Is private equity's popular image as ruthless job slasher accurate? Maybe not.
Scott Leibs
CFO Magazine
March 14, 2008
"I just flew in from Davos and boy are my alms tired." Such was the theme of January's World Economic Forum, where a keynote address from Bill Gates on corporate philanthropy became one of the touchstones of the annual event.
Less noticed was the release of a landmark study on the effects of private equity, which took a detailed look at job loss, long-term management strategies, and other aspects of operations.
The long-simmering debate as to whether PE firms, in the aggregate, force workers into the unemployment line or have them queuing up to win new jobs in reinvigorated companies can perhaps be put to rest. The study found that the caricature of PE executives as greedy overlords who happily send workers packing in pursuit of short-term gains is vastly overstated. Companies acquired by PE firms do reduce the workforce more than other companies, but only marginally. In fact, more workers are likely to be laid off as a company heads toward a buyout than after it. The study, led by
The study looked at 5,000 private-equity deals over a 25-year span (1980–2005), a far broader sample than those of past studies. "There's been so much inflated rhetoric on each side," Lerner says. "This may help move the discussion from one based on emotion to one based on facts and figures."
As to whether PE executives manage for the long or short term, the study looked at how companies managed R&D as evidenced by patent filings. The result: PE managers do take a long-run approach, but bring more focus to innovation, with an emphasis on core technologies. Acknowledging that patent filings may not be a perfect proxy for long-term management philosophies, Lerner says that "[to some extent] we were like drunks looking for our keys under the streetlight, simply because that's where the light is," but says that the importance of focus can't be overstated. "The $64,000 question that many managers have is, 'How can we run the company as though it were in the hands of a PE firm, so that it doesn't have to be?' One answer is that it is very hard to inject a spirit of urgency, even if you are aware of your company's problems." PE firms can take a crisis-management approach that incumbent management often cannot.
________________________________________
Deals:
In our M&A Roundup for the week ended March 9, non-U.S. buyers account for half the top deals. But overall transaction levels remain weak, and private equity buyers recede.
Roy Harris
CFO.com | US
March 10, 2008
Norwegian, Brazilian, Greek, and British buyers accounted for half the top 10 North American deals struck last week. But in the relatively quiet merger-and-acquisition environment, the snapping up of properties hardly represented a massive continental sell-off. Indeed, only $3.9-billion worth of transactions were recorded in the weekend ended Saturday, sharply off even from the prior week's lackluster $5.60 billion.
The largest deal was Oslo-based StatoilHydor ASA's purchase of 50 percent of Anadarko Petroleum Corp.'s Brazilian Peregrino project, along with a 25 percent stake in the deepwater
advertisement
Private equity buyers, after a comeback the prior week, resumed their near-hibernation in the M&A markets. Only three of the 35 deals registered last week were buyouts, accounting for a small slice of overall volume, according to data provided to CFO.com by mergermarket.
For the year to date, 602 transactions worth $81.79 billion have been struck, down from 1,021 deals with a value of $330.31 billion during the raging M&A market for the same period of 2007.
StatoilHydro ASA to buy 50 percent of the Brazilian Peregrino project, and 25 percent of the Kaskida discovery from Anadarko Petroleum Corp. for $1.80 billion
Oslo-based StatoilHydro agreed to pay Woodlands, Texas-based Anadarko, an oil and gas exploration and production company, for the remaining 50 percent in Brazilian Peregrino project and a 25 percent stake in Kaskida discovery in the deepwater U.S. Gulf of Mexico.
Seller financial advisor: Jefferies & Co. and UBS
Bidder financial advisor: Not disclosed
Seller legal advisor: Fulbright and Jaworski
Bidder legal advisor: Vinson & Elkins
JBS SA to buy Smithfield Beef Group from Continental Grain Co. and Smithfield Foods Inc. for $565 million
JBS, a Sao Paulo-based processor and retailer of beef, agreed to pay cash to acquire Smithfield Beef, a Green Bay, Wis.-based producer and marketer of beef, from Smithfield, Va.-based Smithfield Foods, a processor and retailer of fresh meats and Continental Grain, a New York City-based agricultural business investor. The deal is expected to close.
Seller financial advisor: Evercore Partners
Bidder financial advisor: JPMorgan
Seller legal advisor: Hunton & Williams, and Paul Weiss Rifkind Wharton & Garrison
Bidder legal advisor: Allen & Overy, and Skadden Arps Slate Meagher & Flom
JBS to buy National Beef Packing LLC from U.S. Premium Beef Ltd. for $541 million
JBS also agreed to pay $465 million in cash and $95 in stock for National Beef Packing, a Kansas City, Kans.-based based processor of meat. The seller is U.S Premium Beef, a marketing company engaged in beef businesses.
Seller financial advisor: Not available
Bidder financial advisor: JPMorgan
Seller legal advisor: Not available
Bidder legal advisor: Greenberg Traurig, and Skadden Arps Slate Meagher & Flom
Cardinal Health Inc. to buy Enturia Inc. for $490 million
Dublin, Ohio-based healthcare products and services provider Cardinal agreed to acquire Enturia, a Leawood, Kans.-based manufacturer of infection prevention products, in a deal that includes Enturia's infection prevention products sold under the ChloraPrep brand name. The transaction is expected to close within 60 days.
