Levine on Wall Street: Old Investments and Older Scandals
How was your 13F Day?
Yesterday all the asset managers filed their Schedule 13Fs revealing what stocks they held at the end of June. I really liked this DealBook article, which strikes a nice balance between, on the one hand, usefully reporting what stocks various hedge funds added last quarter, and, on the other hand, making fun of the whole enterprise of reporting on 13Fs and using them to inform your own investing decisions. (Points off for not linking to the 13Fs though! They're on the internet!) Here's MoneyBeat's complete collection of 13F-ery. If you're following the Allergan/Valeant fight, T. Rowe Price's big Allergan add might be of interest. In other not-so-timely ownership filing news, Carl Icahn filed a Schedule 13D announcing that he'd accumulated 6.63 percent of Gannett Co., with buys as recently as yesterday, and with the goal of getting Gannett to split into "separate print and broadcasting companies." Which it announced it was doing on August 5, before hearing from Icahn. Fast work!
Bill Ackman is keeping busy.
For one thing, he's suing the government for taking away Fannie Mae and Freddie Mac, which is kind of a weird move? There's really no shortage of lawsuits against the government for taking away Fannie Mae and Freddie Mac, and it seems unlikely that one more is what's going to tip the balance. "Oh well if Bill Ackman is suing us we must be wrong," doesn't feel like how the government will think. Speaking of Bill Ackman and the government, the Securities and Exchange Commission is looking into the Allergan/Valeant insider trading thing, though so far pretty casually it sounds like. Also here's the Ackman 13F roundup, why not, though you might get more information about his holdings from his investor letter dated this week.
Remember mortgage settlements?
For some reason yesterday was a big day for recounting JPMorgan's mortgage misdeeds. In the Nation, William Cohan has a long blow-by-blow of JPMorgan's settlement negotiations with the Department of Justice. The thesis is that there was a secret DOJ complaint with explosive evidence that JPMorgan -- and not just Bear Stearns and Washington Mutual, which JPMorgan acquired during the crisis -- did bad mortgage stuff, and JPMorgan settled rather than letting that complaint see the light of day. Cohan doesn't seem to have seen the secret complaint either, and he doesn't describe any of that explosive evidence. Also honestly very little of the bad-mortgage-stuff evidence has ever done much to capture the public imagination. Meanwhile Buzzfeed tells the story of SACO 2006-8, a Bear Stearns mortgage-backed security that has, perhaps, captured a little bit of the public imagination. The story involves language that would not be appropriate here, and I don't just mean "Yasss," "OMG," and "Fail," so I guess head over there for more. (You can probably figure out the play on SACO's name that Bear Stearns came up with!) And in non-JPMorgan news, Deutsche Bank and BayernLB reached an $810 million settlement over some mortgage stuff and if you read past that you are a stronger person than I am.
And how's Detroit?
Here is Kristi Culpepper on Detroit's bankruptcy, which is a good overview of all the weird tricks that municipal borrowers use to get themselves in trouble. Detroit did stuff like issuing quasi-debt to avoid its own debt ceiling, and paying out pension investment gains to current employees and retirees rather than, you know, saving them in the pension fund. That all went very poorly and Detroit is bankrupt, but that hasn't actually prevented it from getting up to new tricks like trying to avoid the quasi-debt obligations, and changing actuarial assumptions to make its pension claims look bigger. Culpepper concludes, "The city has incurred tens of millions of dollars of legal fees and the stigma associated with bankruptcy (magnified by the scope of its cuts to bondholders) just to reinforce the political failures that put the city in Chapter 9 in the first place."
Let's Gowex was pretty nuts.
Starting with the name -- "Let's Gowex SA" -- and ending with, um, after short seller Gotham Research revealed that it was a huge fraud, but before its chief executive admitted that it was a huge fraud and turned himself in to the police, he did this:
In the office, he held a town hall meeting about the Gotham report, an event which was filmed by one of his employees. “I can guarantee you that the company will not disappear,” he promised. Towards the middle of his six-minute speech, he opened his backpack and pulled out metal rods that he said had been inside his body for years after the car accident that killed his family.
He waved the rods before his team. He could overcome any challenge, he said.
There was a lot of weird stuff in the middle too.
Cynk Cynk Cynk Cynk Cynk!
The SEC is looking into "a number of 'repeat players' linked to several stocks that suffered suspicious trading," like their auditors, with Cynk being perhaps the most fun. Cynk's market cap is down to $160 million since I stopped paying attention, though it was once over $6 billion. "It isn't clear who, if anybody, made significant profits from the stratospheric stock increase." In other securities scam news, here's an SEC settlement announcement and order with Linkbrokers Derivatives for taking $18 million of illegal hidden markups on riskless principal stock trades. And here is a neither-admit-nor-deny settlement with an Atlanta accountant and his buddies, who made a bit of money trading in the stock of O'Charley's Inc., "which operates or franchises restaurants under the brands O’Charley’s, Ninety Nine Restaurant, and Stoney River Legendary Steaks -- after the client revealed to him in a tax-planning meeting that Fidelity National Financial was planning to purchase the company."
Kinder Morgan's tax savings are mostly coming from its unitholders.
Here's a good explanation from Victor Fleischer of the Kinder Morgan tax situation. The gist:
In short, a significant portion of the value created by the deal is merely being shifted from unit holders to KMI shareholders. Unit holders will benefit indirectly if they continue to hold the KMI stock they receive in the exchange, but they are, in effect, sharing a tax benefit that they paid for.
The bottom line is that under the old structure, when an oil pipeline is depreciated, the tax benefit mostly flows to the unit holders. Under the new structure, those deductions will shelter corporate income instead.
Eurozone banks hold record amounts of sovereign paper. CoCos Start to Feel the Stress. Beware of Ebola stock scams. Go ahead, wear a denim suit. But don't planeshare. Fort Galt: Your Castle Refuge in the Heart of Chile. Here is a defense of e-mail. Here is an apology from the guy who invented the pop-up ad. Here is a strangely uncomfortable story about not being invited to weddings. Here is a non-technical post about moduli spaces of hyperbolic Riemann surfaces.
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Matthew S Levine at firstname.lastname@example.org
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