Archive for the ‘Regulation’ Category

HCA IPO Rises 4% on Day Dow Falls 228 Points

Friday, March 11th, 2011

HCA Holdings rose about 4.0% in its first day of trading.  This was very impressive, considering the Dow Jones Industrial Average fell 228 points in the same day (3/10/11).  The Dow fell in response to increasing jobless claims, a larger U.S. trade deficit, a larger Chinese trade deficit, and a lower GDP revision in Japan on 3/9/11.  Luckily, HCA was unaffected, which reflects both the strength of the company and its balance sheet.  HCA represents such a large share of the U.S. hospital industry, that institutional money managers probably could not refuse to purchase the security for their portfolios.  HCA’s public competitors include CYH – Community Health Systems and THC – Tenet Healthcare Corp.

According to Bloomberg, “HCA Holdings Inc., the largest publicly traded hospital chain in the U.S., rose 3.9 percent on its first day of trading after completing a record $3.79 billion, private equity-backed initial public offering.

Nashville, Tennessee-based HCA increased $1.15 to $31.15 at 1:16 p.m. in New York Stock Exchange composite trading, even as rising U.S. jobless claims drove the Dow Jones Industrial Index down 137 points. HCA’s offering sold more than 126 million shares at $30 each, the top of the proposed price range, the company said yesterday in a statement.

The IPO’s performance on a day when the market is falling reflects both the strength of HCA’s balance sheet and the momentum in favor of private equity-backed deals being brought to market, said Josef Schuster, founder of IPOX Schuster LLC in Chicago. There’s “plenty of liquidity available” for large U.S. deals like this one, he said.

“The deal underlines the level of confidence among large- cap managers about these type of private equity deals and the for-profit hospital space,” Schuster said in a telephone interview today. “Even with no dividend, investors like the level of cash with this company.”

For-profit hospitals will benefit as last year’s U.S. health overhaul forces consolidation and cost cutting that may leave non-profit competitors at a disadvantage, said Les Funtleyder, an analyst at Miller Tabak & Co. in New York. Investors are also expecting HCA to be added to stock-trading indexes and buying ahead of that, he said.

Blue-Chip Name

“People look at HCA as a blue-chip name in a space they want to get involved in,” said Mark Bronzo, who helps manage $25 billion at Security Global Investors in Irvington, New York, in a telephone interview today. “There just aren’t a lot of names to choose from there.”

For-profit hospital chains such as HCA depend more on commercial payers and less on government beneficiaries than do nonprofits, which have already seen their revenue reduced by government cutbacks, particularly in Medicaid.

HCA competitors among for-profit hospitals include Community Health Systems Inc. (CYH) in Franklin, Tennessee, and Tenet Healthcare Corp. (THC) in Dallas.

HCA’s offering exceeded the Feb. 10 initial stock sale by Houston-based energy-pipeline company Kinder Morgan Inc., which raised $3.3 billion. Private equity-backed IPOs in the U.S. have gotten a boost this year as the Standard & Poor’s 500 Index rallied to the highest level since June 2008, raising investors’ interest in companies acquired through debt-fueled takeovers.

‘Warmer Climate’

“We have a market that’s more willing to take on risk,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees $52.5 billion. “This is a much better, much warmer climate for this type of offering.”

The underwriters may exercise an overallotment option to buy as many as 18.9 million additional shares within 30 days, the company said. HCA sold 87.7 million shares, while existing investors sold 38.5 million.

Companies owned by private equity investors have accounted for 80 percent of the funds raised in U.S. IPOs since the beginning of the year, and the shares have gained 10 percent on average through yesterday, compared with 4.8 percent for companies not owned by leveraged buyout firms, Bloomberg data show.

KKR and Bain

KKR & Co., Bain Capital LLC, Bank of America Corp. (BAC) and other owners invested about $5 billion in equity in the $33 billion takeover of HCA. Including debt, it was the largest leveraged buyout at the time.

In acquiring HCA, KKR and Bain chose a company with steady cash flow and a business that’s protected to a large extent from swings in the economy. Cash flow from operations was $3.16 billion in the year before the 2006 buyout, according to data compiled by Bloomberg. As of Dec. 31, 2010, that number was little changed at $3.09 billion.

