Friday, July 18, 2008
Yahoo! Takes Proxy Fight To The Internet
Say what you will about Jerry Yang's management capabilities, the guy is a sheer visionary, when it comes to the internet. Yahoo! Inc. just upped the proxy fight with Ichan/Microsoft by putting an ad on the Yahoo home page (see image or visit http://www.yahoo.com/)And in an internal video to Yahoo! employees, posted on Yahoo's intranet site, Yang said that "Today, I’m excited to tell you that we’re launching an advertising campaign online on our homepage as a way to continue to make our case to stockholders. With one of the largest audiences on the Internet, we’re taking full advantage of the power of our network to remind our stockholders why voting for Carl Icahn’s board of directors is a bad choice."
According to comscore, as of April 2008, Yahoo's audience was at 140.6 million unique monthly visitors. Google had 141.1 million and Microsoft came in third at 121 million. Nothing would make me happier than to see this proxy fight splashed on the front pages of both Yahoo 'and' Microsoft. Question is, will Microsoft respond in kind? Not likely.. Sadly.
In addition to fawning pieces like this one from the tech media admiring his use of Yahoo's reach to turn public opinion in Yahoo's favor, it could actually work, as more and more people read and comment on the things mentioned in the online ad, which in turn, could drive more media covergae. The ad is headlined in bold by a quote from Carl Icahn given to the WSJ in Oct 2007 - "It’s hard to understand these technology companies."
What Yang and Yahoo are betting on is that people will not make the connection that Icahn is just a figurehead, while the actual decisions will be made by Microsoft. I mean, they can't possibly say that Microsoft won't know how to handle Yahoo. So in reality, the question that Yahoo shareholders will have to vote on is whether the current Yahoo Board is better than Microsoft management, or a breakup. In the short term, its a no-brainer, since if Icahn wins the fight, the stock will hit the roof. And conversely, if Yang remains in charge, it'll crash to below $20.
In the long term, well.. Like I said, Yang is way better at working on the internet than in the board room. Given the time, he could, now that he's had the bezzezus scared out of him, shake off the lethargy and possibly turn Yahoo around. Not anytime soon, though. And once this fight is over, and provided he prevails, Yang might voluntarily step aside and hand over the CEO post to a professional, someone who can objectively determine the best course of action for the company.
Wednesday, July 16, 2008
UBS, LGT Helped Tax Evaders - Senate Subcommittee Report
The Senate Permanent Subcommittee on Investigations (PSI), chaired by Senator Carl Levin (D-MI), after a 6 month probe, has released a report which says that Swiss banking giant UBS AG and Lichtenstein based LGT Bank have aided and abetted wealthy Americans evade taxes, cover up ownership of accounts and hide assets. Background on the LGT investigation and updates on the UBS tax evasion here, here and here.
The 115 page report says that "UBS has opened thousands of accounts in Switzerland that are beneficially owned by U.S. clients, hold billions of dollars in assets, and have not been reported to U.S. tax authorities.'' (Update - Here's the link to the PSI report.)
LGT used such tactics as asking their employees to use public phone booths so as to make it difficult to trace calls back to the bank, and use intermediary transfer corporations in tax havens like the Bristish Virgin Islands, according to a bank employee who talked with the Subcommittee.
The report outlines how eight individuals - including Frank Lowy, Westfield Group; Richard M. Chong, a venture capitalist; and Harvey Greenfield, Commonwealth Toy and Novelty Company - used offshore accounts to evade taxes. After facing problems with Australian tax authorities, Mr. Lowy, one of LGT bank's largest clients, used the bank to set up Lichtenstein based foundations (one of these has been names as Luperla) to divert $100 million in assets back to his family through Delaware corporations. LGT removed all traces and any connection to Mr. Lowy or his family when setting up Luperla, except in internal bank documents, thus avoiding discloure to the IRS.
The blowback from this report has already started. PSI is set to hold a hearing on 'Tax Haven Banks and U. S. Tax Compliance' on Thursday. The witness list for this hearing is explosive and includes the major figures involved on both sides of the federal investigation into off-shore tax evasion by LGT, UBS and other off-shore banks.
The witness list includes Douglas H. Shulman, Commissioner of the IRS and Kevin J. O'Conner, a DOJ Associate Attorney General, along with persons who have been accused of involvement in the tax evasion such as Martin Liechti, Head, UBS Wealth Management Americas , Zurich, Switzerland; and Peter S. Lowy, group managing director of Australia-based Westfield Group, who allegedly holds one of the overseas accounts mentioend in the PSI report. Reuters report quotes Mr. Lowy's attorney, Robert Bennett, as saying that his client is out of the country, but will be appearing voluntarily on the 25th of July.
