Tag: Wall_Street

On The Internet You Can Become A Dog Easily

Seth Anderson0 comment

Starbucks Elevators
Starbucks Elevators

In a second follow-up to this minor, amusing tale, the @GSElevator guy lost his book deal.

In the face of a barrage of attacks on his credibility, his publisher stood by him. But on Thursday it reversed course and said it was canceling the book.

The publisher, Touchstone, an imprint of Simon & Schuster, did not provide a reason for the turnabout. It released a terse statement saying: “In light of information that has recently come to our attention since acquiring John Lefevre’s ‘Straight to Hell,’ Touchstone has decided to cancel its publication of this work.”

In a phone interview Thursday afternoon, Mr. Lefevre said that he and his agent demanded a conference call with Touchstone, and received one Thursday morning, but were not told why the deal had fallen through. “All they would say is our hands are tied,” he said.

Only Goldman Sachs seemed to be enjoying the moment. “Guess elevators go up and down,” @GoldmanSachs tweeted in response to the news.

Mr. Lefevre’s proposed book, titled “Straight to Hell: True Tales of Deviance and Excess in the World of Investment Banking,” had drawn widespread attention — for the window it promised to provide into Wall Street’s often raucous culture, and as the latest test case in whether social media postings, some resembling online performance art, could be transformed into successful books.

(click here to continue reading Book Deal Falls Apart for Parodist of Goldman – NYTimes.com.)

Don't Bring Your Dog Shet to Town
Don’t Bring Your Dog Shet to Town

from John Lefevre, the banker behind Goldman Sachs Elevator, this defense:

For the avoidance of any doubt, any person who actually thought my Twitter feed was literally about verbatim conversations overhead in the elevators of Goldman Sachs is an idiot.

Newsflash: GSElevator has never been about elevators. And, it’s never been specifically about Goldman Sachs; it’s about illuminating Wall Street culture in a fun and entertaining way. Without highlighting the obvious evolution of the tweets into more generally-appealing observations, let’s start with the simple fact that each of my tweets says “Sent from Twitter for Mac,” hardly the work of someone pretending to be hiding in the walls of 200 West.

Being called a “fake” or a “hoax” by the same people who embraced me as “satire” is simply laughable – and it really speaks to the silly and opportunistic attempts at cheap headlines.

(click here to continue reading GSElevator’s Open Letter To Haters – Business Insider.)

Gawker piled on, claiming it discovered plagiarism on the @GSElevator feed

and the beat goes on…

Corporations Cringe at Revealing CEO-Worker Pay Gap

Seth Anderson0 comment

Mini Bank In Fine Style
Mini Bank In Fine Style

Apparently, most corporations would rather stockholders not be aware of executive compensation agreements.

Section 953(b) of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act requires publicly traded companies to disclose the ratio of CEO pay as a proportion of the median-paid employee at the firm. And yet, the Securities & Exchange Commission has yet to even propose a regulation for public comment, which would get the ball rolling on enforcing the act.

…

Companies that have opposed the regulation say that it would somehow be difficult to figure out the median pay of their staff. But the lawmakers point out that even the SEC’s former chief accountant says this should not be too complex a calculation for a business to make.

 

(click here to continue reading The Consumerist » Lawmakers Push For Companies To Disclose Ratio Of CEO Pay To That Of Employees.)

 AIG and you

 Oh, boo hoo. Math is hard1

The Wall Street Journal reports:

At issue is a rule that could force them to disclose the gap between what they pay their CEO and their median pay for employees, a potentially embarrassing figure that many companies would like to keep private.

 …”The ratio is not going to be a meaningful way to help investors but will be used as a political tool to attack companies,” says David Hirschmann, president of the U.S. Chamber of Commerce’s Center for Capital Markets, which opposes the measure.

Consulting-firm Accenture says that figuring out the median among its 246,000 employees across 120 countries and various payroll systems would be expensive and slow. “The amount of work to calculate the ratio would be really quite incredible,” says Jill Smart, chief human resources officer for Accenture. The U.S Chamber of Commerce, American Insurance Association and National Retail Federation have expressed similar concerns to the SEC on behalf of members.

