Fed supervision and give the Federal Deposit Insurance Corporation, which insures bank deposits, the ability to unwind a failing firm.

"Costs to resolve a failing firm will be repaid first from the assets of the failed firm at the expense of shareholders and creditors, and to the extent of any shortfall, from assessments on all large financial firms," the statement said.

"In this instance, we follow the 'polluter pays' model where the financial industry has to pay for their mistakes -- not taxpayers."

Obama praised the panel for acting "quickly and in the face of substantial opposition to bring strong protections to consumers from unfair and fraudulent lending practices, to regulate derivative markets and to require banks to change compensation practices."

But he admitted that more work was needed "to build a more stable financial system and safeguard our economy from future crises."

So who's in charge?

Sun, 25 Oct 2009 19:14:59 -0700

Government is outsourcing a variety of important tasks to private contractors, who operate with little oversight

"In her new book, One Nation Under Contract, Allison Stanger documents in stunning detail the extent to which the United States has turned much of its most important work over to private contractors whose motivation is profit and level of public accountability near zero.

“Lockheed Martin . . . gets more federal money each year than the Departments of Justice or Energy. Lockheed Martin sorts your mail, tallies up your taxes, cuts social security checks, counts people for the US census, runs space flights, and monitors air traffic.’’ In fact, “in this new world,’’ she writes, “the private sector increasingly handles the everyday business of governing.’’

M&S makes palm oil pledge to save forests

Sat, 24 Oct 2009 22:53:09 -0700

Martin Hickman | Oct 24

The Observer - Commitment aimed at halting ecological damage done in South-east Asia

Marks & Spencer will commit to paying more for sustainable palm oil across its entire range of products today in an attempt to limit environmental damage in south-east Asia.

In a rolling programme over the next six years, M&S will buy GreenPalm certificates for sustainably produced palm oil equivalent to the amount it uses in almost 1,000 food, beauty and home products. Like other food manufacturers, M&S pours palm oil, the world's cheapest vegetable fat, into a wide variety of food and household products such as biscuits and convenience foods.

By early next year, the retailer said nine products, including 200g packs of oatcakes, a 500g cookie selection and seven types of cooked potatoes, would be covered by the GreenPalm scheme. By 2015, it promised to buy certificates for all relevant products. M&S, which would not disclose the cost of the commitment, is also funding a 120-acre wildlife corridor between plantations in Borneo.

UK economy in its longest recession on record

Fri, 23 Oct 2009 09:49:14 -0700

Ashley Seager, Julia Kollewe & Kathryn Hopkins | London | October 23

The Guardian - The British economy is mired in its longest recession on record, as government figures out this morning showed a shock 0.4% drop in gross domestic product (GDP) in the third quarter of the year.

The figures confounded widespread hopes that the economy had returned to growth after five consecutive quarters of recession.

City economists had almost unanimously expected a small increase in GDP. Quarterly records go back to 1955 and show there has never until now been six quarters of contraction in a row.

The pound fell sharply against the dollar and euro as dealers digested the bad news. The figure left output 5.2% lower than the same quarter last year and about 6% lower overall in this recession.

Straight after the figures were released, Alistair Darling reiterated his view that growth will return to Britain by the end of the year. "I've always been clear that growth will return at the turn of the year, as my budget forecast confirmed," he said. "We're facing the worst global financial crisis and recession in 60 years. We've always said that we remain cautious as a result of the high degree of economic uncertainty."

Economists were unimpressed. Nick Parsons at National Australia Bank said: "Darling says he stands by his 2009 growth forecast. This is utter nonsense. He forecast -3.5% at budget time and if we are to hit the forecast, we would need to see growth of more than 4% in the fourth quarter.

Economists revolt over surprise recession data

The Times, By GraÍnne Gilmore and Rebecca O'Connor, October 23

Economists today cast doubt on official data showing that British gross domestic product (GDP) contracted by 0.4 per cent between July and September, claiming the surprise fall is far worse than economic reality.

The shock figures from the Office for National Statistics (ONS) revealed that the country remained mired in recession during the third quarter — the sixth consecutive quarter of contraction, signalling the country’s longest downturn since records began in 1955.

Economists had widely expected that the country had emerged from recession between July and September.

Longest recession on record grips UK

Press Association, By Russell Lynch, October 23

The UK is now in the grip of the longest recession since records began, according to gloomy official figures published today.