Seller financial advisor: Not available
Bidder financial advisor: Not disclosed
Seller legal advisor: Polsinelli Shalton Flanigan Suelthaus
Bidder legal advisor: Not disclosed
Cerberus NCB Acquisition LP to buy 8 percent of Aozora Bank Limited for $416 million
Cerberus NCB, the Japanese investment arm of New York City-based private equity firm Cerberus Capital Management, launched a tender offer for a maximum 8-percent stake in Tokyo-based Aozora at $3.15 a share, representing a 15.2-percent premium.
Seller financial advisor: Morgan Stanley
Bidder financial advisor:
Seller legal advisor:
Bidder legal advisor: Not available
Plains Exploration & Production Co. to buy oil and gas properties covering 34,509 net acres in
Houston-based Plains Exploration and Production, engaged in acquiring, exploiting, developing, and producing oil and gas, agreed to acquire the
Seller financial advisor: Not disclosed
Bidder financial advisor: Jefferies & Company; and Jefferies Randall & Dewey
Seller legal advisor: Not disclosed
Bidder legal advisor: Not disclosed
Vivartia SA to buy Nonni's Food Co. from Wind Point Partners Inc. for $320 million
Athens-based Vivartia, which operates in dairy products, frozen foods, and the food-ingredients industries, is a portfolio company of Marfin Investment Group Holdings S.A, an
Seller financial advisor: Not available
Bidder financial advisor: Banc of America Securities
Seller legal advisor: Not available
Bidder legal advisor: Shearman & Sterling
Westcoast Energy Inc. to buy 54 percent of Spectra Energy Income Fund for $277 million
Alberta, Canada-based natural gas company Westcoast, a subsidiary of Houston-based Spectra Energy, a natural gas infrastructure company, agreed to acquire the 54 percent of Spectra it does not already own. The $11.38-a-share price represents a premium of 17 percent. It is expected to close in the second quarter.
Seller financial advisor: RBC Capital Markets
Bidder financial advisor: TD Securities
Seller legal advisor: Burnet Duckworth & Palmer; and McCarthy Tetrault
Bidder legal advisor: Not available
UGI Utilities to buy Penn Fuel Propane LLC and PPL Gas Utilities Corp. from PPL Corp. for $268 million
Hanover, Pa.-based UGI, natural gas and electric utility, agreed to pay PPL Corp. for Lancaster, Pa.-based PPL Gas Utilities, a natural gas company, and Penn Fuel Propane, in a deal expected to close at the end of 2008.
Seller financial advisor: Lehman Brothers
Bidder financial advisor: Internal
Seller legal advisor: Simpson Thacher & Bartlett
Bidder legal advisor: Morgan, Lewis & Bockius
Hyde Park Acquisition Corp. to buy Essex Crane Rental Corp. from Kirtland Capital Partners LP for $210 million
The Buffalo Grove, Ill.-based management of Essex Crane, a provider of high lift capacity crawler cranes, agreed to buy out the company, backed by New York City-based Hyde Park, which handles mergers, capital stock exchange, asset acquisition, or other business objectives, together with Chicago-based financial institution Macquarie Capital (USA) Inc. The seller is Kirtland Capital Partners LP, the Beachwood, Ohio-based privately funded investment group investing in manufacturing and distribution sectors.
Seller financial advisor: Houlihan Lokey
Bidder financial advisor: Macquarie Bank
Seller legal advisor: Jones Day
Bidder legal advisor: Katten Muchin Rosenman
source: mergermarket
Proposed Restatement Guidelines Draw Investor Alarm (กลต สหรัฐ คิดจะไม่ให้บริษัทสหรัฐ ปรับเปลี่ยนรายงานบัญชี ได้หลายๆครั้งเหมือนในอดีต แต่ต้องเจอกระแสต่อต้าน เพราะบางกลุ่มมองว่า ไม่ให้ปรับปรุงเปลี่ยนแปลง เท่ากับต้องการเห็นบัญชีห่วยแตกออกมามากๆ)
An SEC advisory committee answers companies' prayers for tighter and clearer guidance on how to decide whether to issue a restatement, but meets resistance from investors.
Sarah Johnson
CFO.com | US
March 17, 2008
Investor advocates are wary of a regulatory proposal that could decrease the number of times companies restate their financial results.
Barbara Roper, director of investor protection for the Consumer Federation of America, contends that the suggested changes to the Securities and Exchange Commission's nearly 10-year-old materiality guidance — which companies rely on to calculate an error's effect on financial statements — will likely reduce transparency and encourage "shoddy practices" by unscrupulous companies.
Adds Elizabeth Mooney, analyst for the Capital Group Cos., investors count on restatements to get a true sense of a company's financial health, notice trends, and create realistic projections of earnings and cash flows. "Disclosure is a concern, and investors want to be their own decision-makers of which errors are unimportant in their investment theses," she said at a Thursday meeting of the SEC's Advisory Committee on Improvements to Financial Reporting (CIFR). She asked that the regulator not change its 1999 staff document for materiality standards, known as SAB 99.
In its midpoint report to the SEC published last month, the CIFR called for better materiality guidelines. The committee believes restatements should be triggered only by errors that were considered material when financial statements were filed, though companies should weigh the needs of current investors in deciding whether to restate.
As it is now, in addition to referencing SAB 99 to gauge an error's materiality, companies use another SEC staff document, SAB 108, for deciding whether to adjust previously issued misstatements once they find mistakes. Companies' reading of that guidance has resulted in unnecessary corrected financial statements to fix immaterial errors, according to the CIFR, because when added up, the errors over time seem to have a material effect on the current financial statements.
