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) – SEC Chairman Christopher Cox said he was all for a merger between the Commodity Futures Trading Commission and the Securities and Exchange Commission.
Hopping on board with U.S. Treasury Secretary Henry Paulson, this was the first time Cox has publically supported a merger that was first brought to the table years ago. The issue was brought up again in March, when Paulson laid out his regulatory reform blueprint which supported the merger of the two agencies.
The SEC and CFTC currently meet every quarter after signing a March memorandum in which they agreed to increase communication and cooperation. While the CFTC oversees the futures market and the SEC serves as an overall police for the markets, many feel the two would perform best under one roof seeing as how their functions tend to overlap.
“This would bring futures within the same general framework that currently governs economically similar securities,” Cox said during a Congressional hearing yesterday.
The House Oversight Committee hearing where Cox gave his public support for the merger was staged in hopes of holding Cox along with former Treasury Secretary John Snow and former Federal Reserve Chairman Alan Greenspan accountable for the lack of regulation that ultimately led to the credit crisis and the demise of several large financial institutions.
Cox, who has been notoriously lax on regulation ever since his appointment by Bush in 2005, reiterated that Congress must also act this year to finalize the regulation of credit default swaps, an act that both agencies have endorsed.
Met with a mix of agreement and disdain, questions remain as to whether the merger can actually take place. Rep. Henry Waxman of California wasn’t about to look to the future without reminding Cox of the mess he helped get us in. "The reality, Mr. Cox, is you weren’t doing that job of proposing these regulations beforehand. You either didn’t anticipate the problem or you agreed with the philosophy that we didn’t need regulation."
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Bloomberg – U.S. Representative Barney Frank is walking through Statuary Hall in the Capitol, a portrait of rumples and wrinkles. His left shirttail hangs out over his belt. Reporters and photographers are hounding him. Cameras are whirring. Questions are being shouted.
“How’s it going?” one reporter shouts.
“If you let me get in, I can find out,” Frank says, before disappearing into House Speaker Nancy Pelosi’s office to begin negotiations with Treasury Secretary Henry Paulson and a handful of lawmakers on a $700 billion legislative package to rescue troubled financial institutions.
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.
Bloomberg – Gold fell for the fourth straight session after the U.S. agreed to spend $250 billion to rescue ailing banks. Silver climbed.
Stocks in Europe and Asia rose for a second day after Treasury Secretary Henry Paulson announced plans to buy stakes in financial firms to ease the lending crisis. Gold fell 1.9 percent yesterday as the Standard & Poor’s 500 Index soared 12 percent.
“The equity markets have come back, so you’ll see some of the capital that was flowing into gold just a week ago go to equities,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago.
Gold futures for December delivery dropped $3, or 0.4 percent, to $839.50 an ounce on the Comex division of the New York Mercantile Exchange. The price declined $64 in the previous three sessions.
Forbes – The hedge fund sector has to date weathered market volitality better than the banking sector, since no large bellwether hedge fund has yet gone bankrupt. Nonetheless, hedge funds are expecting a wave of redemptions, as investors move to safer investments and reconsider their commitments to the sector.
Hedge fund sector resilience? Whereas banking sector difficulties have provoked a host of policy responses, including Treasury Secretary Henry Paulson’s now-moribund $700 billion bailout package–no hedge fund problem has yet necessitated a similar systemic response. The apparent resilience of the sector is particularly striking given that recent estimates suggest that the $2 trillion hedge fund industry accounts for approximately 30% of U.S. equity and bond trades (although volatile market conditions have led many managers to shift greater percentages of their holdings into cash-equivalents).
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.
New York (HedgeCo.Net) – Citigroup Inc. has purchased Wachovia’s banking operations at a price tag of $2.16 billion, or roughly $1 a share, after losses stemming from bad mortgages rendered a resurfacing nearly impossible. Citigroup will now have around 4,300 branches and offices and will surpass JPMorgan Chase as the largest U.S. bank by deposits.
Treasury Secretary Henry Paulson was pleased with the purchase, and said that a failure of Wachovia “would have posed a systemic risk" to our country’s financial system.
Wachovia is yet another casualty of the credit crisis and has suffered over $42 billion in losses from the subprime fallout. As the largest lender of adjustable-rate mortgages, Wachovia saw its shares plunge amidst a record number of defaults on home loans, particularly in Florida and California. The ARM’s offered low “teaser” introductory rates, luring subprime candidates. Many borrowers ended up owing more than what their home was actually worth.
Citigroup will absorb the bank’s losses, while trying to raise an additional $10 billion to pay off Wachovia’s senior and subordinated debt. Charlotte-based Wachovia will retain its Evergreen Asset Management unit, along with its retail brokerage unit, which oversees over $1 trillion in capital.
The purchase will help change the once gloomy outlook for Citigroup, who at one point this year, thought they might collapse themselves after writing down over $46 billion and being one of the hardest hit banks of the housing crisis. Citigroup posted losses in three consecutive quarters, but now says it plans on reducing expenses b more than $3 billion annually.
Citigroup CEO Vikram Pandit has assured investors that he is working closely with Wachovia CEO Bob Steel in an effort to make the transition with “precision” and “speed.”
The deal will no doubt help shed a more positive light on Pandit, after a period of bad press involving the now collapsed hedge fund he founded and eventually sold to Citigroup. The bank, after paying $800 his Old Lane Hedge Fund, $165 million of which went directly into Pandit’s pocket, decided to close up shop this summer after suffering unsustainable losses.
The merger will give Citigroup an almost 10 percent share of the U.S. banking market, with deposits globally exceeding $1.3 trillion.