Secondly, the IRS is preparing to close a loophole related to disclosure of American clients in its agreement with foreign banks, which allowed clients of UBS to hide about $20 billion in assets from U.S. tax authorities. The new rules, which are about to be released by the IRS, would require the foreign banks to identify the actual American account owners and recipients of any interest payments, forcing the banks to file a 1099 form and withhold taxes on such accounts at 28 percent. The IRS is also tightening oversight of these accounts by IRS authorised external auditors who are permitted to review the banks under the 2001 QI agreement between the IRS and the foreign banks.
(Update 1 - 17th July 2008 - Excerpt from the prepared statement of Douglas H. Shulman, IRS Commissioner - "We are also considering a regulation to have QIs [Qualified Intermediaries] report U.S. taxpayers’ worldwide income to the IRS in certain cases– not just U.S. source income. "
Meaning that if this goes into effect, U.S. nationals would have their incomes worldwide scrutinized to see where it was coming from, and where its going to. This is actually a big step forward for the IRS being able to trace money being routed discreetly back into the U.S.
And Shulman says, regarding UBS, that "The summons directs the bank to produce records identifying U.S. taxpayers who had accounts with the bank in Switzerland between 2002 and 2007 and elected to have their accounts remain hidden from the IRS. On July 1st a federal judge in Miami approved a Justice Department request to enable the IRS to serve the summons. We are working closely with the Justice Department to ensure that we get the information requested in the summons. Accordingly, the IRS is exploring our options on how to bring a potentially large number of U.S. taxpayer cases to resolution."
And he says regarding LGT that "To date, the IRS has initiated enforcement action involving close to 200 taxpayers with accounts in this jurisdiction."
Translation - The 19,000 account holders at UBS better come clean before the IRS decides to really turn the screws. Because this is not going to be over unless and until they clean out UBS.)
(Update 2 - 17th July 2008 - Excerpt from opening statement by Mark Branson of UBS, Chief Financial Officer, Global Wealth Management, who says "We did have detailed written policies that prohibited our employees from engaging in some of the conduct that our internal investigation has uncovered, such as assisting in the creation of sham offshore companies to defraud tax authorities. While our own review is not complete, it is apparent now that our controls and supervision were inadequate. UBS is committed to taking both corrective and disciplinary measures.")
Reference:
http://www.bloomberg.com/apps/news?pid=20601087&sid=af8NUGMoFXVM
http://hsgac.senate.gov/public/index.cfm?Fuseaction=Subcommittees.Home&SubcommitteeID=88ed6460-02ee-40a9-84a9-e278af44313c&Initials=PSI
http://www.reuters.com/article/governmentFilingsNews/idUSN1647439520080717
http://www.bloomberg.com/apps/news?pid=20601087&sid=afaIyKMEym.g
http://www.nytimes.com/2008/07/17/washington/17tax.html
http://www.ubs.com/1/e/media_overview/media_americas.html
The 115 page report says that "UBS has opened thousands of accounts in Switzerland that are beneficially owned by U.S. clients, hold billions of dollars in assets, and have not been reported to U.S. tax authorities.'' (Update - Here's the link to the PSI report.)
LGT used such tactics as asking their employees to use public phone booths so as to make it difficult to trace calls back to the bank, and use intermediary transfer corporations in tax havens like the Bristish Virgin Islands, according to a bank employee who talked with the Subcommittee.
The report outlines how eight individuals - including Frank Lowy, Westfield Group; Richard M. Chong, a venture capitalist; and Harvey Greenfield, Commonwealth Toy and Novelty Company - used offshore accounts to evade taxes. After facing problems with Australian tax authorities, Mr. Lowy, one of LGT bank's largest clients, used the bank to set up Lichtenstein based foundations (one of these has been names as Luperla) to divert $100 million in assets back to his family through Delaware corporations. LGT removed all traces and any connection to Mr. Lowy or his family when setting up Luperla, except in internal bank documents, thus avoiding discloure to the IRS.
The blowback from this report has already started. PSI is set to hold a hearing on 'Tax Haven Banks and U. S. Tax Compliance' on Thursday. The witness list for this hearing is explosive and includes the major figures involved on both sides of the federal investigation into off-shore tax evasion by LGT, UBS and other off-shore banks.
The witness list includes Douglas H. Shulman, Commissioner of the IRS and Kevin J. O'Conner, a DOJ Associate Attorney General, along with persons who have been accused of involvement in the tax evasion such as Martin Liechti, Head, UBS Wealth Management Americas , Zurich, Switzerland; and Peter S. Lowy, group managing director of Australia-based Westfield Group, who allegedly holds one of the overseas accounts mentioend in the PSI report. Reuters report quotes Mr. Lowy's attorney, Robert Bennett, as saying that his client is out of the country, but will be appearing voluntarily on the 25th of July.
