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.
New York (HedgeCo.Net) – Board members of General Motors met this past weekend to go over a proposal that will be presented to Congress today in hopes of securing up to $12 billion in emergency funding. The money is part of a larger, $25 billion bailout plan that GM, Ford and Chrysler have been seeking.
After originally rejecting the plan, Congress told the big three auto makers to present a revised version of their request, with detailed information on how they will use the money to turn their companies around.
Chrysler, who has vocalized their need for an alliance with GM and Ford in order to weather the financial crisis, is also busy putting the finishing touches on their revised plan. “Chrysler is fine-tuning its original plan to meet the reset requite from congressional leadership,” said spokesperson for the company, Lori McTavish. “The company’s board will be part of the final review process leading up to Tuesday’s submission.”
The automakers are expected to present a plan that focuses more on fuel-saving new technology that could eventually yield 35 miles per gallon on their vehicles, in addition to slashing executive pay and bonuses. Ford, who is least troubled by financial woes out of the three, is expected to only seek a line of credit from the government.
The automakers have faced increased reluctance from many members of Congress, after months of government handouts to major financial institutionals. Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid recently sent a letter to the three executives, saying that they must be "making significant sacrifices and major changes to their way of doing business," which will be presented in today’s plan.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
In an interview on Bloomberg TV, Treasury Secretary Henry Paulson, when asked whether hedge funds might be eligible for the U.S. plan injecting capital into financial companies he said, "the program right now is for banks and thrifts."
On Monday, the Treasury announced plans to use $250 billion of the $700 billion financial bailout plan approved by congress to buy preferred shares in a number of financial companies in an effort to bolster the struggling banking system and stimulate lending.
Telegraph.com.UK – Sources close to Mrs Lagarde said that she had called the US Treasury Secretary – a close personal friend – well before the ailing bank’s collapse imploring him to act, but he chose not to.
Lehman Brothers’ demise sparked the biggest shake-up on Wall Street in decades and sent shock waves around the world that triggered a massive bailout plan in Britain and Europe.
Mrs Lagarde – attributed with playing a key role in brokering a bailout deal among G7 finance ministers in Washington last weekend – dubbed Mr Paulson’s decision to let the bank go under "horrendous" as it triggered panic in markets and banks to the brink of a 1929-style financial meltdown.
In an interview with the Daily Telegraph, she warned that the world’s hedge funds could be the next institutions to be hit by the financial turmoil.
Globe and Mail – Daniel Gross, writing on Slate, makes an interesting point about the latest version of the U.S. government’s bailout plan: The plan, officially known as the Emergency Economic Stabilization Act of 2008, looks a lot like the prospectus for a hedge fund.
“In the past, hedge funds – secretive pools of capital – were open only to qualified (read: rich) investors,” he said. “But with the stroke of a pen, President Bush will soon make all American citizens investors in the world’s biggest fund – and a democratic one at that.”
Hedge funds often use leverage, or borrowed money, to amplify their returns and often use the money to buy beaten up assets. Similarly, the bailout plan, which Mr. Gross dubs the Universal Hedge Fund, will use $750-billion (U.S.) of borrowed money to buy distressed assets. But the similarities don’t end there. The manager of the Universal Hedge Fund can hold bonds to maturity or flip them for a profit. The manager can also bring in outside expertise, making the fund look like a fund of funds.
“Like many of today’s sharpest hedge funds, the Universal Fund will also have the ability to drive a harder bargain by demanding equity stakes, or new debt securities, from the institutions it is helping,” Mr. Gross said.
Reuters – Blaming lax regulation for what turn into the worst U.S. financial crisis since the Great Depression, Rep. Barney Frank vowed on Monday to police banks and hedge funds more actively to avoid future financial meltdowns.
Frank, the powerful chairman of the House Financial Services Committee who has been credited with largely shaping the $700 billion bailout plan, also said he expects the cost of to be much less.
Frank said next year’s agenda will include capping runaway executive compensation, imposing restrictions on certain financial instruments and regulating certain areas of the market that are current not restricted.