The CIFR also suggests that some seemingly large errors are not worth fixing when taking into account the time and expense of undergoing a restatement process. The growing number of restatements in recent years could be reduced if companies focused on the needs of a so-called reasonable investor. "It is possible that an error that results in a misclassification on the income statement (without a change in net income) may not be deemed material, while an error of the same magnitude that impacts net income may be deemed material based on the effect of the error on the total mix of information available to a reasonable investor," the CIFR wrote in its most recent report.
Members of the CIFR — who include current and former CFOs, professors, securities lawyers, investor advocates, and audit-firm executives — believe the growing number of restatements has contributed to the complexity in the U.S. financial-reporting system. Ten percent of public companies restated their financials in 2006, but less than 25 of restatements are actually material to a company's financial standing, according to the members.
Under the current approach to restatements — which some CIFR members consider to be overly conservative — companies in the middle of a large restatement process go through a "dark period" that could last up to two years when no regulatory filings are made while their internal accountants and auditors pore over mistakes. Sometimes, according to the CIFR, that work isn't necessary, if the errors were not material under the committee's standards.
The committee members carefully explained during the Thursday meeting that while they hope to reduce the number of unnecessary restatements, they believe all financial errors should be fixed. They said they may make changes to their recommendations to make the intent clearer.
Still up for debate is how and when each mistake should be corrected. For example, CIFR chairman Robert Pozen, who also chairs MFS Investment Management, said companies could address some immaterial errors simply by issuing an 8-K that states the mistake and explains why they're not going to restate their results.
Jerry York's advice to CFOs: "Watch your receivables like a hawk."
Tim Reason and S.L. Mintz
CFO.com | US
March 11, 2008
Speaking at the CFO Rising conference in Orlando, former IBM and Chrysler Corp. finance chief Jerry York predicted a lengthy and deep recession for the American economy.
Addressing the topic of what boards are demanding from CFOs, York said if he had only five minutes to give his speech, he would tell finance chiefs that: "CEOs and boards are just going to expect you to get these companies through the mess," emphasizing that, "I think this is going to be a very ugly recession, I think it is going to be lengthy, I think it is going to be deep."
advertisement
York, who is currently CEO of Harwinton Capital, a private equity firm he founded in 2000, is also a corporate director at Tyco International and Apple Inc. During the conference, which has run annually for the last 15 years,
He described a "perfect storm" of economic calamity, including rising energy prices, rising commodity prices, credit markets in turmoil, credit losses in which "no one knows where the bottom is," and a housing market in crisis. "We have too many sectors going south all at once, he told the website. What's more,
"Watch your receivables like a hawk."
-Jerry York on the coming recession, during CFO Rising, March 2008
In his speech,
Fielding another question, this time about the possibility of a major U.S. bank failure, York said that although he had not studied the issue carefully, he didn't think the suggestion was, "off the chart at all, especially for smaller banks." He said that most of his wealth is invested in five major financial institutions, so the possibility of a bank failure has been "on my mind." He continued: "When [the banks] got hit, I was on the phone with their general counsels."
An audience member also quizzed
Indeed,
Slowdown or Recession? How is the Average American Really Faring? (Harvard ยังไม่ค่อยเชื่อว่าสหรัฐจะเลวร้ายมากนัก เลยโดดลงไปศึกษาผลกระทบต่อคนอเมริกันจริงๆ ว่าเศรษฐกิจแบบนี้ กระทบคนอเมริกันยังไงบ้าง)
Published: March 12, 2008 in Knowledge@Emory
One of the most pressing day-to-day concerns is the rise in fuel oil and gasoline, both accounting for a larger chunk of the pocketbook. According to the U.S. Department of Labor’s Bureau of Labor Statistics, the Consumer Price Index (CPI) for urban wage earners showed a 76.4% increase in the fuel oil category in the three months ended January 2008. (The Bureau of Labor Statistics describes the CPI as a measure of the average change in prices over time for goods and services purchased. All the figures noted in the story represent the seasonally adjusted annual rate percentage change for the noted timeframe for urban wage earners.) For the six months ended January 2008, the CPI for fuel oil grew 50.1%. The gas pump didn’t fare much better, with the CPI for gasoline jumping 82.6% for the three months ended January 2008 and by 36.8% for the six months ended January 2008.
Consumers across the country are also noting a recognizable increase in the cost of a variety of food products, while not as substantial as in the dairy department. The CPI for dairy and related products saw the biggest increase during the three months ended July 2007, increasing by 30.4%. For the six months ended July 2007, the CPI for dairy and related products grew 19.5%. For the six months ended January 2008, the CPI in the dairy products category increased 7.1%. Most of the rising figures were due to the jump in fuel costs to transport food items, the substantial increase in ingredient costs, particularly in corn and wheat, and the dropping value of the dollar.
The Continuing Housing Crisis
With household expenditures on the rise, the housing crisis couldn’t have come at a worse time for Americans impacted by the strain. For those facing balloon payments, rising payment amounts on adjustable mortgages, and/or shrinking housing values, times could be tough. According to Roy T. Black, a professor in the practice of finance at Goizueta, the current downturn isn’t the first, and probably won’t be the last, in the housing cycle. “This is probably the third major downturn, and every time, the downturn was characterized by financial institutions ignoring economic fundamentals. We can simply look back at the REIT crisis or the S&L debacle of the past.”