Secondly, the IRS is preparing to close a loophole related to disclosure of American clients in its agreement with foreign banks, which allowed clients of UBS to hide about $20 billion in assets from U.S. tax authorities. The new rules, which are about to be released by the IRS, would require the foreign banks to identify the actual American account owners and recipients of any interest payments, forcing the banks to file a 1099 form and withhold taxes on such accounts at 28 percent. The IRS is also tightening oversight of these accounts by IRS authorised external auditors who are permitted to review the banks under the 2001 QI agreement between the IRS and the foreign banks.
(Update 1 - 17th July 2008 - Excerpt from the prepared statement of Douglas H. Shulman, IRS Commissioner - "We are also considering a regulation to have QIs [Qualified Intermediaries] report U.S. taxpayers’ worldwide income to the IRS in certain cases– not just U.S. source income. "
Meaning that if this goes into effect, U.S. nationals would have their incomes worldwide scrutinized to see where it was coming from, and where its going to. This is actually a big step forward for the IRS being able to trace money being routed discreetly back into the U.S.
And Shulman says, regarding UBS, that "The summons directs the bank to produce records identifying U.S. taxpayers who had accounts with the bank in Switzerland between 2002 and 2007 and elected to have their accounts remain hidden from the IRS. On July 1st a federal judge in Miami approved a Justice Department request to enable the IRS to serve the summons. We are working closely with the Justice Department to ensure that we get the information requested in the summons. Accordingly, the IRS is exploring our options on how to bring a potentially large number of U.S. taxpayer cases to resolution."
And he says regarding LGT that "To date, the IRS has initiated enforcement action involving close to 200 taxpayers with accounts in this jurisdiction."
Translation - The 19,000 account holders at UBS better come clean before the IRS decides to really turn the screws. Because this is not going to be over unless and until they clean out UBS.)
(Update 2 - 17th July 2008 - Excerpt from opening statement by Mark Branson of UBS, Chief Financial Officer, Global Wealth Management, who says "We did have detailed written policies that prohibited our employees from engaging in some of the conduct that our internal investigation has uncovered, such as assisting in the creation of sham offshore companies to defraud tax authorities. While our own review is not complete, it is apparent now that our controls and supervision were inadequate. UBS is committed to taking both corrective and disciplinary measures.")
Reference:
http://www.bloomberg.com/apps/news?pid=20601087&sid=af8NUGMoFXVM
http://hsgac.senate.gov/public/index.cfm?Fuseaction=Subcommittees.Home&SubcommitteeID=88ed6460-02ee-40a9-84a9-e278af44313c&Initials=PSI
http://www.reuters.com/article/governmentFilingsNews/idUSN1647439520080717
http://www.bloomberg.com/apps/news?pid=20601087&sid=afaIyKMEym.g
http://www.nytimes.com/2008/07/17/washington/17tax.html
http://www.ubs.com/1/e/media_overview/media_americas.html
Tuesday, July 15, 2008
Yahoo Google Senate Antitrust Hearing
I wasn't planning to write anything about Microhoo until there were any 'new' developments, but if the U.S. Senate Judiciary Committee is getting in on the act, I figure its time to update. The Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy and Consumer Rights is holding an anti-trust hearing on the Google-Yahoo search advertising agreement, and in attendance are Michael Callahan, General Counsel, Yahoo! Inc., David Drummond, Senior Vice President Corporate Development and Chief Legal Officer of Google Inc., and Brad Smith, Senior Vice President and General Counsel for Microsoft Corp.
In his opening statement, Yahoo General Counsel Michael Callahan said that "With this business arrangement, Yahoo! will continue to execute on its long term corporate strategy. Microsoft, on the other hand, has turned to activist shareholder Carl Icahn, in the apparent hope that this will force a fire sale of Yahoo!’s core strategic search business."
He also made the rather ironic observation that this deal with Google will help Yahoo compete better against Google... Anyway, very little about this whole saga makes any sense, so its better not to quibble over the little details.
David Drummond, Google's Chief Legal Officer, topped that off by flatly declaring that they had no need or requirement to get approval from antitrust authorities prior to implementation. And he then proceeded to top himself with a perfectly geeky opening statement which dealt more with the technological aspects of the agreement than with the financial or market implications. That's probably the result of spending too much time playing ping-pong with the geeks at Google Labs....
Microsoft General Counsel Brad Smith then proceeded to throw a wrench into the deal by claiming that the Google-Yahoo deal hinders competition in critical ways. "Advertisers and online content providers would be harmed through price coordination that will establish higher prices and limit choice", he said.
