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Forbes – Major Wall Street firms placed large bets against Morgan Stanley using credit-default swaps, two days after Lehman Brothers Holdings Inc sought bankruptcy protection, the Wall Street Journal said, citing trading records.
The firms included Merrill Lynch & Co, Citigroup Inc, Deutsche Bank AG and UBS AG, according to the paper.
The paper said that a close examination of the trading revealed that the swaps played a critical role in magnifying bearish sentiment about Morgan Stanley.
New York (HedgeCo.Net) – A former UBS AG executive has been sentenced to 6-1/2 years in prison after pleading guilty to selling private information about the bank’s stock recommendations. Mitchel Guttenberg, a former manager in UBS’ equity research department, was accused by the prosecution of running the most pervasive insider trading rings since the 1980’s.
“From the moment he joined the investment review committee he planned to give that information to others to use illegally,” Judge Deborah Batts of U.S. District Court in Manhattan said yesterday.
Guttenberg didn’t try to deny the allegations and instead plead guilty to two counts of conspiracy and four counts of securities fraud. He admitted that on numerous occasions he tipped off two traders about analyst stock recommendations along with dispersing information about UBS analysts’ upgrades and downgrades that were used to net more than $17.5 million over hundreds of transactions.
Guttenberg was one of a dozen people charged with orchestrating the insider trading ring. Other employees came from such companies as Morgan Stanley, Bank of America and Bear Stearns. His sentence includes three years of supervision following his incarceration at a minimum security prison in New Jersey.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Bloomberg – Commodities markets are heading for the biggest annual decline since 2001 as investors exit leveraged bets and slowing economic growth erodes demand for raw materials.
The value of the 19 commodities in the Reuters-Jefferies CRB Index fell $280.6 billion, or 43 percent, from its July 3 peak, a loss larger than their total worth two years ago, data compiled by Bloomberg show. UBS AG, the Zurich-based bank that bought Enron Corp.’s energy unit in 2002, plans to exit most commodity trading. About 15 percent of investors in Boone Pickens’s BP Capital LLC hedge fund may want their money back.
The same credit-market seizure that led to last month’s bankruptcy of New York-based Lehman Brothers Holdings Inc. and the forced sale of Merrill Lynch & Co. is squeezing speculators who drove commodities to record highs. Slower expansion in the U.S., China and India is also undermining prices of crude oil, which fell 36 percent, and corn, down 43 percent.
Bloomberg – Lehman Brothers Holdings Inc., UBS AG and Merrill Lynch & Co. are among Wall Street firms that concocted derivatives and stock-loan deals to help offshore hedge funds dodge hundreds of millions of dollars in U.S. taxes, according to a U.S. Senate committee investigation.
The Internal Revenue Service looked the other way while securities firms sold complicated financial products designed to skirt a law requiring them to withhold U.S. taxes on stock dividends paid to offshore investors, said Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations.
Levin, a Michigan Democrat, said he wants the IRS to pursue back taxes or penalties against Wall Street firms and their hedge-fund clients that got around a 30 percent dividend tax.
“We are going to press the IRS to go after what is obviously a scheme,” Levin said, while briefing reporters yesterday about the committee’s yearlong probe. “The IRS should be going after this. They are not. They have been pussyfooting around this.”
New York (HedgeCo.Net) – The SRM Global Master Fund, headed by former UBS AG star trader Jonathan Wood, is down about 85% over the course of its two-year tenure, according to a report by the Wall Street Journal.
Launched in September 2006, the fund grew fast, raising over $3 billion in assets in what was one of the largest European hedge fund kick-offs ever. The fund held long equity positions in companies that were involved in takeovers, mergers or restructurings.
Mr. Wood’s stellar UBS reputation earned him the trust of many affluent investors. However, venturing into a hedge fund is very different territory. Investors agreed to higher than normal lock up periods, some as long as five years, apparently not too concerned about potential risks. Now many are barred from cashing out or even cutting their losses.
The SRM fund has had a string investments gone sour. They held a major stake in Northern Rock, which was nationalized by the British Government last year, causing shares to plummet. Wood is currently seeking a judicial review.