Figuring out who is to blame for the current crisis is less of a concern, says Black, than making sure the problem doesn’t happen again. “Some put the responsibility on the consumer and others point a finger at the lenders. But in the end, there doesn’t appear to be a lesson learned. The incentive to produce loans in bulk, or to keep up with the lending pace of your competitor, often runs counter to the best interest of the consumer.”
However, notes Black, this current housing crisis is a bit different than prior downturns, since it is one of the few times when Americans took a substantial portion of equity out of their key source of investment—their homes. The over availability of home equity loans made it possible, he says. “Home equity has traditionally been a main form of wealth for Americans, and if you combine this pull out of equity with the low rate of savings, we have another crisis brewing.” The outcome, says Black, will be Americans working to a much older age, in order to deal with their increasing household expenses, healthcare, retirement costs, and credit card debt. “Younger Americans will see wages stagnate or drop, as the labor pool grows.”
Wage & Job Stagnation Plus Consumption: A Potent Combo
Getting a sense of where the economy is headed also depends on the amount of consumption by the average consumer. Black notes that since the U.S. GNP is very much dependent on consumption, just how the average American employee is faring, and their confidence in the future and their ability to spend, impacts the nation more than ever. If consumers feel confident and have more cash in their pockets, consumption and the overall economy will pick up. Of course, he adds that with real wages shrinking, Americans can be expected to limit or curtail their spending habits. Big-ticket items are the first things to go by the wayside. The Big Three automakers noted a sizeable drop in new car purchases in February 2008.
According to the Bureau of Labor Statistics,
Raymond Hill, an adjunct senior lecturer of finance at Goizueta, notes that many Americans are facing a double-whammy, by investing too much into housing that may now be decreasing in value and by over-extending themselves with credit cards. However, he does note, on the positive, “If you take into consideration the overall investment in most
Once the housing bubble collapses, as it has begun to, Hill notes that it’s inevitable that the economy will grow at a much slower pace. For now, he believes that government intervention would create more inflation than growth, and that market forces and time are the best ways to resolve the current housing woes. “We don’t want to be where we were in the 1970s,” adds Hill. “Growth will happen again, once the financial uncertainties settle down. State and Congressional proposals to make the situation better would make it harder to borrow money, [especially,] if we interfere between borrowers and lenders.”
A more real concern, he notes, for the average American is the fact that the
Political Solutions and the Impact of the War
Finding a fix to the current fiscal problems faced by Americans will largely fall to the incoming president. According to Alan I. Abramowitz, professor of political science at
The Republican presidential candidate Senator John McCain, says Abramowitz, was originally critical of President Bush’s tax cut, but now he is in support of it. “The only plan that McCain has to fix the economy is to make the tax cuts permanent and to hold down government spending. The main thing he talks about is earmarks, but in reality, earmarks are only a tiny part of the budget, amounting to about $20 billion out of a $3 trillion budget.” Abramowitz believes that this approach seems pretty insignificant in terms of getting the debt down.
Additionally, notes Abramowitz, McCain plans to continue the war in
Some Bonds Are Shaken, Others Stirred (เคยสงสัยบ้างไหม ทำไมตราสารหนี้ ที่ออกในยุโรปและสหรัฐ ที่ดูเผินๆแล้วเหมือนกัน ถึงถูกจักอันดับต่างกันมาก อ่านดูแล้วจะหนาว เพราะยุโรปนั้น มาตรฐานต่ำอย่างไม่น่าเชื่อ)
A Moody's report says that issuances get varying assessments in Europe or
Stephen Taub
CFO.com | US
March 7, 2008
Bonds issued throughout the world are assessed in an inconsistent fashion because of regional differences in covenant quality, according to a new report from Moody's Investors Service.
North American investment-grade bonds, for example, generally boast stronger bond covenants than do their European counterparts, Moody’s noted in its first comprehensive analysis of regional differences in covenants across a number of rating categories.
advertisement
However, European high-yield bond indentures often offer investors greater protection than the North American versions.
"Most intriguing is how covenant quality migrates to the European side of the
For example,
In contrast, while the negative pledge/limitation on liens covenant is usually present in European investment-grade bonds, the mergers/asset sales and sale/leaseback covenants are only infrequently included in documentation associated with the issuance, Moody’s added.
"The only exception appears to be change-of-control provisions," said Dill, who noted that both the North American and European regions have increasingly included change-of-control put options. In fact, by 2007 such options were present in over half of the North American and European bonds assessed by Moody's.
The story is much different when it comes to junk bonds, however. Moody’s pointed out that the high-yield protections often absent from Ba-rated North American bonds are more likely to be found in high-yield European bonds. These protections include restrictions on certain actions by the borrowers, such as limitations on restricted payments, incurrence of indebtedness and subsidiary borrowings and non-ordinary course asset dispositions.
"Moreover, where these high-yield covenants are prevalent in both regions…the European bond covenants were generally stronger than in
Eight key covenants identified by Moody's as protecting against event risk and de-capitalization, and which may be present in a covenant package related to restricted payments, change of control, merger restrictions, restrictions on asset sales, limitation on debt incurrence, negative pledge/ limitation on liens, limitation on sale/leaseback transactions, and limitation on subsidiary borrowing.
Moody's evaluated more than 350 individual covenant packages on 760 bonds issued from 1998 through 2007 for the study.