Hopes for an end to recession were scuppered as the economy shrank by a shock 0.4 per cent between July and September - a record sixth quarter in a row of decline.

Output has now slumped 5.9 per cent since the onset of recession - almost as bad as the 6 per cent slump seen in the early 1980s - the Office for National Statistics said.

This Is Not Capitalism, It's Parasitism

Sun, 18 Oct 2009 12:29:16 -0700

What this article describes is not capitalism. It's parasitism, plain and simple:

But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.

In the grand scheme of things a mattress company isn't a top line productive industry, and yet, they still actually make things, as opposed to the bloodsuckers on Wall Street who literally raped the company.

Canada quietly asks EPA to weaken anti-pollution measures

Sun, 18 Oct 2009 09:18:29 -0700

Martin Mittelstaedt | Oct 18

Globe and Mail - Embassy in Washington asks agency to alter plan that would force lake freighters to stop burning dirty bunker fuel

The U.S. Environmental Protection Agency has proposed tough new measures to reduce the health toll from air pollution around the Great Lakes by forcing lake freighters to stop burning dirty bunker fuel.

But the plan has an unusual opponent: The Canadian embassy in Washington has quietly asked the EPA to weaken the measures, arguing that they could harm trade. It wants ships to be allowed to continue using the high-polluting fuel and to instead install smokestack scrubbers that would clean up their emissions. The Canadian recommendation, if accepted, could delay the clean-air measure for years, because the technology for the scrubbers does not yet exist.

The embassy asked the EPA to make the changes in a letter last month, marking a rare instance in which Canada has lobbied the United States to weaken air-pollution controls designed to reduce health problems linked to breathing dirty air. Because winds carry contaminants back and forth across both sides of the Canada-U.S. border, the EPA proposal would also lead to air-quality improvements in Canada.

The Canadian position is supported by the Great Lakes shipping industry, which is warning that the costs of complying with the proposed environmental regulations are so high that they will force companies to scrap some of the iconic steamers that now ply the lakes carrying everything from salt to iron ore.

How Moody's sold its ratings -- and sold out investors

Sun, 18 Oct 2009 09:01:07 -0700

Kevin G. Hall | Washington | Oct 18

McClatchy - As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression.

A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings.

Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk. Such products have another name now: "toxic assets."

As Congress tackles the broadest proposed overhaul of financial regulation since the 1930s, however, lawmakers still aren't fully aware of what went wrong at the bond rating agencies, and so they may fail to address misaligned incentives such as granting stock options to mid-level employees, which can be an incentive to issue positive ratings rather than honest ones.

Showcase: Infernal Landscapes

Fri, 16 Oct 2009 21:28:38 -0700

New York Times, By David W. Dunlap & James Estrin, October 14

Any effort to describe the photography of Lu Guang by reference to the work of other artists would almost certainly invoke the name of W. Eugene Smith. (It is, for instance, just about impossible to look at Slide 4 without thinking of “Tomoko Uemura in Her Bath.”)

So it seems especially fitting that Mr. Lu, a Chinese freelancer, is the recipient of this year’s $30,000 W. Eugene Smith Grant in Humanistic Photography for his project, “Pollution in China.” The announcement was made Wednesday evening in New York by the W. Eugene Smith Memorial Fund on the occasion of its 30th anniversary.

It is not just Mr. Smith’s work that comes to mind when looking at Mr. Lu’s depiction of the dark social and environmental consequences of China’s modern industrial revolution. There is a bit of Charles Sheeler and Edward Burtynsky. And Hieronymus Bosch.

“Because China’s economy is moving so fast, the pollution is incredibly severe,” he told us Wednesday through a translation by Orville Schell at the Asia Society. “As I became aware of the pollution as China opened up the western area, I felt that people needed to know about this.”

Terrible Scenes of China's Industrial Great Leap Forward.

Return of Record Paydays

Fri, 16 Oct 2009 11:07:10 -0700

Graham Bowley | Oct. 16

NYT - A celebrated Goldman Sachs partner, Gus Levy, coined the maxim that long defined the bank, the savviest and most influential firm on Wall Street: “Greedy, but long-term greedy.”

But these days that old dictum is being truncated to just “greedy” by some Goldman critics. While many ordinary Americans are still waiting for an economic recovery, Goldman and its employees are enjoying one of the richest periods in the bank’s 140-year history.

