Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
CNNMoney.com – For equity markets, 2008 will long be remembered as a year of massive selling, and it’s likely to end the same way.
Hedge funds will find it increasingly difficult to obtain lending at the end of the year, a time when banks typically tighten their lending anyway as part of the "window dressing" process. This year, two key securities firms that supplied loans to hedge funds, Bear Stearns and Lehman Brothers, have disappeared, and the remaining firms that lend to hedge funds are hanging on to cash in an effort to deleverage themselves.
"These tight financing positions over year-end are likely to result in the forced sales of securities prior to year-end," said an Alliance Bernstein research report put out Wednesday.
New York (HedgeCo.Net) – Auto executives stood before Congress yesterday and requested a $25 billion rescue package, pleading that their industry was going under fast. After allocating billions to bailouts in recent months, the auto industry was met with quite a bit of reluctance from many of the same individuals who were all for the $700 billion in handouts to financial firms.
"Detroit’s basic problem is that they created a business model that doesn’t have a snowball’s chance in hell of surviving in a global economy," said Republican Senator Lindsey Graham from South Carolina.
Alabama Republican Senator Richard Shelby agreed, saying that the automakers, aka “failed models,” should just file for bankruptcy.
The hearing was held a day after Senate Democrats proposed the $25 billion in rescue loans. However, the auto industry just happens to be at the end of the line after the government handed out funds to AIG, Bear Stearns and mortgage lenders Fannie Mae and Freddie Mac.
“This is about much more than just Detroit,” Rick Wagoner, head of General Motors, said in his testimony. It’s about saving the U.S. economy from a catastrophic collapse.”
General Motors is seeking approximately $10 billion from Uncle Sam while Ford and Chrysler are asking for about $8 billion and $7 billion respectively.
"While the domestic auto industry has made mistakes in the past, the current problems have been exacerbated by one of the worst economies in nearly three decades," Alan Mulally, CEO of Ford Motor Corp. said in his testimony.
Mulally and Wagoner, along with head of Chrysler Robert Nardelli and Ron Gettelfinger, head of United Auto Workers Union were all part of the team that testified before Congress.
Gettelfinger added, "If one of these companies was to go into bankruptcy, I would almost bet it would take two of them or possibly all three."
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Reuters – Malaysia is working on a plan to allow the creation of Islamic hedge funds.
"It is now in the developmental stage,” Goh Ching Yin, an executive director at the Securities Commission, was quoted as saying by Business Times newspaper.
"There’s no timeline, but we are making good progress.”
He said the plan could get off the ground next year, depending on market conditions.
Hedge funds’ bets on falling share prices have been blamed for contributing to the near-collapse of investment bank Bear Stearns, the demise of Lehman Brothers and for a sharp drop in financial stocks in general.
West Palm Beach (HedgeCo.net) – Hedge fund IT provider, Richard Fleischman & Associates, announced that Colin Moe has joined the firm as account manager. The appointment furthers RFA’s unprecedented growth and commitment to serve its client base of 400-plus alternative asset firms.
Increased demand for flexible technology solutions by RFA clients is being driven by turbulent market conditions and the need to stay nimble with IT infrastructure for expansion or contraction in the immediate future.
In this role, Colin will work with clients to assure optimized service levels and performance outcomes. As a focal point of contact, he will orchestrate the deep bench of resource available to RFA clients ensuring client satisfaction.
“Colin is an accomplished and respected industry professional with outstanding credentials and extensive prime brokerage expertise that our clients will immediately identify with,” said Don Previti, director of business development at RFA. “His important role as Strategic Account Manager will further reinforce RFA’s position as the vendor of choice for firms in the alternative asset space."
With more than ten years of experience, Colin joins RFA following long tenures in account management with Citigroup Prime and Bear Stearns Prime. He has a wide range of account experience, having worked in depth with hedge funds of differing trading strategies, investment styles and asset sizes, ranging from start-ups to multi-billion-dollar funds. His professional specializations encompass trading facilitation, technologies, implementation and training, and asset financing.
Established in 1990 and headquartered in New York, NY, Richard Fleischman & Associates is a trusted technology advisor to over 400+ hedge funds, private equity funds and fund of funds globally, offering both turnkey IT solutions and on-site and remote monitoring staffed 24/7/365.
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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
guardian.co.uk – Morgan Stanley survived the recent panic in financial markets, but its prime brokerage business may never fully recover.
More than a third of Morgan’s prime brokerage assets went out the door during the past month — some rivals said attrition could be as large as one-half — as investors unnerved by the credit crunch lost confidence in the bank.
Across Wall Street, hundreds of investment funds that relied on broker-dealers established accounts with commercial banks boasting stronger credit. The moves have shaken up a business long dominated by Morgan Stanley, Goldman Sachs Group Inc and Bear Stearns.
"It’s a $2 trillion business and in normal market conditions, people kill themselves to move 1 percent of market share. In recent weeks, probably 35 to 40 percent of global market share has been redistributed," said Alex Ehrlich, global head of prime services at UBS. "Never has there been a more disruptive period."
Caymen Net News – Insolvency lawyers in Scotland should take an interest in a bankruptcy case in the Cayman Islands involving two Bear Stearns hedge funds and an American judge with the wonderful name of Burton Lifland.
The issue is this: where did a business that has gone bust have its main commercial interests?