The company offered as many as 124 million shares at $27 to $30 apiece, according to a filing with the U.S. Securities and Exchange Commission. Charlotte, North Carolina-based Bank of America and Citigroup Inc. and JPMorgan Chase & Co. of New York led HCA’s sale. HCA said it will use the proceeds to repay debt.”

The following links will take you to previous articles we wrote on HCA: – KKR & Bain to IPO HCA at $30/share

Check out our intensive investment banking, private equity, and sales & trading courses! The discount code Merger34299 will be activated until April 15, 2011. Questions? Feel free to e-mail thomas.r[at] with your inquiries or call our corporate line.

China’s Renminbi Heads for Floating Exchange Rate

Saturday, January 15th, 2011

It was announced earlier this week that China has launched its Yuan for free trade in the open market. China has managed to keep the value of the Yuan, also know as the Renminbi, at a depreciated value, which some analysts argue is undervalued by up to 40%. The Bank of China’s decision to move towards a floating exchange rate, though still tightly controlled, offers hope to those who believe China’s weak currency policy is the root cause of the global economic imbalance. The gradual inflation of the Renminbi may help take away China’s disproportionate advantage in export goods and bring jobs back to the US.

Call it liberalization by a thousand cuts.


The Bank of China, one of the country’s main state-owned lenders, is now allowing American firms to trade in renminbi, another step in China’s effort to position the renminbi on the world stage.


In July, China started a renminbi settlement system for cross-border trade in Hong Kong, but it placed limits on how much currency could be exchanged.


Currency trading in the renminbi was already possible at other banks, but the move by a state-owned lender signals a shift in official policy.


The Chinese central bank bowed to international pressure last summer and agreed to make its currency more flexible; the renminbi is now allowed to move as much as 0.5 percent each day. At the same time, the country is cautiously pursuing a strategy of making the renminbi into an international exchange currency.


“China sees the global financial system as too U.S.-centric and dollar dependent,”’ said Robert Minikin, senior currency strategist at Standard Chartered in Hong Kong. “That created issues during the financial crisis.”


Now, he said, the country is trying to take a step away from that dependence. “Conditions are in place for sustained yuan appreciation against the U.S. dollar,’’ he said, predicting that it would increase by 6 percent this year, to 6.20 renminbi per dollar.


With a forecast for high inflation in the expanding Chinese economy, an appreciating currency could help the country dampen so-called imported inflation by making foreign goods less expensive.


With the Bank of China move, China is promoting the renminbi to Americans at a time when loose monetary policy on the part of the United States Federal Reserve has some concerned that the dollar’s value will continue to decline.


The Bank of China said in an announcement on the Web site of its New York branch that trading firms and individuals could now open accounts in renminbi, buying the currency from and selling it to the bank.


While the limits on personal accounts are $4,000 a day and $20,000 a year worth of renminbi, and those accounts are largely for the purposes of exchange and remittance, the bank is also soliciting business from trading firms.


China’s decision to keep the renminbi effectively pegged against the dollar at an exchange rate that favors its exports has long been a source of contention between Washington and Beijing. China’s trade surplus with the United States was $181 billion last year, a 26 percent increase from the previous year, The imbalance is likely to put further pressure on the exchange rate.


That said, the renminbi hit a new high of 6.6128 against the dollar on Wednesday, an auspicious prelude to a visit to Washington next week by China’s president, Hu Jintao.


Separately, the city of Shanghai said it was creating a new investment window, allowing qualified private equity firms to buy renminbi and invest in mainland companies. Reuters reported that the pilot project could grow to be worth $3 billion.

