Archive for May, 2010

Google Launches Trading Floor to Manage $26.5 Billion in Cash Reserves

Sunday, May 30th, 2010

According to Google Treasurer Callinicos, the firm has started a trading team and is currently hiring for entry level and experienced trading positions.  Callinicos is very well respected in the finance and technology industries, after serving as Treasurer of Microsoft at a time where the company was generating 7% cash returns.  In 2004, the company was able to pay out a one-time $32 billion dividend.

Specifically, Google is looking for bond traders and portfolio analysts.   The firm currently has the 3rd largest cash reserves of any company, after Microsoft and Cisco.  The trading team will also be used to buy back shares after Google purchased AdMob in a $750 million stock transaction recently.  The transaction was cleared on May 21st.  Surprisingly, Google has been public about not returning cash to shareholders, and instead internally generating value.

The trading floor at Google opened up in January.  Traders at the firm have a primarily role of preserving capital and generating reasonable returns, so that Google has adequate capital to continue to make acquisitions.  The investment team has grown from six people at the outset to 30 people as of today.  Many of the traders at Google are from Goldman Sachs and J.P. Morgan.  Google’s technology allows traders to see 98% of positions in real time, whereas most bank can only monitor 60-70% of transactions in real time.

Google has pulled away from U.S. government notes and has moved $4.9 billion into corporate bonds and agency mortgage-backed securities.  The company has also invested in emerging market sovereign debt.  Unfortunately, Google’s trading salaries are not as lucrative as those on Wall Street, but the company culture is much more laid back and focused on capital preservation.

The firm is currently looking for risk analysts, sovereign debt traders, and MBS traders.  A recent hire, Ranidu Lankaj, had a full ride at Yale, worked for 2 years at Lehman Brothers, and published his first Sri Lankan rap record at age 19. (Source: Bloomberg Businessweek)

Waddell & Reed Guilty for Starting 1,000 Point Drop on May 6th, Barclays Executed Trade

Friday, May 14th, 2010

May 6th will be remembered as the day the DJIA dropped 1,000.  For days, market commentators blamed electronic traders and bulge bracket banks including Citigroup, but today culprit Waddell and Reed was discovered.  Waddell and Reed is one of the oldest mutual fund managers in the United States.  The firm sold 75,000 e-mini future contracts on the S&P500, throwing the market into a tail spin.  Barclays executed the trade in one single trade, instead of breaking it up into 100 or 1,000 different orders.  The negligence on Barclays’ part is mostly to blame, since one can’t blame Waddell for hedging.  We can see today, that Waddell was in the right, as the Euro fell past 1.24.

Waddell’s sell order briefly wiped out $1 trillion from the U.S. equity markets in a 20 minute period.  Over that period, over 840,000 e-mini contract futures were traded by firms including JPMorgan, Goldman Sachs, Jump Trading, Interactive Brokers, and Citadel.  Procter & Gamble fell almost 30% in 10 minutes, as shown above. (Source: ZeroHedge)

According to MarketWatch, “In response to inquiries and published reports, Waddell & Reed Financial, Inc.  today issued the following statement:

On May 6, as on many trading days, Waddell & Reed executed several trading strategies, including index futures contracts, as part of the normal operation of our flexible portfolio funds. Such trades often are executed in response to market activity, and are undertaken to protect fund investors from downside risk. We use futures trading as part of this strategy, broadly known as hedging. This is a longstanding and well monitored practice in certain of our investment portfolios. We believe we were among more than 250 firms that traded the “e-mini” security during the timeframe the market sold off.

Quotes attributed to executives at the CME and the CFTC note that Waddell & Reed has executed trades of this size previously, and indicate that we are a “bona fide hedger” and not someone intending to disrupt the markets. Further, CME noted that they identified no trading activity that contributed to the break in the equity market during this period. Like many market participants, Waddell & Reed was affected negatively by the market activity of May 6.

About the Company

Waddell & Reed, Inc., founded in 1937, is one of the oldest mutual fund complexes in the United States, having introduced the Waddell & Reed Advisors Group of Mutual Funds in 1940. Today, we distribute our investment products through the Waddell & Reed Advisors channel (our network of financial advisors), our Wholesale channel (encompassing broker/dealer, retirement, registered investment advisors as well as the activities of our Legend subsidiary), and our Institutional channel (including defined benefit plans, pension plans and endowments, as well as the activities of ACF and our subadvisory partnership with Mackenzie in Canada).

