LATEST ANALYSIS
October 2008
30 Oct 2008
Credit and Commodity Crises: Steel Polished or Rusted?
Executive Compensation Structure: Aligning Company Interests
Dour Times: Luxury Retailers Not Immune
Capital Purchase Program: Reviving the Banks
Commercial Paper Unfreeze: Alternative Energy gets a jolt
30 Oct 2008
In the rush to unfreeze credit markets, are the Federal Reserve and Treasury Department creating the institutional and legal battles of the future? The federal regulatory agencies reacting to market turmoil, sometimes issue regulations counter to existing regulations at other agencies. Some companies, finding themselves caught at the intersection of these contradictory regulations, must seek exemptive relief. In other cases, the regulators must issue temporary regulations in rushed conditions.
30 Oct 2008
Are hedge funds really unregulated or do they just think they are? The SEC certainly doesn’t think they’re above the law, especially when it comes to the fundraising (and investor retention) efforts that are the fundamental of all funds. The importance of this question has only grown.
30 Oct 2008
It’s often said that it isn’t wise to second-guess a decision that you’ve already made. Tell that to the shareholders of Wachovia and Merrill Lynch who may be questioning the wisdom of the planned mergers with Wells Fargo and Bank of America. Shareholder questions percolate around both transactions, with 2 common themes: (a) was the Board’s fiduciary duty fulfilled? and (b) are these deals good for shareholders in light of the government’s bailout financing plans, a subsequent event of not small consequence? Given that, in deals of this type, shareholders can always take a “belt and suspenders” approach to these questions – shareholder litigation and shareholder approval, aka sue and vote –both routes need to be considered.
28 Oct 2008
SEC Chairman Christopher Cox recently disclosed his strong support for merging the SEC and the Commodity Futures Trading Commission (CFTC). The CFTC is an independent agency that regulates US futures and options markets. Chairman Cox declared his support for regulatory consolidation at the October 23, 2008 hearing, “The Financial Crisis and the Role of Federal Regulators” held by the Congressional Committee on Oversight and Government Reform.
28 Oct 2008
What are bankruptcy-related Event of Default provisions (and related remedies) worth? Not much these days, to judge from the non-protection of multiple counterparties to Lehman Brothers entities in the aftermath of the Lehman bankruptcy. Looking at the unfolding of these events, it becomes clear that a counterparty may have to do an awful lot to get the benefit of provisions that are meant to address bankruptcy-related events of default.
28 Oct 2008
Congressional hearings are now underway on Capital Hill and finger-pointing has become the sport of the week. In the midst of these games, one of the hotly debated questions is the financial market’s need for reform, particularly that of the credit default swap (CDS). This market is often described as “unregulated” and implied to be a wild west. However, was the CDS market, with its inherent counterparty risk, really as unknown and its impact as unpredictable as all the public denials might indicate?
28 Oct 2008
Revised M&A Deal: Lehman Sale of Neuberger Berman
Revised Equity Deal: Morgan Stanley/Mitsubishi UFJ Group
Investment Deal: GE/Berkshire Hathaway
Investment Deal: Bunco Santander/Sovereign
28 Oct 2008
Unfreezing iced-over credit conditions has led the government to step into many corners of once-sacred private sector credit markets. As is well-known, while financial service businesses were the earliest to suffer from the credit freeze, they were soon joined by non-financial businesses as well. Perhaps less well-known is that, with those same financial companies the early beneficiaries of government largesse, other, non-financial companies couldn’t be far behind. Apparently not, as one of the newest areas of government involvement is the commercial paper (CP) market.
23 Oct 2008
Like so many other lines of business, Securities Lending should no longer be seen as the innocent money-maker it was once seen as. Thanks to the Lehman bankruptcy and asset sale to Barclays for clarifying that. As of a recent filing with the Bankruptcy courts, a set of issues now ripples through the legal world focused on counterparty risk at the heart of securities lending.
23 Oct 2008
Federal investigators have recently become quite busy investigating potential malfeasance during the recent financial boomtimes…but you wouldn’t necessarily know it from company disclosures. While the investigations were widely-reported, few filers have disclosed federal investigations related to their recent and sudden collapses.
23 Oct 2008
Warren Buffett’s Berkshire Hathaway seems to have lined up the ultimate information right in his recent investments into each of GE and Goldman Sachs. In particular, obscured by the euphoria around the mere fact of his investments, is what we might call Berkshire’s “batphone provision”.