Senator Patrick Leahy (D-VT), Chairman of the Senate Judiciary Committee, was more concerned about the privacy implications of Google getting access to data on Yahoo's users, and said that "The ability of a single company to dominate the online advertising marketplace also raises the specter that one company will accumulate vast amounts of personal viewing data. This leads to significant privacy concerns, an issue on which I will remain focused as the online advertising market continues to develop."
For the record, Google and Yahoo have done some limited testing but have held back from implementing the deal, pending an antitrust opinion from the Justice Department. Anything to be noted from this talk-fest? Well, a couple of points, maybe. First, that considering the battalion of Microsoft lobbyists waiting to lubricate the "Wheels of Justice", its highly unlikely that the ad deal is going to slip by Congress, or the DOJ, anytime soon.
Second, there's the question of what happens if the deal gets scrapped. What happens is that Yahoo needs to pay Google $250 million. Meaning that if Icahn and/or Microsoft get their hands on Yahoo, then add another $250 million to the acquisition costs. This would be on top of the costs for the change in control severance plan aka the poison pill, and other integration issues that any buyer/buyers would face.
That brings us to another question. At this stage, one of the possible results of this tech opera is a split, breakup and sale of Yahoo to various parties. If that happens, who exactly is going to pay all these add-on costs? Probably Microsoft, since they're the driving force behind this deal.
Side note: After reading the statements from all parties concerned (Icahn, Yahoo, Microsoft) about the recent '24 hour take it or leave it' offer, I think its fair to say that Icahn got a bit carried away, and Ballmer got taken in by Icahn's assurances. Be that as it may, Icahn has filed a definitive proxy, and everybody is ready and primed to duke it out, from Washington to Wall Street to Silicon Valley. 15 days to go. August 1 2008, either Yahoo shares will soar past $30, or they'll crash to around $18 or so.
In his opening statement, Yahoo General Counsel Michael Callahan said that "With this business arrangement, Yahoo! will continue to execute on its long term corporate strategy. Microsoft, on the other hand, has turned to activist shareholder Carl Icahn, in the apparent hope that this will force a fire sale of Yahoo!’s core strategic search business."
He also made the rather ironic observation that this deal with Google will help Yahoo compete better against Google... Anyway, very little about this whole saga makes any sense, so its better not to quibble over the little details.
David Drummond, Google's Chief Legal Officer, topped that off by flatly declaring that they had no need or requirement to get approval from antitrust authorities prior to implementation. And he then proceeded to top himself with a perfectly geeky opening statement which dealt more with the technological aspects of the agreement than with the financial or market implications. That's probably the result of spending too much time playing ping-pong with the geeks at Google Labs....
Microsoft General Counsel Brad Smith then proceeded to throw a wrench into the deal by claiming that the Google-Yahoo deal hinders competition in critical ways. "Advertisers and online content providers would be harmed through price coordination that will establish higher prices and limit choice", he said.
Senator Patrick Leahy (D-VT), Chairman of the Senate Judiciary Committee, was more concerned about the privacy implications of Google getting access to data on Yahoo's users, and said that "The ability of a single company to dominate the online advertising marketplace also raises the specter that one company will accumulate vast amounts of personal viewing data. This leads to significant privacy concerns, an issue on which I will remain focused as the online advertising market continues to develop."
For the record, Google and Yahoo have done some limited testing but have held back from implementing the deal, pending an antitrust opinion from the Justice Department. Anything to be noted from this talk-fest? Well, a couple of points, maybe. First, that considering the battalion of Microsoft lobbyists waiting to lubricate the "Wheels of Justice", its highly unlikely that the ad deal is going to slip by Congress, or the DOJ, anytime soon.
Second, there's the question of what happens if the deal gets scrapped. What happens is that Yahoo needs to pay Google $250 million. Meaning that if Icahn and/or Microsoft get their hands on Yahoo, then add another $250 million to the acquisition costs. This would be on top of the costs for the change in control severance plan aka the poison pill, and other integration issues that any buyer/buyers would face.
That brings us to another question. At this stage, one of the possible results of this tech opera is a split, breakup and sale of Yahoo to various parties. If that happens, who exactly is going to pay all these add-on costs? Probably Microsoft, since they're the driving force behind this deal.
Side note: After reading the statements from all parties concerned (Icahn, Yahoo, Microsoft) about the recent '24 hour take it or leave it' offer, I think its fair to say that Icahn got a bit carried away, and Ballmer got taken in by Icahn's assurances. Be that as it may, Icahn has filed a definitive proxy, and everybody is ready and primed to duke it out, from Washington to Wall Street to Silicon Valley. 15 days to go. August 1 2008, either Yahoo shares will soar past $30, or they'll crash to around $18 or so.