Through its subsidiaries, Waddell & Reed Financial, Inc. provides investment management and financial planning services to clients throughout the United States. Waddell & Reed Investment Management Company serves as investment advisor to the Waddell & Reed Advisors Group of Mutual Funds, Ivy Funds Variable Insurance Portfolios, Inc. and Waddell & Reed InvestEd Portfolios, Inc., while Ivy Investment Management Company serves as investment advisor to Ivy Funds, Inc. and the Ivy Funds portfolios. Waddell & Reed, Inc. serves as principal underwriter and distributor to the Waddell & Reed Advisors Group of Mutual Funds, Ivy Funds Variable Insurance Portfolios, Inc. and Waddell & Reed InvestEd Portfolios, Inc., while Ivy Funds Distributor, Inc. serves as principal underwriter and distributor to Ivy Funds, Inc. and the Ivy Funds portfolios.”

Blackstone, THL Bid More Than $15 Billion for Fidelity National Information Services, Reminiscent of KKR’s First Data $29B Buyout

Wednesday, May 12th, 2010

Ever since the First Data buyout by KKR, the BPO industry has been a target for large cap private equity funds across the United States.  The First Data deal was a $29 billion deal, and at the time, the company was largest publicly traded American electronic transaction processing company.  Fiserve has an enterprise value of over $13 billion, and about $750 million in EBITDA.  This gives an EV/EBITDA multiple of 17.0-18.0x, even higher the multiple paid for First Data.

Silver Lake and Warburg Pincus also recently bought IDC, Interactive Data Corp., seeing revenue growth potential in the need for market transparency across financial institutions.  IDC provides reference data, markets pricing and trading infrastructure services to customers, including mutual funds, asset managers and banks.  The IDC deal, a carve out from Pearson valued at $3.4 billion, would have been the largest deal this year.

According to Reuters, Fidelity National Information Services, Inc. (FIS) is a global provider of banking and payments technology solutions, processing services and information-based services. It offer financial institution core processing, card issuer and transaction processing services, including the NYCE Network, a national electronic funds transfer (EFT) network. As of December 31, 2009, FIS had more than 300 solutions serving over 14,000 financial institutions and business customers in over 100 countries spanning segments of the financial services industry. Additionally, the Company provide services to numerous retailers, through the check processing and guarantee services. The Company operates in four business segments: Financial Solutions Group (FSG), Payment Solutions Group (PSG), International Solutions Group (ISG), and Corporate and other. On October 1, 2009, FIS completed the acquisition of Metavante Technologies, Inc. (Metavante).

According to Mr. Miller of Bloomberg, ” Blackstone Group LP, Thomas H. Lee Partners LP and TPG Capital are in talks to pay more than $15 billion including debt for Fidelity National Information Services Inc., said a person with knowledge of the matter, a deal that would value the company at about $32 a share.

Fidelity National Information may reach an agreement with the buyout group as soon as May 16 if talks don’t collapse, this person said, speaking on condition of anonymity because the discussions are private. Marcia Danzeisen, a spokeswoman for Fidelity National, didn’t return a call after regular business hours yesterday.

A $15 billion deal would be about three times as big as the largest leveraged buyout since the credit markets crumbled in July 2007, showing how private-equity firms are again putting capital to work after more than a two-year drought in transactions. LBO funds worldwide have about $500 billion of unspent committed capital, according to researcher Preqin Ltd.

Private-equity firms announced about $24 billion of company takeovers so far this year, compared with $5.7 billion during the same period in 2009.

For Fidelity National Information, a Jacksonville, Florida- based payment-processing company, a deal in the $32 a share range would represent more than a 20 percent premium to the $26 closing stock price on May 5, the last day before the Wall Street Journal reported the company was in buyout talks.

Other private-equity firms have recently held talks about joining the group bidding for Fidelity National Information, said two people with knowledge of the matter. With banks preparing about $10 billion in debt financing, the private- equity group would have to put up more than $5 billion, one of the people said.

Financing Group

Bank of America Corp., Barclays Plc, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG and JPMorgan Chase & Co. are among the banks that have been working on financing the takeover, said other people with knowledge of the matter.

Credit-market turmoil in 2007 led banks to pull back on leveraged loans used to finance buyouts. Since July of that year, the largest LBO was that of IMS Health Inc., acquired in February for about $5 billion including debt.

Fidelity National Information had about $2.9 billion of net debt and noncontrolling interest as of March 31. With about 377 million shares outstanding as of April 30, a deal at $32 a share would value the company’s stock at $12.1 billion.