[snip]But despite Goldman’s success or, perhaps, because of it, the bank has come to symbolize for many a return to wanton Wall Street excess. Even in 2008, the most tumultuous year in modern Wall Street history, Goldman employees reaped rewards that most people can only dream about. Goldman paid out $4.82 billion in bonuses last year, awarding 953 employees at least $1 million each and 78 executives $5 million or more. The rewards for 2009 will be far greater.

Goldman Sachs: 'Trading With Advantages'

Thu, 15 Oct 2009 12:04:09 -0700

A comment from Numerian worth a full post on its own:

At first glance, the top line number for Goldman Sachs’ third quarter performance looks spectacular: Net Revenue of $12.37 billion, and $3.19 billion of Net Income. These numbers were multiples larger than the results for the third quarter last year, at the peak of the credit crisis, when Goldman converted itself into a commercial bank. It’s when you look into the details you realize that Goldman didn’t make its numbers this quarter as a commercial bank, nor even as an investment bank (which is what it used to be), but as a hedge fund.

The spectacular part of the performance came from Trading ($5.99 billion in net revenue – mostly from trading credit products and mortgages); Equities ($2.78 billion in net revenue, mostly from equity derivatives), and Principal Investments net revenue of $1.28 billion. The image one gets from the word “trading” is that Goldman Sachs has hundreds of very bright and aggressive young men sitting in front of screens and making brilliant decisions on what to buy and sell, and when. Traders are supposed to live by their wits, making judicious bets on the market. Good traders who don’t have inside information tend to win about 55% of the time and lose money 45% of the time, the difference being their profit resulting from their trading acumen.

Goldman Sachs doesn’t work this way. They have bright people no doubt, and somewhere on the trading floor these people on occasion make good and bad judgment calls. From what it looks like, however, their traders are benefiting from two things: information not available to the market, and muscle. These two things give the firm an edge that almost guarantees substantial “trading profits” quarter after quarter.

The information part comes from a variety of sources. We’ve seen this year the scandal over High Frequency Trading, where Goldman and other firms have computers positioned at the New York Stock Exchange getting information on trades a millisecond before they are posted publicly. Goldman sees where the market is going second by second, positions itself for very short term profits, and in effect extracts a tax on trading by individual investors and mutual funds. Goldman Sachs is the biggest player in this business, and no wonder they are lobbying in Congress to prevent the government from shutting this down, and/or imposing its own transactional tax on trading.

For credit products, mortgage securities, and equity derivatives, Goldman Sachs extracts similar information from its clients interested in buying or selling these products. Goldman can tell when a particularly large deal is going to move market prices, and the firm can piggy back along with the client by doing its own trading. In these businesses, dealers also hold a trading position for liquidity purposes, and given Goldman’s enormous size in the market, they can use this position to muscle prices in the direction they want. This bullying tactic works short term, usually intraday or over one or two days, but that is sufficient to generate hundreds of millions in trading revenue.

None of these information sources or uses are illegal at this point, unless Goldman were positioning itself before the client’s order was placed in the market. Also, Goldman is smart enough not to allow its traders to know if Goldman is bringing an equity or bond issue to market, because this would breach “Chinese Wall” restrictions.

How do we know all this revenue is based on information and muscle? Because Goldman Sachs does not show any of the performance measures typical of a trading firm. Its Value at Risk measure, which calculates how much it could lose on a given day under very adverse market circumstances, went down from $245 million to $208 million. VAR should be sharply higher reflecting the increased risk necessary to generate so much more trading revenue. Similarly, Goldman had a record number of “$100 million revenue days” and very few days in the quarter when they lost money trading. This is hardly the profile of your typical day trader pitting his wits against the fickleness of the market; this is the profile of a hedge fund with critical information and size advantages, using them to maximize profit.

Notice that the firm made $1.26 billion from Principal Investments. The firm holds a pool of $21.08 billion in its own investments that are not related to client activity, and that can be held for short or long periods of time. This is speculation pure and simple – the sort of thing a hedge fund would do with its investors’ assets.

Now let’s look at how well Goldman Sachs performed in its traditional investment banking business. All these results are for the quarter, compared to the dreadful third quarter of last year.