Monday, July 14, 2008
National City Tamping Down Market Rumors
In response to 'market rumors' National City has put out a press release intended to tamp down the rumors and reassure investors. "National City is experiencing no unusual depositor or creditor activity. As of the close of Friday's business, the bank maintained more than $12 billion of excess short-term liquidity. Further, as a result of our recent $7 billion capital raise, National City maintains one of the highest Tier I regulatory capital ratios among large banks."
This was prompted by an early Monday rout as Cleveland, Ohio based National City Corporation (NYSE: NCC, Investor Relations) dropped 27% to $3.21, was halted, and now its down 23.08% to $3.40, as of publishing. If they're not seeing any unusual activity at the bank, I'm guessing they will be, in the next few days, as the rumor mill moves in for the kill. Now before you start screaming FDIC, read a few more paragraphs. This isn't your standard bank in trouble story.
This has to more to do with their earnings report than with any new problems mushrooming beyond control. They did the exact same thing on April 21, just before their Q1 earnings report was due out on April 22. You can read all about it here. They rushed through a $7 billion financing deal with the equity group Corsair Capital LLC to compensate for their subprime mortgage losses, so the markets wouldn't be rattled. The deal gives Corsair a nearly 10% stake in National City.
And now, with the next quarter results due, in addition to denying any panic, they also announced a September 15 date for a special shareholder meeting to ratify the Corsair deal. Point is, Corsair already has a 9.9% stake, and they can easily increase it. Which they will, if necessary. Meaning that National City has a safety net, same as Countrywide had a BofA safety net. I don't want to predict what's going to happen with NCC in the next few days, but regardless, there's very little likelihood of banking regulators having to step in.
For the record, though, as of April 2008, National City was sitting on about $25 billion worth of 'risky' loans (20% of their portfolio), which will no doubt have increased in the last few months. And it won't be easy to wiggle out of this mess without showing substantial losses in the next few quarters. While I don't see the bank going down, there's a good chance that it might end up losing its independence, if they have to turn to Corsair for more help. If that happens, Corsair will seperate out the good from the bad, and there's buyers ready and waiting to pick up the pieces.
This was prompted by an early Monday rout as Cleveland, Ohio based National City Corporation (NYSE: NCC, Investor Relations) dropped 27% to $3.21, was halted, and now its down 23.08% to $3.40, as of publishing. If they're not seeing any unusual activity at the bank, I'm guessing they will be, in the next few days, as the rumor mill moves in for the kill. Now before you start screaming FDIC, read a few more paragraphs. This isn't your standard bank in trouble story.
This has to more to do with their earnings report than with any new problems mushrooming beyond control. They did the exact same thing on April 21, just before their Q1 earnings report was due out on April 22. You can read all about it here. They rushed through a $7 billion financing deal with the equity group Corsair Capital LLC to compensate for their subprime mortgage losses, so the markets wouldn't be rattled. The deal gives Corsair a nearly 10% stake in National City.
And now, with the next quarter results due, in addition to denying any panic, they also announced a September 15 date for a special shareholder meeting to ratify the Corsair deal. Point is, Corsair already has a 9.9% stake, and they can easily increase it. Which they will, if necessary. Meaning that National City has a safety net, same as Countrywide had a BofA safety net. I don't want to predict what's going to happen with NCC in the next few days, but regardless, there's very little likelihood of banking regulators having to step in.
For the record, though, as of April 2008, National City was sitting on about $25 billion worth of 'risky' loans (20% of their portfolio), which will no doubt have increased in the last few months. And it won't be easy to wiggle out of this mess without showing substantial losses in the next few quarters. While I don't see the bank going down, there's a good chance that it might end up losing its independence, if they have to turn to Corsair for more help. If that happens, Corsair will seperate out the good from the bad, and there's buyers ready and waiting to pick up the pieces.
Saturday, July 12, 2008
Yahoo! Rejects Microsoft-Icahn Search and Restructuring Proposal
Yahoo! Inc. confirmed that it has rejected, again, a joint proposal from Microsoft Corporation and Carl Icahn for a complex restructuring of Yahoo! that would include the acquisition of Yahoo!'s search business by Microsoft. The proposal was made on Friday evening and Yahoo! was given less than 24 hours to accept the non-negotiable proposal. Yahoo! also offered to sell the entire company to Microsoft for at least $33 per share, and also offered to negotiate an improved search only transaction. Microsoft rejected both offers.