Thomas H. Lee, also known as THL Partners, already owns about 4.4 percent of Fidelity National, according to data compiled by Bloomberg. Private-equity firm Warburg Pincus is the company’s largest shareholder, with about 11 percent.

Fidelity National Information processes payments and issues cards for more than 14,000 institutions globally. The company had profit of $105.9 million in 2009 on revenue of $3.77 billion.

Spokesmen for Blackstone, THL, and TPG declined to comment or didn’t immediately respond to calls seeking comment.”

European Union Proposes $928 Billion Crisis Aversion Plan…It’s About Time!

Sunday, May 9th, 2010

After months of avoiding the debt refinancing troubles of Greece, the European Union came together this weekend in a crisis summit to address the falling Euro and credit malaise in the EU.  Describing short investors as a “wolf pack” plaguing the continent, ministers vowed to counter financial markets from causing the Greek debt crisis from spreading.  The plan offers $805 billion (600 billion) to the continent (440 billion euros from EU, 100 billion from IMF, 60 billion Euro stabilization fund) for crisis measures.  This comes after the IMF approved a 30 billion Euro bailout for Greece today.

If the IMF commits 220 billion Euros, the plan could reach $928 billion!

Why 600 billion Euros at the outset?  European economists predict that if Ireland, Portugal, and Spain eventually come to require bailouts similar to Greece’s, the total cost could be some 500 billion euros.

Let’s avoid another Lehman Brothers…

Greece

According to Reuters, “European Union finance ministers on Sunday promised to counter the “wolfpack” of the financial markets as they sought agreement on a 600 billion euro ($805 billion) plan to keep Greece’s debt crisis from spreading.

The compromise measure under discussion included loan guarantees by euro zone countries worth 440 billion euros, a 60 billion euro stabilization fund and a 100 billion euro top-up of International Monetary Fund loans, EU sources said.

Financial markets have been punishing heavily indebted euro zone members, threatening to plunge them into Greece’s plight. The safety net being assembled was meant to protect other countries with bloated budgets, such as Portugal, Spain and Ireland.

Jitters over euro zone finances have set global markets on edge, and provided a backdrop for a nearly 1,000-point drop in the Dow Jones industrial average on Thursday, whose trigger remains a mystery.

Hopes the EU package would successfully tackle the crisis helped lift the euro, which gained almost 2 percent against the U.S. dollar and 3 percent on the yen in early Asia trade. U.S. stock futures also surged at the start of trade on Sunday.

Moving swiftly to bolster Greece and instill some confidence in shaky markets, the IMF approved a 30 billion euro rescue loan as part of a broader combined EU-IMF bailout for the country totaling 110 billion euros. The IMF said 5.5 billion euros from the three-year loan would be disbursed immediately.

To secure the funds, Greece has committed to budget-cutting measures so sharp that they have already caused violent protests.

“Today’s strong action by the IMF to support Greece will contribute to the broad international effort underway to help bring stability to the euro area and secure recovery in the global economy,” IMF Managing Director Dominique Strauss-Kahn said in a statement.

‘WOLFPACK BEHAVIORS’

But whether the coordinated international actions would settle global markets, which have been roiled in recent days, remained to be seen. Policymakers around the globe have become worried about the knock-on effects should the crisis spread.

“We now see … wolfpack behaviors, and if we will not stop these packs, even if it is self-inflicted weakness, they will tear the weaker countries apart,” Swedish Finance Minister Anders Borg told reporters in Brussels as he arrived for the EU meeting.

Britain’s finance minister Alistair Darling stressed the need to stabilize markets, while ministers from France, Spain, Finland and other euro zone states vowed to defend their shared currency.

U.S. President Barack Obama and German Chancellor Angela Merkel spoke by phone earlier on Sunday about the importance of EU members acting to build confidence in markets.

Economists estimate that if Portugal, Ireland and Spain — three other heavily indebted euro zone countries — eventually come to require bailouts similar to Greece’s, the total cost could be some 500 billion euros.

As details of the financial barriers that the EU was putting up to ward off speculators against Greece and other debt-laden countries became public, G20 finance officials held a teleconference to discuss the crisis.

Last week, fears that a euro zone debt crisis could rock banks and the global economy like the September 2008 collapse of U.S. bank Lehman Brothers swept through markets, pushing global stocks to near a three-month low. It was unclear whether the EU crisis package would stem the tide.

“All in all this is good news, but it is unlikely in itself to calm markets; it’s all too ‘slow-burner’ stuff,” said Erik Nielsen, chief European economist at Goldman Sachs. He said he expected the European Central Bank would soon need to take some type of emergency action.