Subprime Crisis Foments Bankruptcy Surge (บทความนี้ว่ากันตรงๆ เลย คือปัญหาหนี้ Sub-Prime กำลังทำให้ การล้มละลาย เกิดขึ้นทั่วไปในสหรัฐ)
Jones Day study shows Chap. 11 filings hitting 6,237 last year, up from 5,010.
Stephen Taub
CFO.com | US
March 13, 2008
The subprime mortgage crisis, best known for causing a flood of foreclosures and drastically tightening credit markets, also had a huge impact on the bankruptcies last year. And the trend is expected to continue in 2008, according to a new study from the law firm Jones Day.
The study notes that Chapter 11 filings hit 6,237 in 2007, up from 5,010 the prior year. Jones Day cites a report compiled by Jupiter eSources LLC. Altogether, 78 publicly traded companies filed for bankruptcy protection last year, compared to the 66 public cases filed in 2006.
advertisement
What's more, 4 of the 10 largest bankruptcy filings in 2007 were direct casualties of the subprime mortgage meltdown, according to the Jones Day report, which adds that already, 50 subprime lenders have either folded, filed for bankruptcy, or closed their doors by liquidating their mortgage inventory.
Indeed, the largest public bankruptcy filing in 2007 — and the ninth-biggest public bankruptcy filing of all time — was by subprime lender New Century Financial Corp., once the second-largest provider of home loans to high-risk borrowers in the U.S. It filed for Chapter 11 protection last April 2.
The second largest bankruptcy filing was made by American Home Mortgage Investment Corp., another major player in the subprime mortgage lending business.
The fourth-largest public bankruptcy case of 2007 was filed by Delta Financial Corp., the subprime lender that filed for Chapter 11 protection in December 17 after a financing deal with alternative asset management firm Angelo, Gordon & Co. collapsed because the derivatives market rejected Delta Financial's efforts to securitize $500 million in nonconforming loans.
And the fifth largest public company bankruptcy filing was NetBank Inc., an internet-only savings and loan that filed for Chapter 11 protection in September hours after federal regulators shut down its online financial subsidiary due to problems associated with its home mortgage loans.
The tightened credit markets also impeded some already bankrupt companies to emerge from Chapter 11, according to the report. These companies include Dura Automotive Systems Inc., Delphi Corp., and Calpine Corp., all of which were forced to postpone their emergence from bankruptcy due to the difficulty in lining up exit financing in the current hostile credit environment, according to Jones Day.
The ramifications of the subprime disaster are likely to manifest themselves well into 2008 and perhaps beyond, the report asserts. It added that 2007 — marked only the beginning of the problem — as default rates on subprime loans began to soar and financial institutions started to call in their loans.
It notes that companies involved in the subprime disaster have already wiped more than $170 billion from their books. But, it warns that this already staggering number may be more than doubled by the middle of 2008, when defaults peak and home foreclosures mount as interest rates on subprime mortgages reset.
With the specter of recession looming on the horizon, Jones Day says the homebuilding and building-products industries are obvious candidates to most likely to be hardest hit by these developments. Other industries that could surely suffer from the fallout include the retail and consumer-product sectors as well as the music and entertainment and restaurant industries.
Sudden Liquidity Crisis for Bear Stearns (ก็เป็นข่าวกันไปแล้วเรื่อง Bear Stern แต่ลองมาอ่านวงในดูว่าเขามองยังไง)
The investment bank turns to JP Morgan and the Fed for funds after a cash-out blitz by clients and lenders.
Vincent Ryan
CFO.com | US
March 17, 2008
A sudden surge of "broad cash outflows" from counterparties and customers on Thursday forced Bear Stearns to tap JP Morgan Chase and the Federal Reserve for funds to shore up liquidity, the investment bank's chief executive said Friday.
During a hastily convened conference call, CEO Alan Schwartz said the bank continued to have very strong liquidity in the first part of the week, but demands from prime brokerage clients, repo clients, and lenders to cash out late Thursday forced the move. Said CFO Sam Molinaro: "Counterparties that were providing secured financing against assets were no longer willing to provide financing. We lost a lot of capacity." At the pace funds were being withdrawn, the firm recognized that there could be continued liquidity demands that would "outstrip our resources," said Schwartz.
advertisement
Under the agreement, JP Morgan will borrow funds from the Fed's discount window and relend them to Bear Stearns for 28 days. The borrowing will be secured by Bear Stearns collateral. If the collateral falls in value, the Fed, not JP Morgan, will bear the risk.
Little Hope for Debt Upgrades (ตายยกแผงแน่นอนแล้ว เพราะในสหรัฐ กิจการที่น่าจะได้รับการปรับขึ้นเครดิตเรติ้ง ตกลงไปอยู่ในระดับต่ำสุดในสองปีครึ่ง)
February showed the fewest companies with potential for upgrades in almost two and a half years, S&P says.
Stephen Taub
CFO.com | US
March 11, 2008
Here's yet more bad news from the crumbling credit markets: The number of global entities poised to benefit from debt-rating upgrades was only 330 in February, the lowest level in 29 months, according to a new Standard & Poor's report.
That was 20 fewer than the number reported in January and 53 fewer than 12 months ago.
advertisement
And the worst is yet to come, according to Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "The roster of issuers expected to benefit from potential upgrades will likely diminish further ... in response to the credit environment's decisive turn for the worse," she said.