But companies whose boards already constrain the ratio between the CEO’s salary and that of the average worker say the task isn’t so complex.

“It doesn’t take months and months and millions of dollars to calculate this. It’s a relatively straightforward process that takes a few days,” says Mark Ehrnstein, a vice president at Whole Foods Market which instituted an executive salary cap a decade ago.

Whole Foods keeps a database that tracks each worker’s salary and bonus to ensure that no employee makes more than 19 times the average. That means the typical full-time worker earned about $38,000 last year, and no one earned more than $721,000. But the cap doesn’t factor in stock options or pension benefits, which would be required under the proposed rule, and it considers average, rather than median, salaries. A small number of other firms, including financial-services firm MBIA Inc.  and Bank of South Carolina Corp., provide executive pay figures and average or median employee pay in their proxy filings.

“It’s embarrassing that they pay their CEO 500 times what they pay their typical worker, especially if the company’s performance has been mediocre,” says New Jersey Sen. Robert Menendez, the provision’s author.

Total direct compensation for 248 CEOs at public companies rose 2.8% last year, to a median of $10.3 million, according to an analysis by The Wall Street Journal and Hay Group. A separate AFL-CIO analysis of CEO pay across a broad sample of S&P 500 firms showed the average CEO earned 380 times more than the typical U.S. worker. In 1980, that multiple was 42.

 

(click here to continue reading Firms Cringe at Revealing CEO-Worker Pay Gap – WSJ.com.)

In other words, most public corporations would rather not be transparent about what their CEOs would make because it makes the Board of Directors look like corrupt oligarchs. Cry me a river. And I find it hard to believe that reporting this information would be a burden. Take the payroll, dump it into a spreadsheet, and calculate the median! What’s tricky about that? The hardest part would be getting payroll information for a large multi-national corporation, but I doubt it would all that difficult to do.

 Beer Money at the MCA

 Batlett Naylor wrote, back in March:

In the face of intense industry lobbying, the SEC has yet to propose a rule for public comment. A simple disclosure figure should be well within the SEC’s ability. Corporate America’s antagonism may be revealing but should not be compelling.

The financial industry argues that identifying median pay will be difficult. Such claims either constitute an embarrassing confession about widespread mismanagement of a central financial issue, or a disingenuous smokescreen. The idea that firms have no idea what they pay their staff is ludicrous.

CEO pay has swollen from 42 times that of average factory workers in 1980 to 319 times in 2010. Studies show morale and productivity problems in the face of disproportionate CEO pay.

The congressional letter states that: “Income inequality is a growing concern among many Americans. … Incomes at the very top have skyrocketed in recent years while workers’ wages and incomes have stagnated. … And while comprehensive data will not be available until this provision takes effect, there is no question that CEO pay is soaring compared to that of average workers.”

A Public Citizen report last year found that industry lobbyists contesting this rule have spent more than $4.5 million trying to avoid disclosure. In addition, the U.S. Chamber of Commerce has sent two letters to the SEC opposing this measure.

(click here to continue reading Will the SEC stand up to the financial industry’s disingenuous smokescreen? « CitizenVox.)

Footnotes:
  1. not really [↩]

Facebook’s Brilliant Disaster and IPO Mania

Seth Anderson1 Comment

Abyss of Intoxication
Abyss of Intoxication

Interesting counter-point to the IPO mania by Joe Nocera:

Splunk, an 8-year-old, money-losing data analytics company … went public five weeks ago. Splunk’s investment bankers priced the stock at $17 a share. But it closed its first day of trading at $35.48 — a gain of 109 percent — before declining over the next month. (It has rebounded in the last week.)

The offering raised $229.5 million for the company. But if the bankers had done a better job of pricing the shares — and had come closer to the $35 a share that investors were willing to pay — the company would have reaped twice as much. Putting cash in a company’s coffers is supposed to be the whole purpose of an I.P.O. Isn’t it?

Who got all that extra money? The hedge fund managers and Wall Street insiders who were allocated shares — and who immediately flipped those shares for a quick, easy profit. That’s how I.P.O.s work nowadays: It is assumed that the offering will be underpriced, and anybody who can get shares at the I.P.O. price is guaranteed a killing. This pattern has become the very definition of a successful public offering.