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) – Federal Reserve Chairman Ben Bernanke joined Treasury Secretary Henry Paulson yesterday in an attempt to sway lawmakers to pass a $700 billion rescue plan that would purchase illiquid mortgage-backed assets in an attempt to restore the U.S. financial system. Reaffirming that his interest lies solely in the recovery of the U.S. economy and not in Wall Street, Bernanke proceeded to outline a plan that would attack the root cause of our current credit crisis while bring stability back to the markets.
“I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover,” Bernanke pleaded to the Senate Banking Committee. “My interest is solely for the strength and recovery of the U.S. economy.”
Bernanke explained that the Treasury should buy the illiquid assets at their hold-to-maturity date, instead of at their discounted rates.
“I believe that under the Treasury program, auctions and other mechanisms could be designed that will give the market good information on what the hold-to-maturity price is for a large class of mortgage-related assets,” he explained. The reverse auction system would entail firms bidding to the Treasury to sell their assets. By removing these assets from our system, Bernanke believes that we can get to the root of the current financial crisis.
Reaffirming that taxpayers will get “good value,” Bernanke is hoping that the bipartisan rescue plan will be approved swiftly and not be slowed down with “other provisions that are unrelated or don’t have broad support." However, the Treasury’s plan has met resistance from both parties, who feel that taxpayers are going to bear the burden while there are no repercussions for Wall Street execs.
Republican Senator Richard Shelby of Alaska scoffed at the plan, saying that it “codifies the Treasury’s ad-hoc approach.” Democratic Representative Barney Frank of Massachusetts agreed, saying that “CEO’s put their ability to get unrestricted excessive compensation, including rewards for failure, over and above trying to cooperate in helping the economy.”
Christopher Dodd, who heads the Senate Banking Committee, opened the hearing by saying that “we must address the root cause by putting an end to the rising number of foreclosures sweeping across our nation,” while also expressing concerns about the taxpayers well-being.
As Paulson and Bernanke were making their case, Dick Cheney and other top White House advisors were sent to lobby House Republicans amidst growing discontent.
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
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.
New York Post – The next issue for concern in the battered economy is whether there are going to be buyers for the nation’s billions in debt, Mayor Bloomberg said yesterday.
Speaking to students at Georgetown University, Bloomberg pointed out that Wall Street convulsions are being felt around the globe.
"Who’s buying our debt? It’s these overseas funds, these sovereign-wealth funds, these overseas hedge funds. They are in trouble now. So it’s not clear who is going to be buying" US Treasury bills, he said.
Bloomberg was planning to have breakfast in Washington today with Treasury Secretary Henry Paulson – whom he described as an old friend – and Christopher Cox, chairman of the Securities and Exchange Commission.
Meanwhile, city Comptroller Bill Thompson warned that many high-paying jobs on Wall Street may be gone for good.
International Herald Tribune – In May, David Einhorn, an outspoken hedge fund manager, took the microphone at a large industry gathering and laid out his case against the investment bank Lehman Brothers.
The firm, he told the crowd, had used "accounting ingenuity" to avoid large write-downs and remained tainted by bad commercial real estate investments. Einhorn stood to profit by convincing people of his view: He had been betting against Lehman’s stock, which stood at around $40 when he spoke, since July 2007.
In the four months that followed, the tactic known as short-selling, in which an investor bets on a decline in a stock price, played a role in hastening a fire sale of Lehman’s shares – an erosion that ultimately helped bring the venerable 158-year old firm to its knees.
At emergency meetings led over the weekend by Timothy Geithner, the president of the Federal Reserve Bank of New York, and Treasury Secretary Henry Paulson Jr., the heads of major financial institutions said they feared short-sellers would now capitalize on the climate of fear surrounding Lehman and target other financial firms. They raised the idea of having the Securities and Exchange Commission reinstate a temporary rule to limit short-selling, according to two people who were briefed on, but did not attend, the meetings.
New York (HedgeCo.Net) – Despite valiant efforts to find investors and stay afloat the credit crisis, Lehman Brothers Holdings Inc. is now at the center of the biggest bankruptcy filing in history.
The fourth-largest investment bank filed for Chapter 11 protection in a Manhattan court today, after write downs stemming from the subprime mortgage fall-out that it helped create proved to be too much to take.
Lehman, who was the largest underwriter of mortgage-backed securities, listed over $613 billion in debt, including over $157 billion owed to unsecured creditors and over $155 billion owed to bondholders.
"The uncertainty, particularly among the banks through which the company clears securities trades, ultimately made it impossible for the company to continue to operate its business,” said Chief Financial Officer Ian Lowitt in the filing.
Shares of Lehman were trading as low as 29 cents this morning; a fitting finale after losing 94 percent of its market value this year. Treasury Secretary Henry Paulson and the Federal Reserve had been trying to come up with a deal that would keep Lehman afloat. Paulson made it clear that he did not want to use taxpayer money to bail out Lehman.
While London-based Barclays looked to be interested in investing in Lehman, they pulled out yesterday amidst concerns over the lack of guarantees from the U.S. government to protect against losses on assets. Bank of America then followed suit, withdrawing from talks with Lehman only to acquire Merrill Lynch shortly thereafter.
Lehman was planning on selling a majority stake in their asset-management unit for around $4 billion. While talks are still in the works, no conclusion has been reached. Speculations that more losses were to come coupled with its liquidity crunch have prevented any sale from taking place as of yet and ultimately led to the demise of the bank.
Lehman now joins Bear Stearns and Merrill Lynch in the group of banks that were "too big to fail,” that couldn’t weather the credit crunch.
Lehman’s assets are listed at $639 billion. They have about 25,000 employees worldwide.
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