Microlending Chaos: Suicides in India Due to Usurious Interest Burdens

Thursday, October 28th, 2010
One of the big trends in finance over the past five years, has been microlending, lending to poor families and entrepreneurs in emerging economies at high interest rates. Lenders justify the rates by claiming that they need to cover the higher costs of originating these loans.  Unfortunately, due to the high investor inflows and saturation of this asset class, it looks more like the subprime industry than a financing vehicle for the underprivileged.  Poor families in India are now on the hook to pay off loans less than $200 at interest rates upwards of 100%.  We call this usury, loan sharking, or payday loans in the United States.  What Mohammad Yunus started with Grameen Bank is certainly not the viewpoint many private equity investors have in this asset class.  As a result, in response to dozens of suicides in India, local government officials have asked borrowers to actually stop paying back their loans, which has put a “black mark” on investing in these loans for the time being…we will see what comes of this twist in an effort which originally was started to benefit the impoverished.  Since when was it cool to take advantage of the powerless?  I guess this isn’t new at all…
According to a recent article in the WSJ, “Urged on by local government officials and politicians, thousands of borrowers have simply stopped paying lenders, even though they have the money. The government has begun ratcheting up restrictions, fearing that borrowers are being buried by usurious interest rates. In some cases, officials have even arrested lending agents for allegedly harassing borrowers.
Local politicians, meanwhile, have blamed dozens of suicides on microlenders and are urging borrowers not to pay back what they owe.
Though so far the backlash has been confined to a southern Indian state of Andhra Pradesh, what happens there is frequently a bellwether for microlending in India, and programs around the world. Hyderabad, the state capital, is home to some of the world’s biggest microlenders, including SKS Microfinance Ltd., Spandana Sphoorty Financial, Basix & Share Microfin Ltd. The state accounts for about 30% of the loans for all of India, one of the world’s biggest microfinance markets.
“This is potentially going to devastate lending to rural areas for a long time,” said Vikram Akula, founder and chairman of SKS Microfinance, India’s largest microlender by loan volume, which recently listed its shares in India. “We are confident that we will survive, but certainly this is going change how things could and should be done.”
The son of Satyama Ayrene, left, hanged himself. It was because he owed money to loan sharks, she says, not that his wife owed $220 to microlenders. At right is Ms. Ayrene’s daughter-in-law Laxmi Narsamma
Microcredit is the lending of tiny amounts of money, usually less than $200, to entrepreneurs who use the loans to start or expand small businesses such as a vegetable stand or a bicycle repair shop. Most microcredit firms lend money through women’s groups and reach out to borrowers who are either too far from or too poor to borrow from a bank. The repayment rate on the loans have tended to be better than that of richer borrowers. Interest rates, however, can be high, from 25% to 100% a year, mostly due to the cost of administering millions of tiny loans in remote areas.
The crisis is in some ways reminiscent of recent debt problems in the U.S. Microfinance is targeted at a population that is overlooked by the mainstream banking industry, the same social niche targeted by payday and subprime lenders in the U.S.
As the microfinance industry has grown, it has attracted international capital that has greatly boosted the size of the industry, much as payday lending and subprime borrowing soared until two years ago in the U.S. In a significant move that showed international investors’ interest in the industry, SKS recently sold $350 million of its shares on the Indian stock market.
But along with that has come concern among politicians, regulators—and indeed some in the industry—that unfettered expansion was leading to poor lending practices, multiple loans to the same borrowers, and fears of widespread repayment problems.
While they have been much in demand wherever they have been introduced as they provide a kinder, cheaper alternative to the village loan shark, some economists are skeptical about whether the small loans actually help lift people out of poverty.
And in regions where there are more than one microlender competing for clients, some experts are concerned that the poor are being encouraged to take on more debt than they can bear.
Private-Equity Money
So far, the repayment rate across the microlending industry has remained extremely high. But Andhra Pradesh’s payment strike could presage a turn—and put the capital that has flooded into the industry at risk. Mainstream Indian and international banks have backed the microlending industry in India with more than $4 billion of loans this year, with private-equity funds pouring more than $250 million into the industry in India last year alone.
The repayment strike is a rare black mark for an industry that has long been viewed as a social benefit. One of the industry’s leaders, Mohammed Yunus of Grameen Bank in Bangladesh, won the Nobel Peace Prize in 2006 for pioneering the system. The industry has spread across emerging Asia, Africa and South America. India, with its giant population and hundreds of millions of people living in poverty, is one of the most important markets.
The industry also was the first to reach out to those that make less than $1 a day. It had been so successful that it has spawned efforts to bring everything from insurance to cellphones to solar lights to groceries to the poor.
Andhra Pradesh slapped new restrictions on the industry that effectively shut it down last week. While a state court order put the restrictions on hold and allowed the lenders back in the field this week, close to half of all borrowers are continuing to avoid payments, microlenders say.
State officials say they are trying to protect the poor from usurious interest rates and heavy-handed practices, which they say have triggered more than 70 suicides in the state.
Microlending companies say that often where they have investigated suicides attributed to their lending, they have found that microloans were among the smallest of the many problems of the people that have killed themselves.
In Sankarampet village about 2½ hours from Hyderabad, Satyama Ayrene is still in mourning over the death of her son who hanged himself. While local police say they have been told to investigate whether microdebt caused the death, Ms. Ayrene says it was the $2,200 he owed loan sharks that was bothering him, not the $220 his wife owed to a microlender.
Misplaced Blame?
“He did not commit suicide because of the [microloan] companies,” said Ms. Ayrene, 55 years old. “He was burdened with loans from the local moneylenders and didn’t know how to pay them back.”
Microlenders say they are being punished for the success at reaching the poor and that if the resistance continues, many of them will go out of business. Many have been taking steps to create good will to try to avert the situation from worsening. The biggest lenders who account for the majority of borrowing say they will cap their rates at around 24% and form a fund to help troubled borrowers reschedule their loan payments.
They say they are ready to comply with more government restrictions as long as they are given time to meet new requirements. But in the meantime, the industry has ground to a halt.
When SKS agents arrived in a village called Shanti Nagar about 150 miles from Hyderabad, the capital of Andhra Pradesh, on Wednesday morning, they could tell right away something was wrong. The borrowing group of 20 women was milling around the dusty village square, instead of sitting in order in a circle with their weekly payments as SKS procedure requires.
While the group wanted to pay its loans, they had been forbidden by a local political leader and their husbands, the women said.
The political leader, A. Subramanyam, arrived and told the SKS agents not to harass his neighbors.
“I told them if they don’t have the money, they don’t have to pay,” said Mr. Subramanyam. “I have seen them sell their wedding jewelry to pay the installments, why should they do that? No one here has prospered with these loans.”
Urged on by local government officials and politicians, thousands of borrowers have simply stopped paying lenders, even though they have the money. The government has begun ratcheting up restrictions, fearing that borrowers are being buried by usurious interest rates. In some cases, officials have even arrested lending agents for allegedly harassing borrowers.