Vazza added that the decelerating upgrade potential is being seen in the
The telecommunications, automotive and metals, mining, and steel sectors seem most poised for upgrades, according to S&P "Issuers in these sectors display a positive bias that exceeds the historical average," the report noted.
Banks, particularly in Europe, also show a high potential for upgrades following years of profitable growth, improving efficiency, and successful diversification, even though their performance in the near term will be exposed to exceptional volatility in the capital markets and a continuing deterioration in the credit environment, S&P also said.
Bear Stearns used JP Morgan for the deal because the commercial bank is its clearing agent for its collateral, said Molinaro, so "it was easy for them to see the kind and quality of collateral we have available and we could therefore move very quickly."
The financing is a bridge to a more permanent solution, Molinaro emphasized. Bear Stearns has been consulting with investment bank Lazard LLC for months to explore strategic alternatives that "run the gamut," he said, adding that any deal would both protect customers and maximize shareholder value.
In the meantime, Bear Stearns hopes to assuage the "significant amount of rumor and innuendo" about its position in the financial markets by moving up its first-quarter earnings release to Monday, March 17, after market close. At that time, it will disclose more information about its positions, said Molinaro.
Analysts have forecast a profit of 46 cents per share to $1.61 per share, and according to Schwartz, the company still expects to post numbers within that band. "I am aware of the wide range of estimates that analysts have out," he said. "We continue to be comfortable that we will be within that range."
Both Molinaro and Schwartz underscored that the liquidity situation at Bear Stearns deteriorated rapidly. It was just on Wednesday that Schwartz said on CNBC that the investment bank's "balance sheet, liquidity, and capital remain strong" and that it had a $17 billion cushion to work with.
Loose Loans, Heavy Risk (บทความนี้มาจากพวกซาดิสแน่นอน เพราะบอกว่า มันแย่เอามากๆสมัยนี้จนเงินกู้เมื่อวันวานโน้นเลย ยังอาจจะมีปัญหา)
Debt from the good old days may not be as safe as you thought.
Alan Rappeport
CFO.com | US
March 14, 2008
Older corporate loans on which covenants were relaxed during the height of the credit-market bubble, from 2005 to 2007, could be just as treacherous as those created during that period, according to debt-rating agency Moody's Investors Service.
Covenants force borrowers to keep their financial ratios in order and protect debt holders. But as the exuberance for debt grew during the credit boom, many lenders amended loans and relaxed the restrictions.
advertisement
In its March "special comment," Moody's said it found that older loans may be just as risky as the "cov-lite" loans issued during the credit boom. "Because of the large number of easing amendments, these older-vintage loans should not be considered safer than those loans issued when looser lender protections prevailed," said Moody's senior vice president Neal Schweitzer.
Moody's studied 426 amendments, most from loans issued between 2003 and 2005, and found that covenants were adjusted on nearly half of them. Most adjustments were of the leverage ratio or the interest-coverage ratio, making it easier to take on more debt or loosening earnings requirements.
Loosening of leverage covenants was most widespread in the consumer-products sector, followed by the healthcare and media industries. Manufacturing firms, by contrast, actually tightened their covenants.
With the credit markets largely frozen these days, Moody's expects more requests for amendments but fewer to be granted, said Schweitzer.
Such requests could be especially likely as loans begin to mature. Last week, Moody's said that between 2008 and 2010 nearly $86 billion worth of junk bonds and leveraged loans will mature, which could lead to covenant violations.
Treasury Tells a Very Scary Story (มันคงจะเป็นเวรกรรมที่สหรัฐสะสมมาเพราะตอนนี้ ระบบบัญชีของประเทศสหรัฐ ที่น่าจะยอดเยี่ยมถึงจะไม่สวยยังไง ปรากฏว่า ไม่มีใครอ่านรู้เรื่อง สรุปคือไม่มีใครรู้ว่าการเงินสหรัฐ เป็นไงบ้าง)
The department's "citizen's guide" to the
Alan Rappeport
CFO.com | US
February 28, 2008
When the
In the absence of an audit, the Treasury Department and the Office of Management and Budget heeded the GAO's advice and released a more informal report titled "The Federal Government's Financial Health: A Citizens Guide to the 2007 Financial Report of the United States Government."
advertisement
Some of the language in the eight-page summary document — boiled down from a dense 186 pages — is scalding, and the projections border on the terrifying. The first such guide, it was produced in hopes of helping the public understand
"Unless action is taken to bring program cost in line with available resources, the coming surge of entitlement spending will end in a fiscal train wreck that will have an adverse effect on the
Despite recent improvements noted in the government's short-term finances, due to rising revenues and a declining deficit,
"Absent reforms, the Social Security Trust Funds will be exhausted in 2041 and the Medicare Part A Trust fund will be exhausted in 2019," according to the report. By 2019, people due to receive Medicare benefits would receive only 79 percent of what they were expecting. And by 2041, those due Social Security benefits would receive only 75 percent of what they were owed.