21 Oct 2008
Material Change has hit natural resource companies, at least if Canadian public company disclosures are any guide. A steady stream of Press Releases, recently filed under the SEDAR electronic filing system by Canadian mining and natural resources companies, portray trouble on two fronts: contracting credit markets and slumping commodities prices.
21 Oct 2008
A set of plagues, almost Biblical in proportion, seems to have descended all at once: Market-level shocks, persistent fears of war and terrorism, industry slowdowns, frozen credit conditions, changing financial reporting standards… to name but a few.
21 Oct 2008
Disclosure decisions are the purview of a Company’s Board of Directors, assisted by their executives. These decisions are often complex exercises of judgment, as directors walk a tightrope between alerting investors to risks, without spooking them right out of their shareholdings.
21 Oct 2008
The effects of the Credit Crisis on operating companies continue to manifest themselves in unexpected ways. Credit problems, once thought to afflict only banks and insurers, now leech into the “real economy.” Companies have implemented various coping strategies, including renegotiating terms on existing credit facilities and drawing down pre-existing revolvers.
16 Oct 2008
Wells Fargo is double dipping…and in so doing is driving up its risk profile. While its takeover of Wachovia is getting all the attention, it actually concurrently released news of 2 bank acquisitions: Wachovia and a small regional Texas bank, Century Bankshares. Both merger agreements were filed on October 10th. The mind reels at how busy all these legal teams have been…The common filing date invites comparison.
16 Oct 2008
Morgan Stanley clearly subscribes to the bird-in-hand school of thought. Its financing from MUFG has gotten markedly more expensive in the longer term…but at least it’s still there. This has been the source of great relief to a market that had begun to fear the worst. MS is moving forward with this more expensive MUFG financing, even though the U.S. government has announced plans to invest $10 billion in Morgan Stanley (as part of its broader banking sector recapitalization), apparently at less expensive terms.
14 Oct 2008
Place yourself in the shoes of the SEC and Chairman Cox. If you had an opportunity to assemble a group of leading lights on re-inventing disclosure today, would your focus be how disclosure connects to: (a) systemic risk and the derivatives market, (b) the credit crisis and financial regulatory reform or… (c) extensions to the data-tagging regime known as XBRL?
14 Oct 2008
In an era dominated by cries for added regulation, it’s interesting to see the venerable New York Stock Exchange swinging the regulation needle ever so slightly in the other direction. Its impact is clear: it’s proposing making things somewhat easier to issue securities on the NYSE.
14 Oct 2008
With Canada and the U.S. so close geographically and linked economically, one would expect their credit and M&A markets to move in close correlation. Surprisingly, the evidence of that is mixed. In particular, there are still signs of life in the Canadian M&A market and even in the related market for acquisition financing.
9 Oct 2008
The unprecedented cooperation of the central banks and regulatory intervention in response to the financial crisis unfolding across global markets demonstrates just how intertwined and complex this has become. Westlaw Business will continue to provide this updated re-cap of the major market events that are unfolding.
9 Oct 2008
It may be coming to a theatre near you. A modern adaptation of Devil and Daniel Webster; a dynamic legal team assists a besieged financial executive who made a deal with the Government. In the opening scene, the executive moans, “who will take my troubled assets?” The Government appears and whispers “I will, but I’ll want a bit of equity.”
9 Oct 2008
The Emergency Economic Stabilization Act of 2008 (EESA) moved through Congress in near record time. To celebrate, the legislative branch, similar to Ferris Bueller, is taking the rest of the year off, leaving the Treasury to make the bailout work. While we wait for the Treasury to fully establish the institutions and contracts needed to spend $700 billion, a historical review of the Resolution Trust Corporation (RTC) and its activities may provide some insight regarding what to expect.
8 Oct 2008
Canadian public companies seem remarkably unflappable (or at least, thus far, unflapped) despite the unprecedented turmoil playing out to their south. Judging from their public disclosures in securities filings, even the calamitous events surrounding the collapse of Lehman Brothers don’t seem to have raised great concerns or needs to disclose, other than where true exposure exists.
8 Oct 2008
The Treasury is now racing to establish the institutions, infrastructure and contractor relationships needed to effect the bailout under the Emergency Economic Stabilization Act of 2008 (EESA). As it’s doing that, what bears reminder is the long-forgotten, or perhaps never widely known, role that the Resolution Trust Corporation (RTC) played in promoting the growth and function of the mortgage securitization market.