Local politicians, meanwhile, have blamed dozens of suicides on microlenders and are urging borrowers not to pay back what they owe.

Though so far the backlash has been confined to a southern Indian state of Andhra Pradesh, what happens there is frequently a bellwether for microlending in India, and programs around the world. Hyderabad, the state capital, is home to some of the world’s biggest microlenders, including SKS Microfinance Ltd., Spandana Sphoorty Financial, Basix & Share Microfin Ltd. The state accounts for about 30% of the loans for all of India, one of the world’s biggest microfinance markets.

“This is potentially going to devastate lending to rural areas for a long time,” said Vikram Akula, founder and chairman of SKS Microfinance, India’s largest microlender by loan volume, which recently listed its shares in India. “We are confident that we will survive, but certainly this is going change how things could and should be done.”"

$65 Billion Wind Energy Investment by China WindPower, Iberdrola SA, and Duke Energy!

Tuesday, March 23rd, 2010

Wind-power will generate almost 41 gigawatts of energy generation capacity this year.  This is the equivalent of 34 new nuclear power plants!  Wind development is growing exponentially, especially in the U.S. Southeast and Midwest.  $65 billion will be invested in new wind development this year!  Turbine costs are falling, driving up demand as government subsidies further enhance the wind energy market.  Renewable energy is certainly gaining market share, but at lower margins for manufacturers.

According to Mr. Loon and Mr. Morales of Bloomberg, “China WindPower Group Ltd., Iberdrola SA and Duke Energy Corp. will lead development of an estimated $65 billion of wind-power plants this year that let utilities reduce their reliance on fossil fuels.