Compared to Splunk, the Facebook I.P.O. was, indeed, a disaster. For starters, there was only the tiniest initial bump, so the Wall Street speculators did not make their usual killing. What’s more, because the company decided, late in the game, to issue 25 percent more shares — and because Morgan Stanley aggressively priced the stock, at $38 a share — Facebook maximized its take, at $16 billion. Long-term investors should be happy about this outcome; the company now has plenty of capital as it competes with Google and the other Internet big boys.

But let’s be honest. Were there really any long-term investors in Facebook that first day? Judging by the torrent of criticism that has rained on Facebook and Morgan Stanley, it sure doesn’t appear that way. Instead, what the Facebook aftermath suggests is that we’ve all become brainwashed into believing that, when it comes to I.P.O.s, up is down and down is up. A successful I.P.O. is one where the company gets hosed by Wall Street. A failed I.P.O. is one where the company’s interests, not those of Wall Street speculators, are served. It’s Alice in Wonderland goes to Wall Street.

(click here to continue reading Facebook’s Brilliant Disaster – NYTimes.com.)

He makes a good point: most of the hullabaloo surrounding Facebook last week was from short term corporate investors complaining they didn’t their usual profits for a big name IPO. Are many of them planning on owning Facebook stock for five years? 

 myspace

myspace

More Nocera:

The current price is partly a reflection of the I.P.O. maelstrom, and partly a function of short-term problems: The decision by General Motors, revealed just before the I.P.O., to pull its advertising, and its inability, so far, to generate much advertising on mobile platforms.

What it doesn’t reflect is where Facebook will be 5 or 10 years from now. I could easily make a bullish case for Facebook — with its 900 million users, and its wise-beyond-his-years chief executive. I could just as easily make a bearish case: Maybe Facebook will never figure out mobile. Maybe its moment will pass before it ever becomes the kind of technology juggernaut that Microsoft once was, or Google is. But being either bullish or bearish requires making a judgment that is years away from being revealed. For bullish investors, it means holding the stock patiently, waiting for the judgment to pay off. That’s what good investors do.

The Facebook IPO scandal

Seth Anderson2 Comments

To A We
To A We

And speaking of Facebook’s deplorable business model, there turns out to be some Wall Street shenanigans going on as the IPO began. Lest you forget, Wall Street plays by its own rules, and if you want to play too, you are the mark, the rube. The amount of hype for the Facebook stock was, and remains overwhelming. That alone should make one suspicious. I know I was1

The Los Angeles Times reports:

As Facebook shares continued their slide, regulators launched inquiries into whether privileged Wall Street insiders were alerted to the company’s weakening financial projections, leading them to shun the stock or dump shares just as buying was opened to the public.

Morgan Stanley, which led the Wall Street effort to bring the social network public, came under fire following reports that the bank had told some favored clients that the bank was cutting its revenue estimates for Facebook. The lowered expectations came after the tech giant expressed caution in a public filing about its advertising sales on mobile devices.

The legal issue raised could be “securities fraud — plain and simple,” said Ernest Badway, a securities lawyer in New York and New Jersey and a former enforcement attorney at the U.S. Securities and Exchange Commission. “You can’t be putting out two sets of numbers.”

SEC Chairwoman Mary Schapiro said the agency will examine “issues” into the bungled Facebook public offering. The Financial Industry Regulatory Authority, the Wall Street industry-funded watchdog, has also expressed concern, and Massachusetts securities regulators have issued subpoenas for Morgan Stanley.

“If true, the allegations are a matter of regulatory concern to FINRA and the SEC,” Rick Ketchum, the watchdog’s chairman and chief executive, said in an e-mailed statement.

One major institutional investor was informed of the lowered expectations during Facebook’s IPO “roadshow,” in which Morgan Stanley and other underwriters appeared before mutual funds and other big investors to make the case to buy shares in advance of the public offering.

“I am pretty sure the grandma who bought 10 shares of Facebook through her Schwab account didn’t get that memo,” said a person familiar with the matter who declined to be named to preserve his business relationship with Wall Street investment banks.