Extrapolating further,
"Unless the government makes fundamental changes in its budget, entitlement, discretionary spending and tax policies, and soon, the coming surge of spending on Social Security and Medicare will bring a fiscal tsunami of spending and debt that threatens to swamp our ship of state, damaging the U.S. economy," says the Comptroller General of the GAO, David M. Walker, in a press release that accompanies the report. (
To ward off this dire forecast,
New Model for Predicting the Trajectory of New and Existing Products (Harvard มาอีกแล้ว ก็แน่นอนว่าในขณะที่สภาพแวดล้อมเศรษฐกิจมันแย่เอามากๆ ใครจะทำอะไรก็ต้องเอาให้แน่ว่ามันจะสำเร็จ เขาก็ออกไปหามาว่าสินค้าตัวใหม่ ที่ส่งเข้าตลาดไปนะ จะยึดตลาดได้มากน้อยยังไง ก็เป็นทางใหม่ ที่นักการตลาดอาจจะสนใจ เพราะดีกว่าแบบเดิม)
Published: March 12, 2008 in Knowledge@Emory
When it comes to analyzing and predicting the market penetration of new products, the Bass model has long been considered the standard benchmark. Professor Frank Bass introduced the Bass model in 1969 and wowed the economics and marketing worlds with a method that for the first time described the interaction between existing and potential users of a product and thus became the standard for predicting how new products would be adopted. Since then, hundreds of papers have sprung forth from Bass’s research.
Now Ashish Sood of Emory University’s
This research addresses a fundamental concern of managers everywhere: how fast consumers will adopt the new products that companies introduce. This question has become increasingly critical as firms launch new products at a faster rate into a global environment that has sped up the lifecycle of new products, from introduction to obsolescence. “Firms invest a lot of money in developing new products,” explains Sood, an assistant professor of marketing who has spent many years researching new technologies and the market returns to firms when they invest in innovation, “and a better prediction about the diffusion of products in the early years after introduction can help them in managing resources.”
Managers could traditionally look to the Bass model for guidance, however; the Bass model has one key limitation: it only uses information about the particular product in question. The authors’ functional regression model instead integrates information about different countries, different markets and different products to predict several things, including the future penetration of a product or the years to take off. Tellis explains: “While prior models have focused on fitting to past data, our model focuses on predicting future events, even when little or no information about a target category is available.”
Sood and his coauthors demonstrate the effectiveness of their model across diverse markets, including household white goods (e.g., air conditioners, dishwashers etc.), computers and communications (e.g., Internet PC, fax etc.) and entertainment and lifestyle (e.g., satellite TV, videogame consoles etc.), and examine market penetration of 760 categories drawn from 21 products and 70 countries. The regression model considers one product and country as a single category, which means the diffusion of a DVD player in
Functional Data Analysis (FDA) techniques assist in the model’s far-reaching predictive powers. FDA, an emerging field in statistics, treats the diffusion data as a complete function on a curve or a unit of observation, rather than separate data points and therefore integrates information across categories. “Our method can be used to make more accurate predictions of the future trajectory for both existing products as well as new products with only a few years of observations,” notes Sood. James adds: “The essential logic of integrating information across categories, which is the foundation of functional data analysis, provides superior prediction for an evolving new product like the iPhone.”
Sood and his coauthors compare their functional regression model’s predictive performance with five other models. They demonstrate how information about the historical evolution of new products in other categories and countries can be integrated to predict the evolution of penetration of a new product. In addition to determining the superior effectiveness of their model and the use of FDA, they also conclude that an evolving product category can be best predicted by integrating information from past penetration of that category, past penetration of other categories, and knowledge of the product to which it belongs, via the framework of functional regression.
For example, distinct clusters of the growth patterns for the twenty-one different products in the sample suggest that internet-compatible personal computers have almost uniformly rapid takeoff in most markets whereas DVD players have a slow initial growth with much more rapid expansion in later years. Thus, these techniques can be used easily by managers trying to introduce new products in foreign markets without the need of a lot of market research data.
The authors are already hard at work on an even more functional regression model, broadening it in ways that will help managers better control future penetration levels of new products. “We are working on a paper that extends this model by including more variables that managers would be interested in,” notes Sood. “For example, what happens if I change the price or increase the advertising or I introduce two complementary products at the same time?” In the world of market penetration prediction, Sood and his coauthors are striving for a model that becomes the gold standard.
Darkness Visible: CFOs See Recession Through 2009 (ไม่รู้สติคนเขียนเรื่องนี้ดีหรือยังไง แต่บอกว่าภาวะถดถอยในสหรัฐ อีกปีสองปีก็หมดแล้ว ฟ้าจะใสอีกที)
The outlook isn't brilliant among
David M. Katz
CFO.com | US
March 12, 2008
The news is getting grim. Optimism among U.S. CFOs has plummeted this quarter, with three-quarters of them predicting a recession at some point during 2008. Even grimmer: They expect inflation will rise to 3 percent this year. Grimmest: Nearly 90 percent say the economy will not rebound until 2009.
Those are some of the conclusions of the first quarter 2008 Duke University/CFO magazine Global Business Outlook survey, which culls the economic prognoses of more than 1,000 CFOs from a broad range of global public and private companies. The survey concluded March 7 and generated responses from 1,073 CFOs, including 475 from the United States, 205 from Europe, 204 from Asia (not including China), and 189 from China. Here are some more highlights—or lowlights—of the U.S. CFOs' responses:
advertisement
•Fifty-four percent say the
•Optimism reached its lowest point since the study launched it optimism index six years ago. Pessimists outnumber optimists by a nine-to-one margin, with 72 percent of finance chiefs more pessimistic than about the
•Weak consumer demand and turmoil in the credit and housing markets are the top macro-concerns of top finance executives. The high cost of labor ranked as the top internal concern.
•Credit conditions have directly hurt 35 percent of companies through decreased availability of credit and higher interest rates (up 118 basis points on average). Sixty percent of the companies have put off expansion plans in response to credit market unrest.