The estimate from Bloomberg New Energy Finance assumes a 9 percent annual increase in global installations of wind turbines, adding as much as 41 gigawatts of generation capacity. That’s the equivalent of 34 new nuclear power stations.

Utilities that built natural gas-fired generators during the last decade are increasingly erecting turbines and buying wind power from competitors, tapping a renewable-energy source as governments consider ways to penalize carbon-based fuels.

“Wind development is moving fast,” James Rogers, chairman of Duke, which owns utilities in the U.S. Southeast and Midwest, said in London on March 18 at the Bloomberg New Energy Finance conference. “In the last 10 years, 90 percent of plants we’ve built have been gas. I’ve used gas plants like crack cocaine.”

While gas-fired plants are relatively cheap to build and pollute less than coal plants, they still emit carbon dioxide, which will carry higher costs if governments tighten environmental rules.

Last year, $63 billion was invested in turbines, adding 37.5 gigawatts of new capacity and bringing potential output of electricity from wind to 157.9 gigawatts, according to the Global Wind Energy Council, a Brussels-based industry group. A third of those turbines were installed in China, which doubled its capacity to 25 gigawatts.

Lower Prices

Wind is gaining support as turbine costs fall and government stimulus money helps pay for the plants. Prices for turbines have declined by about 15 percent to 1.05 million euros ($1.44 million) per megawatt over the past two years, according to William Young, an analyst at Bloomberg New Energy Finance.

“It makes sense and it makes money,” said Michael Liebreich, founder of the London-based consultant bought by Bloomberg LP in December.

If this year’s forecast holds, the new wind turbines may supply up to 12.3 million homes, less than the almost 33 million customers that the 34 nuclear plants would power with the same capacity, according to data from the U.S. Department of Energy and American Wind Energy Association. Output from a nuclear plant is steady while turbines work only when the wind blows.

Renewables Boom

Worldwide investment in renewable-energy, which also includes solar and biomass facilities, may top $200 billion this year after outlays fell 6 percent to $162 billion in 2009, Bloomberg New Energy Finance estimates.

That investment is moving ahead even after world leaders failed to reach a binding agreement limiting emissions from carbon-based fuels when they met in Copenhagen in December, Deutsche Bank AG Vice Chairman Caio Koch-Weser said. The cost of carbon permits for December 2010 traded in Europe has fallen 3.2 percent since that summit ended.

“The renewables story is gaining momentum independently now,” Koch-Weser said in an interview at the same conference. “I see with many clients from China to California to India now a really good renewables paradigm shift happening.”

This year, Duke plans to install 250 megawatts of wind equipment in the U.S., Rogers said. Bermuda-based China WindPower will invest about HK$900 million ($116 million) in 10 to 12 wind farms this year, nearly doubling its capacity, the company said on March 8. Iberdrola SA’s clean-energy unit expects to add 1,750 megawatts of new capacity in 2010, most of that from wind power, it said last month.

Market Share

Renewable energy sources may expand their share of the electric power generation market to 9 percent worldwide by 2030 from 2.5 percent now as gas use remains about 21 percent, the International Energy Agency estimates. Natural gas consumption has risen 20 percent since 2000, the IEA says.

Coal, which produces the most carbon when burned, also is benefiting from rising energy demand. Its market share for electric generation will grow 3 percentage points by 2030 to 44 percent, according to the IEA.

The world needs to invest $26 trillion through 2030 to meet growing energy demands, the IEA, an adviser to oil-consuming nations, said last year. Proven gas reserves are sufficient to provide supply for 60 years at current production rates, the group said in its World Energy Outlook, published in November.


Lower wind turbine prices mean more power for the same money, and developers are rushing to take advantage of $184 billion in economic stimulus money set aside for clean energy projects, said Mike O’Neill, president and chief operating officer of wind project developer Element Power.

“We are getting low-cost, low-risk money into this market,” O’Neill said. “You are getting money coming in.”

Making wind power even more attractive is its “scalability,” or the ease with which a developer can add turbines as demand rises, said Petra Leue-Bahns, chief financial officer of Ecolutions GmbH.