EU sources said ECB governors met to discuss the crisis, but no details were available.

MARKET TURMOIL

The 16 nations that use the single currency have been criticized for contributing to market uncertainty by responding too slowly to the crisis in Greece.

An IMF board source told Reuters that some board members had shared those concerns and raised worries that the crisis could spread to other euro zone countries.

A euro zone summit last week asked for a European stabilization mechanism.

Some economists said the move was welcome, but that it would cure the symptoms, rather than the disease.

“By putting in place additional safeguards for the euro area financial system, governments finally appear to be rising to the challenge of the sovereign debt crisis,” Morgan Stanley said in a research note to clients.

“But, like the measures taken before — for the benefit of Greece — a stabilization fund is just buying time for distressed borrowers,” it said.”

China Censorship Laws Go Overboard, Ongoing Dispute with Google, Inc.

Sunday, May 9th, 2010

China’s “Great Firewall” has been around for too long.  It blocks websites for various sensitive topics and has been forcing U.S. based Google to abide by its censorship laws.   Many believe that the views of the Chinese government with respect to censorship  should be reassessed, especially after the country’s recent altercation with Google over what began as a mining incident in Vietnam (more details below).

The country screens through thousands of blogs and articles a day to hide literature regarding democracy, the treatment of the Dalai Lama, and other topics.

Officials now require a photo ID to create a domestic website.  The influence of online media is greater than ever, as internet users in the country have jumped from 30 million to over 400 million from 2000 to 2009.

According to the NYT, “Google, fresh off a dispute with China over censorship and intrusion from hackers, says it has identified cyber-attacks aimed at silencing critics of a controversial, Chinese-backed bauxite mining project in Vietnam.

In attacks it described as similar to but less sophisticated than those at the core of its spat with China, Google said malicious software was used to infect “potentially tens of thousands of computers,” broadly targeting Vietnamese speaking computer users around the world.

Infected machines had been used to spy on their owners and to attack blogs containing messages of political dissent, wrote Neel Mehta of the company’s security team in a post late Tuesday on Google’s online security blog.

McAfee, the computer security firm, said in a separate blog posting that it believed “the perpetrators may have political motivations and may have some allegiance to the government of the Socialist Republic of Vietnam.”

It added: “This incident underscores that not every attack is motivated by data theft or money. This is likely the latest example of hacktivism and politically motivated cyberattacks, which are on the rise.”

Google said that while the malware itself was not especially sophisticated, “it has nonetheless been used for damaging purposes.”

“Specifically, these attacks have tried to squelch opposition to bauxite mining efforts in Vietnam, an important and emotionally charged issue in the country.”

Bauxite is a key mineral in making aluminum and one of Vietnam’s most valuable natural resources. Plans by the Vietnamese government to exploit bauxite in the Central Highlands region, in partnership with a Chinese state-run company, have generated much local criticism, including from a well-known war hero, Gen. Vo Nguyen Giap.

General Giap and other opponents say the project will be ruinous to the environment, displace ethnic minority populations and threaten the south-east Asian country’s national security with an influx of Chinese workers and economic leverage.

The role of China in the bauxite project also has stirred up anger in a nation that still fears its bigger neighbor: Vietnam was a tributary state of China for 1,000 years and was invaded by China in 1979, and the two countries continue to joust for sovereignty in the South China Sea. ”


Australian Super Tax on Resource Producers Could Slow Down Commodities: Traders Wary

Sunday, May 9th, 2010

Australia is the largest supplier of coal and iron ore to developing nations such as China.  Government officials have been watching for the past five years as their resources have been exported to these ever-growing nations.    A resource tax was recently imposed on the largest Australian exporters of raw materials, so that Australian could benefit from the exploitation of their resources.  Unfortunately, this tax is both too high and comes at the worse time, as the western world begins to recover from the deepest recession since the 1930s.  Commodities producers have already halted projects in Australia in shock.  Talk about bad timing…as Greece falls into an abyss, other nations impose taxes to cut down production.

According to Ms. Daley of Bloomberg, “Australia will impose a 40 percent tax on the profits of resource companies like BHP Billiton Ltd. and Rio Tinto Group to pay for infrastructure, retirement and company levy changes as part of the broadest overhaul of its tax system since the Second World War.

The government, commenting on Treasury Secretary Ken Henry’s 10-year tax plan, said the tax would start in 2012 and raise A$12 billion ($11.1 billion) in the first two years. The move to better tap into the nation’s mining boom, fueled by commodities demand from China and India, comes as Prime Minister Kevin Rudd prepares for an election later this year.