8 Oct 2008
Talk of calamity and complete shutdowns of capital markets is rampant. However, a close look at the last two weeks shows that the U.S. equity markets are actually witnessing a significant revival. In addition to once-unimaginable M&A transactions conducted at hyper-speed, we’re actually witnessing a series of very large equity offerings.
8 Oct 2008
It was inevitable that there would be disgruntled shareholders around a shotgun wedding of the size and speed of the Merrill Lynch – Bank of America merger. No surprise, the September announcement that Merrill Lynch would be merging with Bank of America left some Merrill shareholders claiming that the firm’s shares were grossly undervalued.
6 Oct 2008
Moral outrage over the then-proposed bailout boiled over around issues of executive compensation. The notion of paying executives large sums while taxpayers were funding bailouts of these same risk-taking organizations was too much for some to stomach. So, with the passage of the Emergency Economic Stabilization Act (EESA) came new limits on executive compensation for those organizations benefiting from the bailout.
6 Oct 2008
Do mark-to-market accounting and U.S.-style democratic openness play nicely together? We are about to find out. The Emergency Economic Stabilization Act (EESA) passed by Congress in early October was passed in days of financial gloom, and seeks to overcome that with two elements in short supply previously: cash and sunshine.
6 Oct 2008
Lehman Brothers was (and id) rife with complexity. It is sure to help set new law as the bankruptcy unfolds…and Bank of America may be doing its part to help. This is the first in an occasional series on the litigations resulting from the Credit Crisis.
6 Oct 2008
There will be two separate groups of asset managers, one for securities and the other for mortgage whole loans. The asset managers will be considered financial agents of the U.S. and not contractors. A public notice will be posted on the Treasury website soliciting prospective financial agents and set out the asset management services being sought.
6 Oct 2008
The expression TGIF may have taken on new meaning in the midst of the Wall Street earthquake underway. No more is it simply an allusion to the respite of the upcoming weekend. Instead, it may reflect gratitude for the “cover” of a late Friday, when submission of a key filing has become a seemingly common occurrence.
2 Oct 2008
With many political conversations turned to moose in place of pork, it was easy to forget how things get done in Washington, even for something as fundamental as the financial market bailout. The bill the Senate passed was a sharp reminder of what “ways and means” are sometimes required.
2 Oct 2008
Recently the subject of consternation and, in some circles, even vilification, Financial Accounting Standard 157 was created in sunnier days to shine a bright light on a somewhat murky corner of the financial markets. Murkiness, in particular, hung over certain classes of financial instruments for which up-to-date pricing data was not regularly available.
2 Oct 2008
The reach of the Credit Crisis extends much farther than Wall Street. Even before the most recent, most serious turn of the Crisis, our Westlaw Business analysts saw clear signs of the tightening of the market. This stands to get even worse, hampering the conduct of business far outside the financial services sector.
1 Oct 2008
Given the unprecedented events taking place in the market this week, we’ve decided to take a quick step back to review details from a relative blip that some may have missed: Washington Mutual’s (WaMu’s) bankruptcy filing. The nation’s largest thrift filed for Chapter 11 bankruptcy protection September 26 in the U.S. Bankruptcy Court for the District of Delaware.
1 Oct 2008
Congress and the White House are still working on the details of a $700 billion plan know as the Economic Stabilization Act of 2008 (“EESA”) which has been described as having dual goals of rescuing Wall Street and protecting Main Street. While the House of Representatives rejected a version of the bill earlier this week, the Senate plans to vote on their version of the bill this evening.
1 Oct 2008
With all of the recent chaos surrounding solving the financial crisis, we at Westlaw Business figured it might be a good time for a brief re-cap of the events unfolding. If you’re as busy as we are, a short update might be appreciated. As of press time, here is a brief rundown of major market, regulatory, and legislative events:
1 Oct 2008
The Nasdaq Stock Market LLC filed a proposed rule change with the SEC September 16 to establish an electronic PORTAL Reference Database. The NASD created the PORTAL market in 1990 (concurrently with the SEC adoption of Rule 144a) as a new trading platform “for the purpose of quoting, trading and reporting trades in securities deemed eligible for resale by Qualified Institutional Buyers under Rule 144a.”