“Wind is relatively easy to install in big packets and then scale up,” she said. “Wind will probably reach grid parity” and be able to compete with fossil fuels without subsidies within four years, she said. Ecolutions invests in renewable-energy projects in Europe and Asia.

BP Plc, the world’s biggest oil producer, is investing in wind and solar power as renewable energy gains market share on fossil fuels.

“If you want to have the same size of company that you have today, then you need to start the shift,” said Katrina Landis, chief executive of the London-based company’s alternative energy unit. “It means to some degree giving up what you’ve done for the last 100 years.”

Greed & Fear on the Repeal of Glass-Steagal

Friday, March 5th, 2010

Greed & Fear on the Repeal of Glass-Steagal

Greed & Fear – Volcker (CLSA)

Ann Taylor Insider Trading

Tuesday, February 2nd, 2010

Ann options

According to Bloomberg, Ann Taylor options skyrocketed this week in probably the most blatant insider trading event of the year.  It is puzzling to see that Mr. Durden at ZeroHedge picked this up probably weeks in advance of an SEC probe.

“Trading of bullish AnnTaylor Stores Corp. options surged to a 10-week high yesterday before the women’s clothing retailer boosted its fourth-quarter sales forecast today in an unscheduled release.

Either this was a very savvy investor or the information was leaked,” said Frederic Ruffy, the senior options strategist at, a New York-based provider of options market analysis. “The call buying was just a couple of hours before the close yesterday.”

Almost all of yesterday’s trading of 5,766 options giving the right to buy the stock was concentrated in the March $15 calls, which closed at 45 cents yesterday. They more than tripled to $1.65 today as the shares jumped the most in nine months, adding 19 percent to $15.88 at 3:42 p.m. in New York.”

According to Durden,

“With the options purchased at $0.45 and now trading at $1.65, every call attained a profit of $1.20, or roughly $690,000 on the total 5,766 call options purhcased yesterday.”

I don’t know how anyone thought they could get away with this, with pricing live on Bloomberg.  May this be a lesson to all you aspiring traders out there.  There is no point going to jail for an easy trade.


For more information, please see the article by Durden…

Volcker Speech on Regulatory Reform Fails to Inspire

Tuesday, February 2nd, 2010


Today, Mr. Volcker spoke out about his reform against U.S. investment banks and proprietary trading.  After the speech, it looks likely that the rule will not go forward in its original form.

The former Federal Reserve Chairman called out recently to limit bank’s proprietary trading, principal investments, hedge funds, and private equity divisions.

On the opposing end, Senator Richard Shelby (Republican) opposed both the Volcker Rule and President Obama’s decision to levy a $90+ billion tax on U.S. large cap banks.  Although the Leverage Academy team does not feel that these two rules will be approved of in their original form, a tax or some form of penalty for using taxpayer funds for principal investments may still be passed by the House and the Senate.

Since Democrats do not have the necessary 60 votes needed to enforce this reform package, it will only pass with Republican support.

Even the House Financial Services Subcommittee Chairman Paul Kanjorski told the Financial Times that he was only 80% to 85% in agreement with the Volcker rule and that many issues raised by Volcker were already included in his amendment passed by the House.

According to the Financial Times, one of the most outrageous demands today was from Warner, who said he is proposing that US banks set up a USD 1trn fund to invest in US infrastructure projects as a way to avoid the USD 90bn bank levy.  When probed, a staffer said that Warner is not calling for the banks to place USD 1trn in cash, but to raise such an amount through leverage…

Below is a live blog of the speech by the Wall Street Journal…

Text begins here:

So Mr. Volcker, what is prop trading anyway? It is the $64,000 (make that the multi-billion dollar question) for Wall Street.

So far, the former Federal Reserve Chief, who is now spear heading the Obama administration’s effort to overhaul the banking system, has been pretty vague on exactly what constitutes proprietary trading — or trading on behalf of a bank, rather than its customers. A copy of Volcker’s prepared testimony is more specific about what Volcker thinks banks should do, rather than what he thinks they should not do.

Other key issues that Volcker is likely to address in his testimony before the Senate Banking Committee are proposing capital and leverage restrictions on large banks.

Deal Journal is live blogging the hearing.