“This will use super profits on resources owned by all Australians,” Rudd told reporters in Canberra, saying he’s prepared for a backlash to the measures. “This will help convert Australia’s strong economic position today into enduring prosperity.”

The changes set up a potential clash between Rudd and resources companies that make up 9 percent of the economy and last week warned that a 40 percent levy and double taxation with state royalties would threaten $108 billion worth of planned investment.

“If implemented, these proposals seriously threaten Australia’s competitiveness, jeopardize future investments and will adversely impact the future wealth and standard of living of all Australians,” BHP’s Chief Executive Officer Marius Kloppers said in an e-mailed statement today. The company’s effective tax rate will increase to 57 percent from 2013 from 43 percent now on its Australian earnings, it said.

Profit Cut

BHP, the world’s biggest mining company with 51 percent of its assets in Australia, will have earnings cut by 19 percent as a result of the tax, Merrill Lynch & Co. said in an April 27 report on the 40 percent tax. Rio, the world’s second-largest iron ore exporter, which has about a third of its assets in Australia, would see a 30 percent earnings cut.

The proposal may erode Australia’s “competitiveness, severely curtail investment and limit job growth,” said David Peever, Rio’s managing director for Australia.

“Altering the rules for existing multibillion dollar projects in mid stream, after large amounts of capital have already been put at risk over many years, would be the worst possible message Australia could send to investors,” Peever said in a statement.

The government today said it will compensate companies for the state royalties they have paid.

‘Highest’ Taxes

“Under the plan announced today, Australia will have the highest taxed mining industry in the world,” Minerals Council of Australia Chief Executive Officer Mitch Hooke said in an e- mailed statement. “Australia’s hard-earned reputation as a stable investment environment will be dramatically undermined.”

The government runs the risk of “taking away from Australia the strongest industry we have and the one that saved us from the global financial crisis,” said Keith De Lacy, chairman of Brisbane-based Macarthur Coal Ltd., the world’s largest producer of pulverized coal. “Always 50 percent of our net profits went into development and exploration and so much of that is going now so obviously we’ll grow slower.”

The introduction of the resource tax would cut Australia’s competitiveness, Citigroup Inc. said on April 28 before the release of the review. Mining companies’ tax burden currently stands at 35 percent, Citigroup said in its report last week.

Chinese and Indian demand for resources from Australia, the world’s biggest exporter of coal, iron ore and alumina, helped the A$1.2 trillion economy skirt recession during the global financial crisis. China is the nation’s largest resource customer.

Aging Population

Rudd’s Labor government, which has led the opposition Liberal-National coalition in opinion polls, commissioned the tax review two years ago to create a simpler and fairer system to meet the needs of a growing and aging population. One quarter of a projected population of 36 million will be aged 65 and over by 2050, increasing pressure on roads, rail, ports, schools and hospitals.

The government will use the resource tax revenue to create a A$5.6 billion infrastructure fund, cut company taxes to 28 percent in mid-2014 from the current 30 percent and boost retirement funds, now worth A$1.3 trillion. It will also give a tax concession for resource exploration, including geothermal, affecting 4,300 companies, Treasurer Wayne Swan said.

The company tax rate, reduced to 30 percent from 36 percent by the previous Liberal-National government, will be cut to 28 percent by mid-2014, with 720,000 small businesses getting a one-year head-start. The government may decrease the rate further.

Retirement Funds

The government will also increase the amount companies have to pay into people’s retirement fund to 12 percent from 9 percent of their gross salary in mid-2019. Australia will also make it more attractive for some 8.4 million Australian workers to increase their own contributions to the pool and the changes will add A$85 billion to the A$1.34 trillion fund, Swan said.

In total, the government’s tax policy changes will add 0.7 percent a year to the nation’s economy.

Economic growth in Australia will accelerate to 3.5 percent in 2011 from 3 percent this year, and the country will continue to be among nations leading the world on raising borrowing costs, the International Monetary Fund said on April 21. Glenn Stevens, the first Group of 20 central bank governor to raise rates after the global recession, also expects Australia’s economic growth to strengthen this year.”

Lazard Operating Revenues Jump 67% Year over Year: Core Investment Banking Coming Back

Sunday, May 9th, 2010

Lazard, famed investment bank and legacy of Bruce Wasserstein recently reported earnings that blew investors away.  Operating revenues jumped 67% from one year earlier.  Lazard advises on mergers & acquisitions, restructurings, and to a lesser extent, capital raisings.  It operates from 40 cities across 25 countries throughout Europe, North America, Asia, Australia, and Central and South America, focusing on two business segments: Financial Advisory and Asset Management (explained below).