The two funds were involved in what is now a familiar story amid the carnage on the world financial markets. They bet heavily on sub-prime mortgages and, as defaults increased, creditors demanded their money back leaving the funds with no cash.
Bloomberg – The U.S. Securities and Exchange Commission extended a rule forcing hedge funds to tell the agency about short-sale positions amid concerns investors bet against companies after spreading false rumors they will fail.
Investment managers who oversee more than $100 million must to disclose to the SEC the stocks they’ve bet will fall in price until Aug. 1, the agency said in a statement on its Web site today. Those positions won’t be made public, the SEC said.
The SEC said it’s concerned “about the possible unnecessary or artificial price movements” in stocks “that may be based on unfounded rumors and may be exacerbated by short selling.”
The SEC is investigating hedge funds and cracking down on short-selling after lawmakers questioned whether traders spread misinformation and used abusive tactics to attack companies. The collapse of Bear Stearns Cos. in March and Lehman Brothers Holdings Inc.’s September bankruptcy fueled concerns that investors were manipulating financial markets.
Newsday – A federal probe of the $1.8-billion collapse of Bear Stearns hedge funds has spread to include the activities of a number of banks and other lenders, according to court records and legal sources.
Investigators are also reviewing various private financial memorandums prepared by Bear Stearns officials for possible fraud against wealthy investors, said the sources.
One of the banks that may have been defrauded in the case was Barclays Bank PLC, the British institution that last year filed a federal lawsuit against Bear Stearns & Co. Inc. over losses from the hedge fund, said one attorney familiar with the case.
Federal prosecutors in Brooklyn are overseeing the Bear Stearns case while other Wall Street probes are being carried out by federal officials in Manhattan, said attorney Andrew Entwistle, who is representing investors suing the parent Bear Stearns Companies Inc. and affiliates.
Boston Globe – US Representative Barney Frank yesterday staked out the next battlefront in the economic crisis gripping the world: more regulation of hedge funds, investment banks, and other financial institutions.
Frank, who heads the House Financial Services Committee, blamed a lack of strict oversight for the failures of Wall Street investment banks such as Bear Stearns Cos. and Lehman Brothers Holdings Inc., as well as dozens of subprime mortgage companies. He said hedge fund investments in arcane securities based on those mortgages deepened the crisis, which has spread worldwide. In contrast, heavily regulated commercial banks escaped the crisis largely unscathed, Frank said.
"The cause of this problem was a lack of financial regulation in the industry," the Massachusetts Democrat said at a Newton City Hall press conference, one of two events he held in the Boston area yesterday. "If the regulated institutions had made loans, we would not be in the crisis we’re in."
New York (HedgeCo.Net) – The infamous collapse of the two $1.8 billion Bear Stearns hedge funds that many believe helped spark the credit crisis is still being investigated, and now other banks and individuals are being probed in the process.
According to those familiar with the matter, prosecutors are now looking at the offering memorandum of the funds, a set of documents usually constructed by the legal team that list strategies and other pertinent information, along with investigating the individuals who prepared them.
Ralph Cioffi and Matthew Tannin, both hedge fund managers for the now defunct funds, have had criminal charges filed against them in federal court. The two men allegedly defrauded investors in the hedge funds by neglecting to communicate the sharp losses they were experiencing due to their exposure to mortgage backed securities and hefty amounts of leverage. Cioffi was also charged with insider trading.
Investors who experienced losses in the fund have a number of cases against Bear Stearns. Barclays Bank PLC also filed a suit last year after losing approximately $400 million in the funds.
The High Grade Structured Credit Strategies Fund and the High Grade Structured Credit Strategies Enhanced Leverage Fund collapsed last summer amidst the subprime mortgage fallout. The funds had sought liquidation in the Cayman Islands, possibly hoping to shield some assets from creditors. That request was denied in U.S. Court.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
New York (HedgeCo.Net) – JPMorgan Chase & Co. has purchased Washington Mutual’s branch network for $1.9 billion, making them the largest U.S. bank by deposits. The deal was encouraged by the U.S. government after consumers withdrew over $16 billion from the nation’s largest savings and loan in the latter half of September.
WaMu was having trouble finding a buyer after the Treasury’s proposed $700 billion bailout package created reluctance among would-be investors. Others companies said to have been considering an offer included Citigroup and Wells Fargo.
Many believed that WaMu was next in line to sink thanks to over $180 billion in outstanding mortgage-related loans and the paranoia of a pending liquidity crunch. On top of that, Standard & Poors once again cut WaMu’s ratings to CCC from BB-, though the company was quick to quell any fears associated with the downgrade.
"Washington Mutual Bank’s deposit rating from Standard & Poor’s continues to be investment grade and it is important to note that Standard & Poor’s rating actions do not affect the safety of customer deposits, which are insured up to the limits allowed by the FDIC," said WaMu in a recent statement.
Washington Mutual continued to deny rumors of any problems. The bank recently stated they had over $50 billion in liquidity despite being hit hard by the subprime mortgage fallout.
It was just a few months ago that WaMu rejected a bid from JPMorgan for about $4 a share, even after JPMorgan urged the bank to consider a deal before the economy got worse.
JPMorgan, who also acquired Bear Stearns earlier this year, will not inherit WaMu’s liabilities, including claims by shareholders and subordinated and senior debt holders. By purchasing WaMu, Chase can now increase their presence on the West Coast and in Florida.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