Adding to the unlucky investments is the stake that SRM held in Countrywide. The mortgage lender was taken over by Bank of America for a deal that Wood thought undervalued them greatly. Bank of America ended up with a steal, purchasing Countrywide for $2.5 billion.
One notable investor in SRM is UBS, who in addition to providing their prime brokerage services, allocated about $500 million to the fund.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Bloomberg – Royal Bank of Scotland Group Plc led gains for European banking stocks on speculation that demand for its rights offer is strong and a U.K. hedge fund is buying shares to push for a breakup.
Edinburgh-based RBS, Britain’s second-biggest bank, rose 8.3 percent to 244.75 pence in London trading. Investors are speculating that the bank’s 12 billion-pound ($23.6 billion) rights offering is succeeding and that hedge fund TCI Fund Management LLP is building a position, said MF Global Securities Ltd. analyst Simon Maughan.
“The rumor in the market is that TCI is taking a stake of about 1 percent and is agitating for a breakup of Royal Bank,” said Maughan, who has a “sell” rating on the stock. “They’ve made a series of strategic errors,” and shareholders would gain if RBS’s investment bank were split off, he said.
RBS is raising cash and selling assets to shore up capital depleted by the acquisition of ABN Amro Holding NV and credit- related writedowns. It declined to comment on TCI, the London- based hedge fund that helped trigger the sale of ABN Amro, or investor response to the offering, which closes June 6 and is underwritten by Goldman Sachs, Merrill Lynch & Co. and UBS AG.
RBS is offering 11 new shares at 200 pence apiece for every 18 existing shares to help lift its capital ratios. It also is trying to sell its insurance arm for about 7 billion pounds as well as its Angel Trains Ltd. railway leasing company and consumer-banking operations in Australia and New Zealand.
Bloomberg- Hunter Shively, global co-head of UBS AG’s commodities business for the past seven months, is resigning to join a start-up hedge fund that is raising money to trade energy futures.
Shively, 38, will stay on for two months to oversee the handover of the commodities unit’s North American energy operations, Jerker Johansson, head of UBS’s investment bank, said today in a memo to employees. Todd Morakis, who was named commodities co-head with Shively in November, will run the Stamford, Connecticut-based unit, according to the memo, which was confirmed by Sarah Small, a spokeswoman for UBS in London.
UBS, which has had the biggest net losses of any bank from the U.S. subprime-mortgage crisis, said in January it will reduce trading in power and natural gas in Canada, and pull out of some European energy markets. Shively plans to join Sasco Energy Partners LLC, a Westport, Connecticut-based firm that is looking to raise $750 million, according to a person familiar with the matter who declined to be identified.
Bloomberg – The annual shareholders meeting of UBS AG used to be a time for Chairman Marcel Ospel to gloat over his accomplishments. Shareholders would praise Ospel for turning a slow-growing, insular Swiss bank into a global financial powerhouse, with a stock price that rose 115 percent from January 1999 to January 2007. Just last year, Ospel bragged to shareholders about how the bank’s record profit was the result of its “smart expansion strategy.”
At UBS’s most recent annual meeting in April, shareholders cheered Ospel again. This time, though, it was when he announced his resignation. Ospel, 58, wearing a navy blue suit and bright yellow tie, didn’t flinch. Glasses resting on the end of his nose, he made a lengthy speech comparing himself to the captain of a ship emerging from a storm.
Shareholders responded that it was the chairman himself who had steered the bank into choppy waters. “Ospel is responsible for this malaise,” Gerhard Meier, a shareholder for 30 years, told investors at the meeting. In the nine months ended on March 31, UBS lost 25.4 billion Swiss francs ($24.3 billion), more than any other bank caught in the worldwide credit crunch.
Shareholders say Ospel and his fellow managers took a profitable Swiss bank and wrecked it on the shoals of structured finance and subprime mortgages.
“He built up enormous risks, which were damaging the whole organization,” says Herbert Braendli, president of Profond, a Swiss pension fund that has been selling down its holding of about 2.3 million UBS shares because it’s unhappy with the bank’s management. “He intentionally pushed it with his expansion goals.”