According to Bloomberg, “Lazard Ltd., the biggest non-bank merger adviser, rose in New York trading after posting adjusted earnings that beat analysts’ estimates on operating revenue that jumped 67 percent from a year earlier.

The loss for the first three months of 2010 was $33.5 million, or 38 cents a share, compared with a loss of $53.5 million, or 77 cents, in the same period a year earlier, the Hamilton, Bermuda-based company said today in a statement. Adjusted earnings were 46 cents a share, beating the 18-cent average estimate of 12 analysts in a Bloomberg survey.

Lazard’s revenue from advising on mergers and acquisitions climbed from a year earlier even as companies completed a lower value of deals in the quarter. Excluding special charges, the firm’s compensation ratio fell to 60 percent of revenue, compared with 75 percent in the first quarter of 2009.

“The report should give investors a booster shot of confidence on two important fronts,” Oppenheimer & Co. analyst Chris Kotowski said in a note to investors. “First, that the rebound in M&A activity is happening, albeit in fits and starts. Second, that the company is developing discipline around its compensation and other costs.”

Lazard rose 57 cents, or 1.5 percent, to $38.78 at 4 p.m. in New York Stock Exchange composite trading. The shares gained 28 percent last year after falling 27 percent in 2008.

Revenue Increase

Operating revenue rose 67 percent from a year earlier to a first-quarter record of $456.9 million. Operating revenue from financial-advisory services climbed to $269.1 million as fees from advising on both mergers and restructuring jumped more than 50 percent.

Revenue from merger and acquisition and strategic advisory climbed 53 percent from a year earlier to $147.6 million. That’s down 13 percent from the fourth quarter of 2009.

Asset management revenue climbed 78 percent from a year earlier to $183.7 million. Assets under management increased 4 percent to $135 billion from Dec. 31, with net inflows of $3 billion in the quarter.

“Both financial advisory and asset management had their best first quarters ever,” Chief Financial Officer Michael Castellano said in an interview. “We’re continuing to gain global market share in the M&A business.”

Compensation costs climbed 35 percent from a year earlier to $275.5 million. The firm also recorded a one-time $87.1 million expense tied to staff reductions.

‘Right Manpower Complement’

“Over the last two years, in addition to aggressively hiring senior bankers, we’ve also right-sized the firm in both asset management and the financial-advisory business, to make sure we have the right skill sets for the new world,” Castellano said. “I think we’ve now got the right manpower complement to be able to drive growth in both of the businesses.”

Kenneth Jacobs was named chief executive officer in November after the death of Bruce Wasserstein, the preeminent Wall Street dealmaker who took Lazard public in 2005. Jacobs, who has worked at the firm for 22 years, had served as deputy chairman and CEO of North American businesses since 2002, shortly after Wasserstein arrived.

Lazard said last month that Castellano will retire on March 31, 2011. He will be replaced by Matthieu Bucaille, who served as deputy chief executive officer of Lazard Freres Banque in Paris.

Financial Advice

Lazard has been using its restructuring-advisory business to counter weakness in mergers and acquisitions. It was the second-ranked adviser in 2009 bankruptcy liquidations, according to Bloomberg data, and advised debtors or creditors in the top 10 Chapter 11 bankruptcies in 2009.

Companies worldwide completed $358.9 billion of deals in the first quarter, down 25 percent from the same period in 2009 and 52 percent from the first quarter of 2008, data compiled by Bloomberg show.

Lazard was the seventh-ranked financial adviser on announced deals and 12th-ranked on completed takeovers in the first quarter. The firm advised on completed deals totaling more than $33.9 billion, including Kraft Foods Inc.’s acquisition of Cadbury PLC.

Lazard employees own more than a quarter of the firm, excluding the estate of Wasserstein. Because the stakes owned by employees can be converted into common stock, the company reports earnings as though the stakes were fully exchanged instead of treating them as minority interest.

Evercore Partners Inc., the investment bank founded by former U.S. Deputy Treasury Secretary Roger Altman, reported earnings last week that beat analysts’ estimates as advisory revenue climbed from a year ago.