• The CFOs expect capital spending to increase only 3.3 percent, while price inflation rises 3 percent over the next 12 months.
• Only 13 percent think the
The Fed’s interest-rate cuts have failed to influence business confidence, contended Campbell Harvey, a Duke professor and founding director of the survey, which has been conducted for 48 straight quarters. "Seventy-four percent of CFOs say the Fed cuts have had no impact on their business. Clearly, the Fed needs to switch to Plan B," he said.
With prices falling, however, the corporate sector should remain active in mergers and acquisitions, researchers say. Thirty-seven percent of
For their part, European CFOs are gloomier. In the past quarter, 60 percent of the 205 European CFOs responding have grown more pessimistic about the economies of their own countries relative to the previous quarter. Just 10 percent have grown more optimistic. At the same time, European finance chiefs expect employment to fall 0.3 percent.
But the pessimism is not as acute as it is among
The mood in
Seventy percent of Asian CFOs think the
Asian CFOs have a distinctly Democratic leaning when it comes to
Among the 189 CFOs from
A Visible Hand Reluctantly Grows Heavier (กลต เมกา หลังจากนั่งมองมานานแล้วปล่อยให้ตลาดจัดการกันเอง เริ่มมองว่าจะต้อง ทำให้อุตสาหกรรม เข้ารูปเข้ารอย มีกฎระเบียบเข้มๆออกมาเสียแล้วสิ นี่คงจะเป็นอีกข่าวร้ายที่ซ้ำเติมตลาดอยู่)
Citing a "significant erosion of market discipline," financial regulators find the credit crisis demanding an ever-stronger regulatory response.
Tim Reason
CFO.com | US
March 17, 2008
In the 1987 cult horror film Evil Dead II, the hero's right hand becomes possessed and does battle with its owner, who is finally forced to saw it off.
Treasury Secretary Henry Paulson, now dealing with his very own horror show in the melting credit markets, can probably relate. Paulson, the former chairman and CEO of Goldman Sachs, has strived to regulate the financial markets with a light touch. Yet the most recent report of the President's Working Group on Financial Markets, which Paulson chairs, shows financial regulators are being pulled inexorably by the worsening credit crisis to use a heavier regulatory hand or even intervene directly in the market.
advertisement
Indeed, Friday, just one day after the report was released, the Federal Reserve was forced to back a bailout of Bear Stearns. And earlier in the week, the Fed poured some $200 billion of liquidity into the market. The report of the President's Working Group itself contains recommendations that translate into increased regulatory oversight of everything from credit-rating agencies to banks to institutional investors to mortgage brokers. The report also recommends that regulators intervene with other standard-setting bodies, notably the Financial Accounting Standards Board and the Basel Committee on Banking Supervision.
The President's Working Group was formed in 1987 by Ronald Reagan in response to Black Monday (October 19), and includes the chairs of the Treasury Department, the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission. In a cover memo about the latest report to President Bush, Paulson noted that the group's recommendations should be implemented "with an eye toward not creating a burden that exacerbates today's market stresses" — a clear reference to regulatory burdens.
To be sure, some of the group's recommendations continue to demonstrate the current Administration's traditional reliance on voluntary efforts by industry. For example, while the report calls for greater disclosures about securitization, it urges that they be drafted by the American Securitization Forum. That's the same group that crafted the so-called Hope Now plan that allowed banks to alter securitized mortgages, an effort touted by Paulson and the President as preferable to direct government intervention.
But the report is also rife with recommendations for new or stronger regulation. Citing a "significant erosion of market discipline," the report says overseers of institutional investors — such as the Department of Labor, state treasurers, and the SEC — should "require" those investors to obtain better risk information and ensure they do not rely solely on credit ratings.
As for the failure of credit-rating agencies to foresee the crisis until too late — behavior that has bedeviled regulators for years — the report "welcomes" the voluntary improvement efforts the agencies have already made, including plans to create separate ratings systems to distinguish between ordinary corporate bonds and structured products. But the report's apparent reliance on self-policing may have less to do with a philosophical preference for private-sector solutions and more with just how intractable improving rating-agency performance has proven to be. Moreover, the report warns, "The PWG will revisit the need for changes to CRA oversight if the reforms adopted by the CRAs are not sufficient."
The report also urges a degree of self-policing for banks, widely viewed as the primary culprits of the current meltdown. It says it will support the formation of a private-sector group to review the report by the Counterparty Risk Management Policy Group II, a 2005 banking-industry effort that examined the financial world's handle on risk. The first iteration of that group was formed in the wake of the collapse of hedge fund Long Term Capital Management in 1998.
But the report also contains some substantial regulatory changes for banks. It says the SEC and banking regulators should develop guidance to address a raft of risk-management failures by banks. Likewise, the need for banks to hold greater liquidity and capital cushions is a recurring theme in the report. Although one such mention says banks should be encouraged to do so through incentives, the frequency with which capital cushions are mentioned makes it unlikely that banks will be able to avoid new regulated minimums. Indeed, the report urges the Basel Committee on Banking Supervision to "review" capital requirements for most structured products "with a view toward increasing requirements on exposures that have been the source of recent losses to firms."
Likewise, the report says "regulators should require" more detailed and comprehensive disclosure of off-balance-sheet commitments at banks — a move that could indirectly force banks to increase their capital reserves. Indeed, it sa