    • 2:36 pm
    • by Michael Corkery

    Chairman Chris Dodd is opening up the hearing, just as President Obama has finished his remarks at a town hall meeting in Nashua, NH. This is like the well-oiled Obama presidential campaign when everything was highly orchestrated.

    • 2:40 pm
    • by Michael Corkery

    Sen. Shelby: He’s “disturbed” by the way Obama has sneaked in the Volcker rule seven months after it first proposed financial reform that it called “sweeping.”  Is Shelby suggesting that politics may have played a role in the timing of Obama’s latest proposal? No. Really?

    • 2:41 pm
    • by Michael Corkery

    That said, Shelby says he supports the Volcker Rule…

    • 2:43 pm
    • by Michael Corkery

    Volcker is Up: Right off the bat he goes to Prop Trading…He says it’s not an issue of whether prop trading is bigger risk than others. It is a risk. Period. And taxpayers shouldn’t backstop that risk.

    • 2:49 pm
    • by Michael Corkery

    Volcker: This is about two big to fail.  We have to limit banks and non-banking institutions from engaging in activities that could require a bail out…He references AIG and GE Capital…

    • 2:52 pm
    • by Michael Corkery

    Volcker: Bank supervisors with “strong legislative direction” sould be able to contain excess in trading. Wait a second. Is Volcker proposing to leave it to the banks to decide what is risk and not risky? Um, that didn’t really work too well.

    • 2:55 pm
    • by Michael Corkery

    Volcker hasn’t looked up once from his prepared testimony.

    • 3:00 pm
    • by Michael Corkery

    This is dry stuff. Bring Back Geithner or Blankfein.

    • 3:02 pm
    • by Michael Corkery

    Volcker: Trading “incidental” to customer interests would be OK. Trading that is not explicitedly done on behalf of the customer is not OK.

    • 3:07 pm
    • by Michael Corkery

    Dodd asks but isn’t “hedging” good for bank? Couldn’t that be seen as propreitary behavior?

    Volcker brings up a good example: AIG had credit defaualt swaps which were designed to be hedges, but when AIG doubled down on CDS they were no longer hedges, but an added risk.

    • 3:07 pm
    • by Stephen Grocer

    Dodd asks: If the U.S. adopts the Volcker rule and other don’t, has U.S. left its institution in a weaker competitive position?

    • 3:09 pm
    • by Stephen Grocer

    Volcker counters that the plan has receive support elsewhere, especially London.

    • 3:10 pm
    • by Michael Corkery

    Shelby: There is no evidence that prop trading fueled the losses that contributed to the credit crisis. Plus, Bear and Lehman were not commerical banks yet were more interconnected and posed systemic risk. So why so much focus on prop trading

    • 3:11 pm
    • by Michael Corkery

    Volcker is not really answering the question.

    • 3:15 pm
    • by Michael Corkery

    Volcker just compared ‘too big to fail’ institutions to pornography…”you know it when you see it.”  That’s a new one.

    • 3:18 pm
    • by Michael Corkery

    Grocer, Volcker says he’s not naive and he’s been around for a long time, but does he really think that he can get other countries, like the UK and France, to agree to enact similar restrictions?

    It’s hard enough to get the U.S. Congress to agree to these rules.

    • 3:24 pm
    • by Michael Corkery

    Volcker: It’s not theoretical the conflicts of interests inherent of prop trading. It’s inenvitable that you will trade against the interest of your customers. But he has no specifics.

    • 3:28 pm
    • by Stephen Grocer

    Corkery: If the Conservatives are elected in the U.K., London might get a version of the rule.  But EU has indicated that it is unlikely to follow the U.S. lead if it passes the Volcker rule. That would definitely put U.S. institutions at a disadvantage.

    • 3:28 pm
    • by Michael Corkery

    Volcker just joked that he’s always thought that a “Chinese Wall” is actually permeable. “It didn’t keep out the Huns, did it?”  Banks have said that there is a chinese wall between depository and prop activiity. Economist humor.

    • 3:32 pm
    • by MIchael Corkery

    These Senators are going easy on Volcker. I guess it wouldn’t look good to gang up on the elder, grandatherly academic. But the former Fed chair is admitting to a lot of unknowns in his proposal.