"It was the lack of regulation that led to this crisis … We have to step in and impose regulations that will not allow this to happen again," Frank, a Massachusetts Democrat, said at a news conference in Newton, Massachusetts.
New York (HedgeCo.Net) – In an emergency hearing yesterday, U.S. District Judge John Koeltl left the door open for Wachovia to consider better offers, saying the law “appears” to permit bids from other potential buyers. This decision comes at a time when Wells Fargo is considering a $15 billion proposal, a substantial increase from Citigroup’s $2 billion bid for the Charlotte-based bank.
“What was an institution that needed assistance now has another transaction it views even more favorably,” said Judge Koeltl at the hearing.
Citigroup, who placed a bid for the branch system of Wachovia last month, is looking to the future while trying to move past over $60 billion in losses stemming from the subprime fallout and the credit crisis that ensued.
While Citigroup did have an exclusivity agreement with Wachovia that would forbid the bank from speaking to any other potential buyers, lawyers for Wachovia argue that the new $700 billion government bailout plan permits Wachovia to dabble in other offers.
“We are entitled as a matter of law to a judgment that Wachovia is permitted to go forward with Wells Fargo,” lawyers for Wachovia told the judge. “This is a matter of considerable urgency.”
Wachovia has stated they believe a deal with Wells Fargo would be in the interest of investors and shareholders since Wells Fargo does not need government assistance and was not hit nearly as hard by the mortgage crisis. While Citigroup’s bid included only the branches of Wachovia, Wells Fargo would be purchasing the entire company.
Judge Koeltl scheduled a hearing for October 7th, in which another judge will preside and determine the next course of action.
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
KTAK – U.S. lawmakers and President George W. Bush eased pressure on financial markets on Tuesday by starting work to revive a $700 billion bailout plan to stem a credit crisis that has spread beyond Wall Street to claim more European banks.
U.S. stocks roared back — a day after their worst sell-off in 21 years — and the dollar rallied as investors bet Washington would manage to salvage a package to stabilize the financial sector after Monday’s shock defeat on Capitol Hill.
The Standard & Poor’s 500 index shot up by more than 5 percent, the biggest one-day gain for that measure of the broad market in six years.
The relief rally came as the White House, Treasury Secretary Henry Paulson and the two candidates hoping to succeed Bush as president, Republican John McCain and Democrat Barack Obama, reaffirmed their support for a bailout plan. Congressional leaders started talks to relaunch the package this week.
CNBC – The Wall Street fallout is having aftershocks throughout the economy, but believe it or not, the entertainment industry is having no problem securing bank-financed credit.
Sure, it’s not boom time, but the fact that media companies are able to attract financing is impressive, and a testament to the fact that movie going is generally counter-cyclical.
On Friday the government was frantically putting together a bailout plan for the financial markets, while production houses attracted more investment. Last week Steven Spielberg secured $700 million in credit through JP Morgan to back his new production company in partnership with India’s Reliance Big Entertainment, from which he’s getting $500 million in equity.
Reuters – Hedge funds are unlikely to be among financial institutions clamoring to unload their bad debts under a proposed $700 billion Wall Street bailout plan, the chief of the funds’ lobbying group said on Tuesday.
"I think it’s unlikely that they would include us and I think it’s unlikely that we would ask to be included," said Richard Baker, president of the Managed Funds Association.
In an interview with Reuters, Baker said it was still unclear whether hedge funds are among financial institutions that would be allowed to participate in the massive Bush administration plan now being debated by Congress.
The former Louisiana congressman said one thing is crystal clear to hedge fund managers: "We understand that if you ask for benefits from the government, you generally get regulation, whether you like it or not."
Washington Post – Given the panic in Washington over the financial markets, it is virtually certain that Congress will soon pass some form of the bailout plan the Treasury put forward last week. This is not an ideal proposal, particularly since it does not address the underlying problem with mortgages and negative housing equity.
No troubled mortgage holders would benefit directly, and key commercial banks might still end up undercapitalized.
However, no legislator wants to risk allowing the economy to collapse on his or her watch, and, according to Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, that is what’s at stake.
