Levine on Wall Street: Merging With Myself
The best merger is a merger with yourself
Here you can read Victor Fleischer at DealBook telling the heartbreakingly beautiful story of LIN Media, a TV-station company that merged with itself in order to take some tax losses. I cannot recommend the full story highly enough, but the summary is that LIN found a way to shuffle some papers in just the right order to convince the U.S. government to give it hundreds of millions of dollars. (Delightful back story is that LIN needed the money because it had done some other, unrelated, aggressive tax planning in the past to defer a big gain, its taxes on that gain were coming due.) This right here is what it's all about, people.
If you're going to manipulate earnings you might as well
make money doing it
The Wall Street Journal has a fun occasional series on how everyone is insider trading all the time. Today's installment is about how corporate executives sometimes (1) announce upward earnings guidance, (2) sell stock personally as the price goes up to reflect the upward guidance, and then (3) announce downward guidance a few months later and watch the stock collapse. Neat trick. The Journal finds 755 cases since 2005, and though no doubt the vast majority of these cases were innocent -- that period includes 2007-2008, when lots of people were surprised a lot -- also probably some of them weren't. Certainly some of the Journal's anecdotes sound bad.
The cleverest part is that some of the executives cited defend themselves by pointing out that they didn't decide to sell stock: They had 10b5-1 plans that automatically sold fixed amounts of stock whenever the price hit a certain fixed level. This is a good defense to insider trading charges, mostly. But a cynic would point out that one great way to manipulate those plans is to give earnings guidance that pushes the stock up to a preset sale level, sell the stock, and then reverse the guidance and take away the price support.
Who can keep up with
Barclays' compliance troubles
Barclays announced yesterday that its head of compliance, Hector Sants, formerly the head of the U.K. Financial Services Authority, is resigning due to "stress and exhaustion." Because it's so exhausting to keep up with all of Barclays' noncompliance, HAHAHAHAHAHA GET IT? But also, what? I mean the man was in charge of supervising all U.K. banks' regulatory compliance at the FSA. Which was apparently a vacation compared to Barclays. Is the conclusion that Barclays is abnormally rough, compliance-wise, or that the FSA is perhaps a more relaxing post than it ought to be?
Twitter short interest
SunGard's Astec Analytics has early data on short-selling of Twitter stock and boy are they milking it for all it is worth; Astec executive vice president Timothy Smith says that short interest is "red hot, but not white hot," and I really hope they've got a color-coded chart. Twitter stock borrow costs are around 13 percent a year, way above normal borrow rates of a few basis points but also below the 40 to 50 percent it cost to borrow Facebook stock when it went public. The pattern here is probably less "everyone hates the heck out of social media companies" than "it is expensive to borrow stock when it first comes on the market." You can tell because Twitter and Facebook are both well above their IPO prices.
hashtag bad at Twitter
Today JPMorgan was scheduled to have vice chairman and quotable deal guy Jimmy Lee answer questions about JPMorgan on Twitter. "The target audience was students, with Mr. Lee expected to focus on career advice." Someone forgot that it's hard to target an audience on Twitter, it being Twitter, and a semi-amusing semi-embarrassing disaster ensued, with JPMorgan overwhelmed with pretty negative questions and comments that were really barely questions at all. I tried to cheer them up with a softball question, but to no avail, and the event was called off. So fun day on the internet I guess, but also strangely meaningless: Twitter disrupted the heck out of a JPMorgan recruiting event, but it was a very silly recruiting event to begin with; I assume actual college recruiting will continue unruffled. As, probably, will Jimmy Lee's Thursday.
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Matthew S Levine at firstname.lastname@example.org