Local Bridges of St. Paul: Keeping the Dream Alive [MNPost/Kimball] Tougher Sell at the Whitney [Strib] On the Front Lines of Foreclosure Counseling [Strib] Dolan Media Emerges as Foreclosure Play [MNPost/Beal] Elsewhere & Otherwise Cue the Morrisey: Housing Depressed [WSJ] New Home Sales Up, Prices Drop [WSJ] How to Know if Your Bank Deposits Are Insured [TheStreet] For more visit Source:www.behindthemortgage.com
Archive for December 15th, 2007Cutting through the normal banking rules Stocks Fall on Inflation Report Thursday, December 13 UPDATE 1-Credit Suisse well positioned in crisis-CEO Adipose-Derived Stem Cells Show Promise in Breast Reconstruction Economist: Relax Basel banking rules 3 arrested in ’smash’ ATM theft Investors anxious about banking credit crunch Banking 1991-2000 Photography captured his love of trains WHO: Warren Habib Many Protestants once rejected it Tasteless? Cafes can’t show off the food Filed under: Texas Pacific Group, Private equity industry, Public or private? David Bonderman, a founding partner of TPG Capital (formerly the Texas Pacific Group), recently said that he has no immediate plans to take his firm public. However, he did indicate that virtually all of the major private equity firms will probably be public companies within five years. If that’s the case, he hopes TPG will be one of the last to go that route. “Being public is not my favorite thing,” Bonderman stated in an interview with Reuters. Indeed, it is odd that aggressive investors who profit largely by taking public companies private would want to go public. Bonderman stated that is a “delicious irony” that the Blackstone Group (NYSE: BX), among others, went public even as it continued taking other firms private. So why do private equity firms go public? The answer is simple: it’s where the money is. Going public grants investment firms to gain access to massive — and liquid — capital markets. Of course, it also provides GDP-sized payout to the principals. But as Blackstone has shown, it doesn’t necessarily mean that the firms suddenly have to become more transparent. As Malon Wilkus, the CEO of American Capital Strategies, says in this interview with The Wall Street Journal, “The management company doesn’t have to provide much transparency about the individual investments at all. They probably don’t have to give details on the returns of the funds.” And if the reporting requirements that come with being publicly traded companies prove to be too onerous, the firms can always profit by doing what they do best: they have the ability to take themselves private once again.
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Citi buys Metalmark Capital as banks get back into private equityPosted by: in Private Industry NewsFiled under: Deals, Private equity industry Citigroup (NYSE: C) announced yesterday that it will acquire Metalmark Capital. Terms of the deal were not made public. Metalmark has been independent since 2004. Before that date, it was owned by Morgan Stanley (NYSE: MS). The head of Metalmark, Howard Hoffen, managed Morgan Stanley Private Equity, which included Morgan Stanley Capital Partners. In the last 20 years, Metalmark has invested over $7 billion in mid-size companies, according to The New York Times. Another piece in today’s Times recommends that banks are getting back into private equity after years of separating their banking and private equity functions due to concerns over conflicts of interest. Just last year, Citi spun off CVC Equity Partners, a domestic buyout unit, now called Court Square Capital. But the tremendous profits that continue to be generated by private equity are too attractive to ignore, no matter what the conflicts. Talking of conflicts, the Times points out that with the acquisition of Metalmark, Citi will be managing some assets still owned by its rival, Morgan Stanley. In another sign that the large banks and brokers are getting back into private equity, as well as the growing influence of executives trained in the world of private equity, Morgan Stanley announced today that it has hired two new directors for its global private equity arm. Andy Shinn, who worked for the Carlyle Group, and Aaron Sack, from Apollo Advisors, will join Morgan Stanley as executive directors. Filed under: Thomas H. Lee Partners, Private equity industry The Boston Globe reports that subprime’s collapse is spreading its toxic waste to private equity. For example, in 2006, Boston buyout firm Thomas H. Lee Partners purchased six businesses for a total of $65 billion. This January, it made just one such purchase, for $5 billion. As I recommended to MarketBeat last week, subprime’s impact on credit markets such as the one financing LBOs was obvious and dramatic. But MarketBeat supplied some compelling statistics to bolster my case. “Data from Dealogic shows how parched the deal landscape was in November. Global buyout activity fell 75% on a year-over-year basis, to $25.8 billion from $102.3 billion at this time last year, while U.S. financial sponsor buyout activity was even more ridiculously curtailed, with $2.35 billion in buyouts, down 97% from the $81.06 billion recorded at this time a year ago.” I appeared 10 months ago on CNBC suggesting that private equity had peaked. Unfortunately our economic leaders, including Fed Chair Ben Bernanke and Treasury Secretary Hank Paulson, were slow to pick this up. They stated last spring that subprime’s damage to the economy was contained but they finally changed their tune in October. The credit crunch resulting from subprime’s refusal to stay contained has scotched 17 LBO deals worth $96.6 billion so far this year — almost ten times 2006’s $11 billion worth of busted deals. Either these guys knew what was going on and did nothing or they didn’t know. While I certainly don’t think private equity needs any government protection, when government is this incompetent, I believe that a new cast of characters is in order. Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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Remember when everyone was speaking about a $100 billion buyout?Posted by: in Private Industry NewsFiled under: KKR, Private equity industry Today’s Wall Street Journal reminisces about the height of the private equity boom: “Remember when Blackstone Group and Kohlberg Kravis Roberts & Co. seemed to be competing for the title of World’s Largest Buyout? Or when speak of a $50 billion or even $100 billion buyout was bandied about?” What’s interesting is that the top of the buyout bubble seems to have been marked by a lot of speak about large buyouts and competition among buyout firms for the biggest deals. It’s reminiscent of the deal that was the high point of the LBO-mania of the 1980s (after that bubble, LBOs got a bad name so now they’re called private equity deals. I wonder what they’ll be called next?). KKR’s high-profile buyout of RJR Nabisco was very similar: the top buyout shops in the world were competing for a prize, and KKR couldn’t afford the reputation hit that would come from losing out to any of the other players, nearly all of whom were involved. In the end, KKR went home with a Pyrrhic victory and, having paid too high a price, failed to generate value from the deal. So maybe that’s a good sign of the top of a market: it becomes about ego rather than greed. Filed under: Taxes and regulations, Private equity industry “Score one for the barbarians” — so reads the New York Post today. The reference, of course, is to Barbarians at the Gate, the sordid tale of the leveraged buyout of RJR Nabisco in the 1980s. This day, the private equity barbarians have won another battle: there will be no new tax on carried interest, at least not this year. Charles Rangel, the House Ways and Means Committee Chairman has dropped a proposed change in the tax laws that would raise taxes on hedge fund managers. The change was relatively easy, raising the tax rate on fund profits and management fees from the current 15% to the 35% that corporations (are supposed to) pay. Needless to state, the private equity industry fiercely opposed the change, which would have raised $54 billion in new taxes. The change in the tax code was part of a bill aimed at alleviating the effects of the Substitute Minimum Tax, which now affects 23 million households. The idea was to “fix” the AMT to keep it from being applied to broadly; the resulting loss in revenue could then be made up by increasing taxes on fund managers. But it looks like the managers are too powerful to allow that to happen, at least this time around. Hey, do you think this could have anything to do with campaign contributions and the growing political power of the newly gilded elite? Nah, couldn’t be…
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Henry Kravis draws singing protestors in buyout backlashPosted by: in Private Industry NewsFiled under: Private equity industry The New York Times is reporting today that a group of protesters will be demonstrating outside of Henry Kravis’s 28-room apartment on Park Avenue this day. The demonstration will have a holiday feel, complete with carols and ringing bells. A movie with the jolly title of “The War on Greed, Starring the Homes of Henry Kravis” will be shown on sandwich boards worn by protesters. The film is apparently a satirical look at Kravis’s many homes and opulent lifestyle, with a comparison to the more modest homes and lifestyles of ordinary American workers. Kravis is one of the founders of Kohlberg Kravis Roberts or KKR, one of the older buyout firms. Starting 30 years ago, KKR pioneered the use of leveraged buyouts and has now done over 160 deals. KKR manages $53.4 billion and has offices in New York, Menlo Park, San Francisco, London, Paris, Hong Kong and Tokyo. Some of its notable achievements include the first leveraged buyout in excess of $1 billion and the largest buyouts ever in the Netherlands, Denmark, India, Australia, Singapore and France. The protesters are focused on the lower tax rate payed by partners in private equity firms, as well as the general excess of extreme wealth in the U.S. You can see the protesters movie at warongreed.org.
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SEC investigates possible collusion between hedge funds and banksPosted by: in Private Industry NewsFiled under: Private equity industry The huge banks must not be feeling very loved right now. The New York Attorney General is investigating their handling of subprime loans, and spent its summer issuing subpoenas to banks like Merrill Lynch & Co. (NYSE: MER), Morgan Stanley (NYSE: MS) and Deutsche Bank AG (NYSE: DB). Now the Securities and Exchange Commission is investigating whether banks and the hedge funds they invest in are colluding to share inside information, such as the specifics of a given fund’s strategies, to gain insight into the future of the market. Little information has been made available on the exact nature of the SEC’s investigations. Because hedge funds are private, they’re not required to publicly disclose SEC investigations the way the way that a public company would in the face of a formal inquiry. The hedge fund industry has grown extremely rapidly over the past few years to its current size of $1.9 trillion, and regulators probably have a fair amount of catching up to do in terms of investment malfeasance. Filed under: Deals, Cerberus Capital, Private equity industry By the end of August, it was clear that Cerberus Capital Management’s buyout of H&R Block’s (NYSE: HRB) Option One Mortgage unit was in trouble. Yesterday afternoon, the firms announced that the dead is dead. In the original deal, announced in April, Cerberus concurred to pay H&R Block as much as $800 million for Option One Mortgage Corp., which focuses on subprime loans. This price represents a significant discount on the price H&R Block was originally looking for, stated to be $1.3 billion. An article in today’s New York Times quotes H&R Block Chairman Richard Breeden as saying: “The mortgage market today has undergone vast changes since last April when the original Cerberus deal was signed. Despite the hard work and good faith of both sides we could not find a way to restructure the original transaction to mutual satisfaction.” The deal’s termination was reported to be amicable. So it looks like this broken deal is another casualty of the ongoing credit crunch. Cerberus obviously couldn’t make the numbers work given the increasing scarcity and higher cost of capital. H&R Block announced that it will lay off 620 employees at Option One and stop taking new mortgage applications. No word on the fate of Option One’s loan servicing business, which was Cerberus’s original target and might still hold some value. |
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