    • 3:37 pm
    • by Michael Corkery

    Volcker is finally showing  a little animation.  Sen. Corker is telling him that commerical banks cannot move money from the commerical side of the bank to another part of the bank. “You don’t think they can do that,” Volcker says.

    • 3:40 pm
    • by Michael Corkery

    Dow has stayed up 115 points.  Looks like the market thinks the Volcker Rule is a dead on arrival in the Senate.

    • 3:43 pm
    • by Michael Corkery

    Volcker: If Goldman wants to keep prop trading they have to give up banking license and access to cheap capital at the Fed window.

    • 3:47 pm
    • by Stephen Grocer

    Volcker declines to rank which of the activities — private equity, hedge funds or proprietary trading — is riskiest.

    • 3:52 pm
    • by Michael Corkery

    Sen. Mike Johanns: “I get more confused as you testify. You are not clearing it up.”
    Finally someone said it.

    • 3:54 pm
    • by MIchael Corkery

    Volcker: “I am puzzled why I am losing you.”

    • 3:56 pm
    • by Michael Corkery

    Volcker says his rule wouldn’t have stopped AIG or Lehman. But the “comprehensive” reforms by the Obama administration would have stopped those problems.

    • 3:57 pm
    • by Stephen Grocer

    Sen. Johanns is raising the question of the day: How will the Volcker rule have prevented the financial crisis. It would not have solved the problem with AIG or

    Volcker responds: That rule was not designed to solve the problems of those firms.

    • 3:58 pm
    • by Michael Corkery

    Best quote of the hearing.

    Volcker: The issue is look ahead. I am telling you if banks are protected by tax payer and given free rein to speculate. There are going to be problems. “I may not live long enough to see the next crisis. But my soul is going to come back to haunt you.”

    • 3:59 pm
    • by Stephen Grocer

    Volcker points out his rule is designed to solve future problems, not just the regulatory gaps laid bare by the current financial crisis.

    • 4:12 pm
    • by MIchael Corkery

    Sen. Jim Bunning: Wait, I thought your goal was about preventing banks from getting too big to fail. But this proposal does nothing to require banks to shrink.

    • 4:18 pm
    • by Michael Corkery

    From the sounds of the senators skeptical questioning, Volcker’s rule looks to be on thin ice. The hearing was not a total wash out: Volcker warned that his ghost will come back to haunt the Senate if they don’t listen to him.  That will be a quote that will no doubt be pulled out years from now for that inevitable “I told you so” moment.


  • For more information, please visit WSJ…

What is Antitrust?

Monday, December 7th, 2009

FTC - Federal Trade Commission

Laws governing competition in the United States are known as Antitrust laws, governed by the Sherman and Clayton Acts.

Sherman Act:

“Section 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine….

Section 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine….”

Clayton Act:

The Clayton Act of 1914 was passed to supplement the Sherman Act, since the Sherman Act alone was not effective. Specific categories of abusive corporate conduct were listed, including price discrimination (section 2), exclusive (section 3) and mergers that substantially lessen competition (section 7).  Section 6 specifically exempted trade unions from the law’s operation. Both the Sherman and Clayton acts are now codified under Title 15 of the United States Code. Since the mid-1970s, courts and enforcement officials generally have supported view that antitrust law policy should not follow social and political aims that undermine economic efficiency.

The antitrust laws were minimalized in the mid-1980s under influence of the Chicago School of Economics and blamed for the loss of economic supremacy in the world. However, antitrust laws are still essential to understand for any M&A Banker or Lawyer.  Most transactions are required to be disclosed to the United States government.  The Federal Trade Commission is usually the agency that handles these issues.

Antitrust Laws are known to have three major elements:

  • Banning agreements or practices that restrict free trading and competition between business.  Examples of this include cartels (OPEC is international, it does not count!).
  • Banning aggressive and abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position.  Examples of practices controlled in this way may include Tying, Price Gouging, Predatory Pricing, and Refusal to Deal.
  • Governing M&A transactions of large corporations, including Joint Ventures in certain cases.  Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to “remedies” such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing.