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The Wall Street Journal's op-ed page today has a piece by former Spanish Prime Minister Jose Maria Aznar (who was booted out of office for misleading Spanish voters). It features the following pull quote: "Europe's politicians pay a price for broken trust." Of course, Aznar isn't referring to himself. He's referring to the Dutch and French pols who fouled up their respective European Constitution referendums.
Isn't that a little like having ex-Worldcom CEO Bernard Ebbers pen an essay tsk-tsking that, as the AIG case shows, stocks can suffer if bosses fudge the numbers?
Posted by dan at 09:31 AM
James Politi reports in the FT:
A "poisonous" regulatory environment has been one of the driving forces behind the recent collapse of merger activity in the US financial services industry, according to one of Wall Street's top dealmakers.A series of regulatory actions had made chief executives in the sector more reluctant to strike deals, said Rodgin Cohen, chairman of Sullivan & Cromwell, the New York law firm.
These include the investigation by Eliot Spitzer, New York attorney-general, into discriminatory practices in the US mortgage industry, and the Federal Reserve's move to prevent Citigroup from making a large acquisition.
Mr Cohen, one of the most senior American M&A lawyers who worked on Wachovia's takeover of First Union and JPMorgan Chase's acquisition of Bank One, also cited compliance with Sarbanes-Oxley legislation as a reason potential foreign acquirers had not moved more aggressively to buy peers in the US.
. . .The volume of deals in the US financial services industry has tumbled from $111bn in the first five months of 2004 to only $32bn so far this year, according to Thomson Financial.
Um, how about looking at what's happening in, you know, the markets. Periods of rising interest rates tend to beat down shares of big financial companies and temper enthusiasm for big mergers.
Meanwhile, investors, having watched big banks snap up cheaper smaller ones, have decided to play a little arbitrage. They've been bidding up the prices of potential targets, which makes them appear more expensive--and hence less appealing as acquisition targets.
Time was, the outsized P/E ratios enjoyed by the likes of Citigroup allowed them to use their stock to buy more cheaply valued stocks. No longer.
Meanwhile, back on planet earth, there was evidence as to why Citigroup and other big banks still need some of that pernicious oversight. As Judith Burns reports on Dow Jones:
WASHINGTON -- Citigroup Inc. will pay $208 million to settle Securities and Exchange Commission fraud charges that two of its subsidiaries profited on transfer-agency discounts at the expense of mutual-fund customers.Citigroup Global Markets Inc. and Smith Barney Fund Management LLC, an investment adviser to Smith Barney mutual funds, profited from discounts through a Citigroup-affiliated transfer agent, reaping nearly $100 million at customers' expense over five years, according to the SEC. It also alleged the Citigroup subsidiaries misrepresented or omitted details when recommending the transfer agent to fund boards of directors.
Citigroup settled without admitting or denying the SEC's charges. The settlement calls for it to turn over $128 million of allegedly ill-gotten gains, with interest, and pay an $80 million penalty.
Additionally, Citigroup agreed to seek competitive bids on contracts for transfer agency services for its mutual funds, and to have bids overseen by an independent outsider, paid by Citigroup but answerable only to the fund boards.
When big financial services companies stop ripping the faces off their customers, the investigations will probably stop altogether, and they can resume the business of merging. And then the lawyers can start collecting those fat fees again.
Posted by dan at 06:49 PM
How dumb are the free-lunchers?
In today's Wall Street Journal, Jackie Calmes has a piece about the two South Carolina Senators’ different attitudes toward Social Security reform. Lindsey Graham, the state's senior senator, is a representative of the “pain caucus.” He advocates cutting benefits and raising payroll taxes to ensure solvency. (In other words, he advocates solving the problem honestly.)
Sen. Jim DeMint, a freshman Senator, is held out as a representative of the "free lunch caucus." His solution? Don’t cut benefits. Instead, as the Journal's handy thumbnail sketch puts it: “use remaining Social security annual surplus, to 2017, for private accounts. Cut other government spending to offset the diverted payroll-tax revenue.” Add water, and wait ten years.
Sounds simple. But one wonders if DeMint has any clue just how big those annual surpluses are, and how much he and his colleagues love to spend them. Go here, and scroll down to Table S-8. It shows that in fiscal 2005, the surplus is $212.4 billion. Next fiscal year, it'll be $225.6 billion, and so on. If we had a lockbox, we could segregate these funds. But we don't, so we spend them. Or rather, Sens. DeMint and Graham, and their fellow Republican legislators who control the budget process, spend them.
So DeMint's simple plan is to reduce government spending by $212.4 billion in this fiscal year, or by about 8.6 percent. And to reduce government spending by about 8.8 percent for the upcoming fiscal year.
To which I say, go for it. Talk to your fellow Republicans, who control appropriations in the House and the Senate, and show them your plan for cutting spending by that much. That would mean, for a start, repealing the Medicare prescription drug bill in its entirety, and zeroing out a half-dozen cabinet-level departments. Or you could get there by simply cutting out half of all non-defense and non-homeland security discretionary spending.
I love a free lunch as much as the next guy. (Actually, probably more than the next guy.) So I await Sen. DeMint's spending-reduction plans eagerly.
And given that his fellow Republican Senators seem willing to risk a veto for the sake of spending $11 billion more on transportation projects than President Bush wants, I'm sure they'll respond to his request with alacrity.
Posted by dan at 04:57 PM