Roy Bostock, Chairman of Yahoo! said in a press release that "This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo!'s stockholders in mind. Clearly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Mr. Icahn to coerce Yahoo! into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo! stockholders. Yahoo's Board of Directors will not allow that to happen. Yahoo!'s Board remains open to any transaction that delivers full value to our stockholders - we just do not believe such a transaction should be dictated by Microsoft and a single short-term investor."
First, let's not take all this on face value. As previously stated by Microsoft, it does not want to deal with the current Yahoo! board. So its fair to assume that this latest (and umpteenth) offer, is just part of the chess game to weaken the current Yahoo! board's hand prior to the Yahoo shareholder meeting on August 1.
Basically, nothing new, except that again, Microsoft made an offer, which was again rejected by Yahoo, and then again Yahoo made a counter-offer, which was again rejected by Microsoft. What's happening here is that each side is making offers which they know for sure the other side is going to reject. Either I've been watching this whole mess too closely, or these guys are just plain bonkers.
Remains to be seen what the suggested 'complex restructuring' was, but if I had to take a guess, it would be that Microsoft gets Yahoo's search busines, while at the same time the Microsoft/Icahn combo helps Yahoo get partners (and cash) for its other businesses, such as the AOL deal. News Corp.'s Murdoch stated categorically at Sun Valley that he didn't see any tie-up with Yahoo! Inc on the cards, so that leaves Time Warner/AOL.
Tell you the truth, things being as they are, I don't see this going anywhere except to the Yahoo shareholder meeting, and possibly after that to Court and a messy legal challenge for whichever side wins on August 1. If Yang remains in the saddle, he'll be hit with class action suits alleging that he didn't fulfill his fiduciary duties (there's already one in progress). If Icahn wins, they'll have to sort out the poison pill problem of the severance plan, which again, is likely to end up as a lawsuit against the Yahoo! board.
Reference: http://yhoo.client.shareholder.com/releasedetail.cfm?ReleaseID=321697
Roy Bostock, Chairman of Yahoo! said in a press release that "This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo!'s stockholders in mind. Clearly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Mr. Icahn to coerce Yahoo! into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo! stockholders. Yahoo's Board of Directors will not allow that to happen. Yahoo!'s Board remains open to any transaction that delivers full value to our stockholders - we just do not believe such a transaction should be dictated by Microsoft and a single short-term investor."
First, let's not take all this on face value. As previously stated by Microsoft, it does not want to deal with the current Yahoo! board. So its fair to assume that this latest (and umpteenth) offer, is just part of the chess game to weaken the current Yahoo! board's hand prior to the Yahoo shareholder meeting on August 1.
Basically, nothing new, except that again, Microsoft made an offer, which was again rejected by Yahoo, and then again Yahoo made a counter-offer, which was again rejected by Microsoft. What's happening here is that each side is making offers which they know for sure the other side is going to reject. Either I've been watching this whole mess too closely, or these guys are just plain bonkers.
Remains to be seen what the suggested 'complex restructuring' was, but if I had to take a guess, it would be that Microsoft gets Yahoo's search busines, while at the same time the Microsoft/Icahn combo helps Yahoo get partners (and cash) for its other businesses, such as the AOL deal. News Corp.'s Murdoch stated categorically at Sun Valley that he didn't see any tie-up with Yahoo! Inc on the cards, so that leaves Time Warner/AOL.
Tell you the truth, things being as they are, I don't see this going anywhere except to the Yahoo shareholder meeting, and possibly after that to Court and a messy legal challenge for whichever side wins on August 1. If Yang remains in the saddle, he'll be hit with class action suits alleging that he didn't fulfill his fiduciary duties (there's already one in progress). If Icahn wins, they'll have to sort out the poison pill problem of the severance plan, which again, is likely to end up as a lawsuit against the Yahoo! board.
Reference: http://yhoo.client.shareholder.com/releasedetail.cfm?ReleaseID=321697
IndyMac Bank Closed by OTS, FDIC Takes Over
On July 11, 2008, IndyMac Bank, F.S.B., Pasadena, CA was closed by the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC) was named Conservator. All non-brokered insured deposit accounts have been transferred to IndyMac Federal Bank, F.S.B., Pasadena, CA ("assuming institution") a new FDIC-insured Federal Mutual Savings Bank. - FDIC Closing information for IndyMac
Turns out IndyMac was too small to merit a federal bailout, but not big enough to avoid getting shuttered.
Before we get into a more in-depth analysis of the closure, here's a little information for Indymac bank's account holders. There's nothing you need to do, or should do, if your individual account has less than $100,000 (or $200,000 for joint accounts and $250,000 for retirement accounts). The full amount will be available in your new account in the new IndyMac Federal Bank mentioned above. The new bank will reopen on Monday. If you want direct information from the FDIC about IndyMac and the status of your account, call 866-806-5919 anytime between 8 am and 8 pm. The Los Angeles Times has a detailed Q & A for IndyMac account holders.