· Investment banking: $899 million in revenue, down 31%
· Financial advisory: $325 million in revenue, down 14%, mostly due to a decline in merger activity
· Underwriting: $574 million in revenue, down 15%
· Asset management: $1.45 billion in revenue, down 29%
· Securities services: $472 million in revenue, down 48%

As an investment bank, Goldman Sachs is doing very poorly, or the economy and market for investment banking services is doing very poorly. After all, Goldman and Morgan Stanley are the only two traditional investment banks in business; all the rest collapsed last year or were merged into commercial banks.

Don’t bother looking for Goldman’s results from commercial banking. They don’t exist. Goldman has resolutely stated that it has no intention of changing its “banking model”, which means no intention of getting into the traditional banking business of making loans to companies and individuals. This despite the fact that it probably owes its very survival to an agreement from the government in September last year to allow it to convert into a commercial bank.

This begs the critical question: Why is the government allowing Goldman Sachs to function this way? It now has access to the Fed discount window and lender of last resort facilities, it gets funding from the Fed at close to zero percent, it is no longer subject to market runs on its stock because the FDIC backs up its deposits, and supposedly it is now visited routinely by Fed examiners who can see exactly what is going on. Yet there is not a peep of objection from the Fed, the Treasury, the White House, or even Congress about a soi-disant investment bank now converted into a commercial bank, which openly disdains any suggestion it should act like a commercial bank, which is struggling in its traditional investment banking businesses, and which is still allowed to make money hand over fist through outright speculation and what we might call “trading with advantages.”

It is also allowed to keep its own peculiar VAR model, very different from the ones used by commercial banks, and which is probably understating in comparison the true risks it is taking. It is allowed to peg its compensation pool not to net income, like a commercial bank does, but to the much larger number of net revenue. This explains in part why of its $7.58 billion in total expenses for the quarter, $5.35 billion was spent in salaries and bonuses. This is not necessarily against accounting standards, but it is much more on the scale of compensation found at a hedge fund, not at a commercial bank.

Maybe the Fed has difficulty deciding what to do about Goldman Sachs because other large commercial banks, like JP Morgan Chase and Citigroup, have investment portfolios and proprietary trading just like Goldman, only on a smaller scale. Still, Goldman Sachs even before the credit crisis was an anomaly in the investment banking world, since it was acting increasingly like a hedge fund. It is now a much bigger anomaly in its new home of commercial banking.

Most of the talk about Goldman Sachs is about its outsized bonus pool and insensitivity to the role taxpayers played in saving the firm from destruction. This misses the bigger point, which is the fact that the outsized bonus pool comes from the firm’s conversion into a hedge fund, when its legal status as a commercial bank should forbid this activity.

It is time for somebody, somewhere in government with authority to give Goldman Sachs’ shareholders an ultimatum: you have 90 days to decide what you want to be: a commercial bank, or a hedge fund. If you choose to be a commercial bank with access to all the taxpayer-funded benefits, you will present to the government a plan for divesting all of your “trading” and proprietary investment activity, and you will show how and when you will begin building up a credit culture and start making loans to American businesses and consumers.

If you choose to be a hedge fund, adios and good luck, and don’t come running to the government ever again if you get into trouble. Oh, and by the way, as a hedge fund, divest yourself of the investment banking, advisory, underwriting, asset management, and securities services businesses. We hear Wells Fargo is looking to get into these businesses, and there are no doubt other banks that would take a serious look as well.

Until such time as someone in government delivers this ultimatum to Goldman Sachs, it will continue to thumb its nose at each and every taxpayer in this country who saved its hide.

I'm not holding my breath.

A Leech On The Body-Politik

Thu, 15 Oct 2009 09:24:57 -0700

Is there any question that Goldman is a leech on the body-politik of the United States? While the rest of the country struggles to get by Goldman is earning billions every quarter and giving your tax dollars away to the 'best and brightest':

Goldman also disclosed how much it had set aside for its annual bonus pool. It said that it had earmarked $5.35 billion in compensation and benefits, an increase of 84 percent from the year earlier period, putting it on course for a record payout to its executives by the end of 2009.

It's just obscene.

As someone asked a while back about Goldman:

Would someone from the NY Fed kindly explain the precise nature of the waiver that has been granted to Goldman so that it can operate in this fashion? If this is temporary, is it envisaged that Goldman will cease being a bank holding company, or that it will divest itself shortly of activities not usually allowed (and with good reason) by banks? Or will all bank holding companies be allowed to expand on the same basis.

Can we get some answers?