Facebook’s offering was one of the most hyped events on Wall Street, and became the biggest tech IPO in history. The company raised $16 billion by listing on the Nasdaq Stock Market in a move that valued the company at $104 billion, which is bigger than American corporate stalwarts such asMcDonald’s Corp. andAmazon.com Inc.

(click here to continue reading Facebook IPO flop drawing increased scrutiny – latimes.com.)

I found this phrase telling:

Some bankers were also troubled by the huge demand from individual investors, a relatively capricious group. While Facebook allocated most of its shares to big, institutional investors like mutual funds and hedge funds, it also gave a larger-than-usual block, close to 25 percent, to ordinary investors.

Around the same time, red flags emerged about the company’s growth prospects. On May 9, Facebook revealed in a regulatory filing some potential challenges to its growth. In particular, the company highlighted that users were increasingly using Facebook on mobile devices, but the company was not making much money on mobile ads.

(click here to continue reading Facebook I.P.O. Raises Regulatory Concerns – NYTimes.com.)

Banks don’t want the hoi polloi  to clutter up their hallways, mess up their nice tile floors.

Stay As You Are

Stay As You Are

Gawker’s Adrian Chen:

Facebook’s stock continues to suck harder than a Northwestern University freshman on a 5-foot bong in his profile pic. And the fallout from the most hyped IPO in history bursts not just the illusion that Facebook is actually worth $100 billion, but the idea that Facebook is different than any other corporation hell-bent on making as much money as possible for a handful of very wealthy people.
The lead-up to last Friday’s Facebook IPO was an orgy of web 2.0 populism. Started by a Harvard undergrad in his dorm room, Facebook was poised to become the largest tech IPO ever. And its value stemmed from our stuff—our status updates, pictures and pokes! This was the major driver of the outlandish hype surrounding Facebook’s IPO; the sense that the public would finally get a chance to share in the spectacular success of the company we helped build.

…(Incidentally, now that Facebook’s tanking, Morgan Stanley and the other banks that underwrote the deal have a good shot at making a profit by short selling millions of Facebook shares that had been created just for them under an arcane financial move known as the “Greenshoe option.” Nice deal, if you can get it.)

These maneuvers show once again that Facebook’s lofty ideals are at odds with how it functions in reality. For a company built on sharing and transparency, Facebook’s IPO was uniquely private and opaque. For a company which Mark Zuckerberg boasted in a letter to investors “was not originally created to be a company. It was built to accomplish a social mission,” Facebook sure as hell acted like a company in helping to enrich insiders at the expense of public investors.

So, Mark Zuckerberg screwed Facebook investors in the IPO like he’s screwed Facebook users on privacy. (Hours before the IPO, Facebook was hit with a $15 billion lawsuit over privacy violations.) This would be just a hilarious coincidence, except for the vast amounts of money he’s made doing both.

(click here to continue reading The Facebook IPO Was an Inside Joke.)

Every Ace Got Played
Every Ace Got Played

Felix Salmon writes:

This whole episode stinks. It’s almost certainly not illegal. But if you look at the Finra rules about such things, it definitely violates the spirit of the law. For instance, the rules say that Morgan Stanley analysts weren’t allowed to show Facebook their research before it was published — but they don’t say that Facebook can’t quietly whisper in Morgan Stanley’s ear that its estimates might be a bit aggressive. Obviously, there’s no need for the analysts to give Facebook advance notice of their earnings downgrade if that earnings downgrade was a direct consequence of something Facebook told them.

Similarly, Morgan Stanley isn’t allowed to publish a research report or earnings estimates for Facebook within the 40 days following the IPO. But a few days before the IPO? I guess that’s OK — even if the way the estimates were “published” meant they were only available to good friends of the bank.

More generally, the rules ignore the key point here. Retail investors, and the market as a whole, knew when Facebook had its IPO that Morgan Stanley (and JP Morgan, and Goldman Sachs) had research teams with estimates for Facebook’s future earnings. They also knew that those estimates would be made public in 40 days’ time. And if they were sophisticated enough, they probably knew that select Morgan Stanley clients were given access to the analysts and their estimates.

What they didn’t know — what they couldn’t know, because nobody told them — was that those estimates had been cut, significantly, just days before the IPO.

(click here to continue reading The Facebook earnings-forecast scandal | Felix Salmon.)