And now, lets get down to why the OTS so hastily shut down the bank. On the face of it, the blame for the FDIC taking conservatorship of IndyMac Bank lies at Sen Schumer's feet. His letter, and the subsequent negative media coverage (including on this blog) panicked account holders and the elevated level of withdrawals never really gave the Bank's officials a chance to regroup. The Office of Thrift Supervision, in a statement, said that "The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac's viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts."
But like I said in the previous post about Lehman rumors, the question is not who triggers the crash, or why. The question is - If the firm is in such a precarious state that a small event like a rumor or a letter from a Senator leads to a near collapse, or in this, an actual closure, then why blame the guy who lights the fuse? Its a tinderbox waiting to explode. So if you look at it one level deeper, the problems are (were) within Indymac. You can read all the background info about Indymac's problems here.
Now the FDIC will have to find a buyer for the bank's assets. But that's a secondary question right now. The immediate question is the downward pressure this will put on Fannie Mae and Freddie Mac, due to negative sentiment rippling from Pasadena to Wall Street. With regulators having shelved immediate plans for a bailout, Fannie and Freddie will have to face the music on the markets on Monday. And its not going to be pretty.
Turns out IndyMac was too small to merit a federal bailout, but not big enough to avoid getting shuttered.
Before we get into a more in-depth analysis of the closure, here's a little information for Indymac bank's account holders. There's nothing you need to do, or should do, if your individual account has less than $100,000 (or $200,000 for joint accounts and $250,000 for retirement accounts). The full amount will be available in your new account in the new IndyMac Federal Bank mentioned above. The new bank will reopen on Monday. If you want direct information from the FDIC about IndyMac and the status of your account, call 866-806-5919 anytime between 8 am and 8 pm. The Los Angeles Times has a detailed Q & A for IndyMac account holders.
And now, lets get down to why the OTS so hastily shut down the bank. On the face of it, the blame for the FDIC taking conservatorship of IndyMac Bank lies at Sen Schumer's feet. His letter, and the subsequent negative media coverage (including on this blog) panicked account holders and the elevated level of withdrawals never really gave the Bank's officials a chance to regroup. The Office of Thrift Supervision, in a statement, said that "The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac's viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts."
But like I said in the previous post about Lehman rumors, the question is not who triggers the crash, or why. The question is - If the firm is in such a precarious state that a small event like a rumor or a letter from a Senator leads to a near collapse, or in this, an actual closure, then why blame the guy who lights the fuse? Its a tinderbox waiting to explode. So if you look at it one level deeper, the problems are (were) within Indymac. You can read all the background info about Indymac's problems here.
Now the FDIC will have to find a buyer for the bank's assets. But that's a secondary question right now. The immediate question is the downward pressure this will put on Fannie Mae and Freddie Mac, due to negative sentiment rippling from Pasadena to Wall Street. With regulators having shelved immediate plans for a bailout, Fannie and Freddie will have to face the music on the markets on Monday. And its not going to be pretty.
Friday, July 11, 2008
Mirror, Mirror On the Wall - Is Lehman headed for a Fall?
Wall Street rumor is a vicious creature. And its been swirling around Lehman Brothers (NYSE: LEH) ever since the fall of Bear Stearns. There's got to be one prime candidate headed for a fall, and Lehman has been nominated to be the star of the show, cast as the next sacrificial lamb.
The latest rumor was that the world's largest bond fund PIMCO, the hedge fund giant SAC and other institutions were bailing out on Lehman, which then promptly rolled over and crashed 18%. The rumor was quickly squelched by Pimco's Chief Investment Officer Bill Gross who said on CNBC that Pimco is reducing neither the length of the trades with Lehman, nor the dollar amounts. And a spokesman for SAC Capital also came out saying that they're doing business as usual with Lehman.
Here's the thing - Its not important (except to the SEC) who puts out these rumors or why. The all important question is - Why is Lehman, and not any other firm, the target for all these rumors and the speculation. What makes it so susceptible to these rumors? Fact is that this rumor mill, while being a self-fulfilling kind of system, isn't all that off the mark, when it comes to finding the weakest victim ready to go belly-up.
So its best to stick to 'what is', taking into account the rumors and all. 'What is' is that Lehman shares have lost 81% from a high point last year of $74.09 achieved on July 17, 2007. Even more damaging is the fact that bond investors are not so optimistic about Lehman's future and their credit-default swaps went up sharply on Friday to a four month high.