Lazard Business Breakdown

Financial Advisory

The Company offers corporate, partnership, institutional, government and individual clients across the globe an array of financial advisory services regarding mergers and acquisitions (M&A), and other strategic matters, restructurings, capital structure, capital raising and various other corporate finance matters. During the year ended December 31, 2009, the Financial Advisory segment accounted for approximately 65% of its consolidated net revenue. It has operations in United States, United Kingdom, France, Argentina, Australia, Belgium, Brazil, Chile, Dubai, Germany, Hong Kong, India, Italy, Japan, the Netherlands, Panama, Peru, Singapore, South Korea, Spain, Sweden, Switzerland, Uruguay and mainland China.

The Company advises clients on a range of strategic and financial issues. When it advises companies in the potential acquisition of another company, business or certain assets, its services include evaluating potential acquisition targets, providing valuation analyses, evaluating and proposing financial and strategic alternatives and rendering, if appropriate, fairness opinions. It also may advise as to the timing, structure, financing and pricing of a proposed acquisition and assist in negotiating and closing the acquisition. In addition, the Company may assist in executing an acquisition by acting as a dealer-manager in transactions structured as a tender or exchange offer. When the Company advises clients that are contemplating the sale of certain businesses, assets or their entire company, its services include advising on the appropriate sales process for the situation, valuation issues, assisting in preparing an offering circular or other appropriate sales materials and rendering, if appropriate, fairness opinions. It also identifies and contacts selected qualified acquirors, and assists in negotiating and closing the proposed sale. It also advises its clients regarding financial and strategic alternatives to a sale, including recapitalizations, spin-offs, carve-outs, split-offs and tracking stocks.

For companies in financial distress, the Company’s services may include reviewing and analyzing the business, operations, properties, financial condition and prospects of the company, evaluating debt capacity, assisting in the determination of an appropriate capital structure and evaluating and recommending financial and strategic alternatives, including providing advice on dividend policy. It may also provide financial advice and assistance in developing and seeking approval of a restructuring or reorganization plan, which may include a plan of reorganization under Chapter 11 of the United States Bankruptcy Code or other similar court administered processes in non-United States jurisdictions.

When the Company assists clients in raising private or public market financing, its services include originating and executing private placements of equity, debt and related securities, assisting clients in connection with securing, refinancing or restructuring bank loans, originating public underwritings of equity, debt and convertible securities and originating and executing private placements of partnership and similar interests in alternative investment funds, such as leveraged buyout, mezzanine or real estate focused funds. In addition, it may advise on capital structure and assist in long-range capital planning and rating agency relationships.

Asset Management

The Company’s Asset Management business provides investment management and advisory services to institutional clients, financial intermediaries, private clients and investment vehicles around the world. As of December 31, 2009, total assets under management (AUM) were $129.5 billion, of which approximately 82% was invested in equities, 14% in fixed income, 3% in alternative investments and 1% in private equity funds. During 2009, approximately 36% of its AUM was invested in international investment strategies, 46% was invested in global investment strategies and 18% was invested in United States investment strategies. As of December 31, 2009, approximately 89% of its AUM was managed on behalf of institutional clients, including corporations, labor unions, public pension funds, insurance companies and banks, and through sub-advisory relationships, mutual fund sponsors, broker-dealers and registered advisors, and approximately 11% of its AUM, as of December 31, 2009, was managed on behalf of individual client relationships, which are principally with family offices and high-net worth individuals.

The Company competes with Bank of America, Citigroup, Credit Suisse, Deutsche Bank AG, Goldman Sachs & Co., JPMorgan Chase, Mediobanca, Morgan Stanley, Rothschild, UBS, The Blackstone Group, Evercore Partners, Moelis & Co., Greenhill & Co., Alliance Bernstein, AMVESCAP, Brandes Investment Partners, Capital Management & Research, Fidelity, Lord Abbett, Aberdeen and Schroders.

Morgan Stanley Sovereign Credit Outlook: Greece Fears Continue to Drive Bond Yields Higher

Wednesday, May 5th, 2010

What should have been a 1 month affair has now become a 6 month ordeal for the world credit markets.  As of today, May 5th, the European equity markets are in fact negative for the year and the world MSCI index has given up its entire gain for 2010.  It is ironic how a country that only makes up 2.3% of Europe’s GDP could cause the Euro to fall from 1.40 to 1.28 in a matter of weeks.  Euro shorts have multiplied despite efforts by banks such as Citi to put targets on the currency at 1.35+.  Commodity markets have also been roiled, with the VIX jumping 15% yesterday as well.  Worries that Portugal would be downgraded again have multiplied investor concerns.  Investors around the world wait in fear as policy measures will be discussed by Germany and other European nations on May 7th.  Riots in Greece have killed three so far in retaliation to austerity measures linked to the proposed bailout by the European Union and the IMF.

Please see Morgan Stanley’s outlook below.

Contagion Call Slides

According to Ms. Petrakis of Bloomberg, “May 6 (Bloomberg) — Greece’s Parliament will debate today the austerity measures demanded as a condition of an internationally led bailout as the nation mourns the three victims of Athens protests against the plan.

Prime Minister George Papandreou, whose Pasok party holds a 10-seat majority in the legislature, will tell lawmakers today that the wage and pension cuts are necessary to secure the 110 billion-euro ($141 billion) package and avoid default.

“No one was happy with the new measures,” Papandreou told parliament yesterday after the killings, which he called a “brutal murder.”

“We have compassion for every family who has seen their plans for the future slip seemingly further away,” he said. “But we took these measures to secure a future which might not exist otherwise.”

Greece agreed to the austerity package on May 2, pledging 30 billion euros in budget cuts in the next three years to tame the euro-region’s second-biggest deficit. Papandreou was forced to seek the aid after soaring borrowing costs left Greece cut off from markets. The measures have fueled months of protests that culminated in yesterday’s general strike. Three bank workers were killed when a small group of protesters threw fire- bombs at a bank.

Papandreou is pushing to get parliamentary approval before a European Union summit in Brussels tomorrow on the plan that will help ready the funds for distribution. The country faces 8.5 billion euros in bond redemptions on May 19.

Bonds Drop

Yesterday’s violence deepened losses in Greek debt. The yield premium investors demand to buy Greek 10-year bonds over comparable German debt, reached 719 basis points. The country’s 2-year notes yield almost 16 percent, 26 times more than Germany.

“I want to believe it is easy to overestimate this problem,” said Erik Nielsen, chief European economist at Goldman Sachs Group Inc, in a conference call yester. “One should not be overly concerned so far.”

Europe is scrambling to activate the aid package to try to stop the fallout from spreading to other high-deficit countries such as Spain and Portugal. Yield premiums on those countries’ debt have also jumped and the euro has slid more than 10 percent this year, to the lowest in more than a year.

Chancellor Angela Merkel appealed to the German Parliament yesterday to approve the nation’s share of the loans, saying the stability of the euro was at stake. Germany will pay 22.4 billion euros, almost 30 percent, of the euro-region funds offered to Greece over three years, and public opposition to the bailout is running high. German lawmakers will vote tomorrow on the aid.

Anarchists’ Blaze

The debate in the Greek parliament will be overshadowed by the violence of yesterday’s strike that turned deadly when protesters, who police described as self-styled anarchists, set fire to a branch of Marfin Egnatia Bank SA, killing two women and a man trapped inside the building.

Athens police swept through the anarchist stronghold of Exarhia yesterday, arresting 25, and detaining 70, according to a police statement. A total of 29 officers were injured in yesterday’s protests, the statement said.

Opposition leaders warned Papandreou not to try to exploit the deaths to push through the austerity measures.

“The tragic death of three people is absolutely condemned,” Aleka Papariga, the head of the Communist Party of Greece, said yesterday on state-run NET TV. “But it can’t be used by the government as an alibi for the people to accept these anti-democratic measures — measures that will come every three, six, nine months.”

More Strikes

The violence may not be enough to end the protests. Local government workers are continuing their strike for another 24 hours, with garbage collectors due to begin a walkout tomorrow morning, according to the state-run Athens News Agency. Stavros Koukos, the president of the federation of bank unions OTOE, told Alter TV that a 24-hour strike would be held tomorrow after the deaths of the three bank employees.

The bill on the measures will debated all day with a vote expected late in the day.

Elected in October on pledges to raise wages for public workers and step up stimulus spending, Papandreou revised up the 2009 budget deficit to more than 12 percent of gross domestic product, four times the EU limit, and twice the previous government’s estimate. EU officials revised the deficit further on April 22, to 13.6 percent of GDP.

Papandreou has said the austerity measures are needed to lower the shortfall to within the EU limit of 3 percent of GDP in 2014. Still, they will deepen a yearlong recession and lead to a 4 percent economic contraction this year and boost unemployment already at a six-year high of 11.6 percent.

“The greatest challenge of the days is maintaining social cohesion and social peace,” Greek President Karolos Papoulias said in an e-mailed statement. “Our country has reached the edge of the abyss. It is the responsibility of all of us that we not step forward into it.”