Selling Her Spare Favors
Selling Her Spare Favors

John Cassidy of The New Yorker points out there have been trades of Facebook for years now, just not public trades. In other words, the big investors already cashed out…

The fact is, Facebook’s I.P.O. wasn’t really an “initial” stock offering. In December, 2010, Goldman Sachs raised $500 million for the company in a deal that, following objections from the Securities and Exchange Commission, was limited to overseas investors. In the I.P.O. world, these late-stage quasi-public offerings are called “D-rounds,” and they are becoming increasingly common. Zynga did one before its I.P.O., and so did Groupon. They provide a cashing-out opportunity for insiders who would rather not wait until the I.P.O. More to the point, they allow “hot” companies to bid up the price of their stocks well before the investing public gets a sniff.

Groupon’s D-round, which raised $950 million in January, 2011, valued the company at close to $5 billion. (It is now valued at $8 billion.) The Goldman offering for Facebook valued the company at $50 billion. (It is now valued at about $95 billion.) The valuations put on the companies in these deals were quickly reflected in the so-called “gray market,” where investors in the know could buy and sell the firms’ stocks well before they started trading on the open markets. Now that Facebook’s stock is trading publicly, many of the early players have already sold out, taking a handsome profit.

How will the public investors fare? So far, they aren’t doing well, but it is still early. I said the other day that Facebook isn’t necessarily a bubble stock, but it is undoubtedly a very expensive one. Buyers are bearing a lot of risk, and it is hard to see them ever reaping the sort of returns that investors in companies like Amazon and Google enjoyed. At twenty-five times trailing revenues and a hundred times trailing earnings, the $38 I.P.O. is already discounting an awful lot of expansion—and this at a time when Facebook’s growth rate has already slowed.

(click here to continue reading Inside Job: Facebook I.P.O. Shows the System Is Broken : The New Yorker.)

And over and over we read the phrase, “unsuccessful IPO”, and yet what does that mean? The bankers got theirs, the Facebook execs got theirs…

may have doomed any real chance the social-networking company had that its stock would jump on its first day of trading—a hallmark of successful IPOs. On Tuesday, the second full day of trading, Facebook shares fell $3.03, or 8.9%, to $31, after falling 11% on Monday. Investors are blaming the downdraft on the last-moment expansion of the offering.

Securities and Exchange Commission Chairman Mary Schapiro said Tuesday that her agency will examine “issues” surrounding the IPO in an effort to ensure confidence in public markets. An SEC spokesman declined to elaborate.

(click here to continue reading Inside Fumbled Facebook Offering – WSJ.com.)

Immigration Rally: May Day, 2006 - The Flag Guy
Immigration Rally: May Day, 2006 – The Flag Guy

Some paid for the money with coin that I wouldn’t be happy paying with, namely being banned from the US. Is the money really worth it? I’d say no, but I like living in America.

Facebook co-founder Eduardo Saverin’s decision to renounce his U.S. citizenship just in time to avoid a large tax payment essentially means he will not be able to re-enter the United States again, immigration experts tell TPM.

“There’s a specific provision of immigration law that says that a former citizen who officially renounces citizenship, and is determined to have renounced it for the purpose of avoiding taxation, is excludable,” said Crystal Williams, executive director of the American Immigration Lawyers Association. “So he would not be able to return to the United States if he’s found to have renounced for tax purposes.”

…

Two immigration lawyers said his explanation hardly passes the laugh test. Saverin’s move was timed to the initial public offering of shares of Facebook stock. The valuation of the Facebook IPO explodes Saverin’s stake in the social media company to some $3 billion, on which avoiding taxes could save him at least tens — if not hundreds — of millions of dollars. Nor does it help his case that he relocated to Singapore, which levies no taxes on those earnings.

Two senators mobilized Thursday to crack down on Saverin and other tax dodgers.

“He’s fucked,” said Adam Green, an immigration lawyer based in Los Angeles. “He must have gotten horrendous advice.”

(click here to continue reading Renouncing Citizenship Makes Facebook Co-Founder Inadmissable To US | TPMDC.)

Footnotes:
  1. I tweeted thus on May 17

    [↩]