Also fact is that Lehman does have $60.8 billion worth of real estate, mortgages and related securities as of May 31st, the value of which is definitely going to keep dropping over the next year. Factor in Lehman's small equity base (currently $1 for every $25 borrowed) and you get an idea of why Lehman is so susceptible.
At this stage, the basic problem Lehman has is of ignoring the rumors, and keeping traders on board. Lehman is helped in this fight by the fact that the Fed is keeping the discount window open for primary dealers. If Bear Stearns had had this facility, it might never have gone down.
But its not enough help for Lehman. What Lehman needs is to stay afloat until the real estate market rebounds. That's more than a year away, and the only way to survive this year is by de-leveraging and raising capital again. After declaring a Q2 loss of $2.8 billion, Lehman raised about $6 billion by selling $2 billion of convertible preferred stock and $4 billion of common shares. Lehman has sold about $130 billion in assets since April, and is taking steps to further reduce its leverage by selling about $120 billion more in assets this year. All this would bring its leverage ratio down from 25 to 15. Bear Stearns went belly-up with a leverage ratio of 34.
All these steps, while helping the firm to stay afloat over the next year, will also result in more pain for shareholders in the form of losses from discounted asset sales and write-downs in the next quarter or two, and diluted earnings over an extended period. The share will keep dropping, at least until the year end, and possibly even beyond. And every time Lehman announces a downgrade, the rumors will fly. But Lehman is not going to be the next victim. They are not going to collapse. They won't be in need of a bailout. Its an orderly retreat.
References:
http://www.guardian.co.uk/business/feedarticle/7643997
http://blogs.wsj.com/marketbeat/2008/07/11/lehman-taking-a-beatingagain
http://www.nytimes.com/2008/06/10/business/10lehman.html
http://www.bloomberg.com/apps/news?pid=20601109&sid=awH4lSOm6eDk
The latest rumor was that the world's largest bond fund PIMCO, the hedge fund giant SAC and other institutions were bailing out on Lehman, which then promptly rolled over and crashed 18%. The rumor was quickly squelched by Pimco's Chief Investment Officer Bill Gross who said on CNBC that Pimco is reducing neither the length of the trades with Lehman, nor the dollar amounts. And a spokesman for SAC Capital also came out saying that they're doing business as usual with Lehman.
Here's the thing - Its not important (except to the SEC) who puts out these rumors or why. The all important question is - Why is Lehman, and not any other firm, the target for all these rumors and the speculation. What makes it so susceptible to these rumors? Fact is that this rumor mill, while being a self-fulfilling kind of system, isn't all that off the mark, when it comes to finding the weakest victim ready to go belly-up.
So its best to stick to 'what is', taking into account the rumors and all. 'What is' is that Lehman shares have lost 81% from a high point last year of $74.09 achieved on July 17, 2007. Even more damaging is the fact that bond investors are not so optimistic about Lehman's future and their credit-default swaps went up sharply on Friday to a four month high.
Also fact is that Lehman does have $60.8 billion worth of real estate, mortgages and related securities as of May 31st, the value of which is definitely going to keep dropping over the next year. Factor in Lehman's small equity base (currently $1 for every $25 borrowed) and you get an idea of why Lehman is so susceptible.
At this stage, the basic problem Lehman has is of ignoring the rumors, and keeping traders on board. Lehman is helped in this fight by the fact that the Fed is keeping the discount window open for primary dealers. If Bear Stearns had had this facility, it might never have gone down.
But its not enough help for Lehman. What Lehman needs is to stay afloat until the real estate market rebounds. That's more than a year away, and the only way to survive this year is by de-leveraging and raising capital again. After declaring a Q2 loss of $2.8 billion, Lehman raised about $6 billion by selling $2 billion of convertible preferred stock and $4 billion of common shares. Lehman has sold about $130 billion in assets since April, and is taking steps to further reduce its leverage by selling about $120 billion more in assets this year. All this would bring its leverage ratio down from 25 to 15. Bear Stearns went belly-up with a leverage ratio of 34.
All these steps, while helping the firm to stay afloat over the next year, will also result in more pain for shareholders in the form of losses from discounted asset sales and write-downs in the next quarter or two, and diluted earnings over an extended period. The share will keep dropping, at least until the year end, and possibly even beyond. And every time Lehman announces a downgrade, the rumors will fly. But Lehman is not going to be the next victim. They are not going to collapse. They won't be in need of a bailout. Its an orderly retreat.
References:
http://www.guardian.co.uk/business/feedarticle/7643997
http://blogs.wsj.com/marketbeat/2008/07/11/lehman-taking-a-beatingagain
http://www.nytimes.com/2008/06/10/business/10lehman.html
http://www.bloomberg.com/apps/news?pid=20601109&sid=awH4lSOm6eDk
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