Saturday, December 20, 2014

Catering to Banksters

FT reported former Fed Chief Paul Volcker's reaction to the postponement of financial reform that required banks to divest risky, illiquid investments from units that have federal backing::

“It is striking, that the world's leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries, however complicated, apparently can't manage the orderly reorganisation of their own activities in more than five years.”
It's about the big money boys.  No one else is in the room.

Carlyle's DD Rap Jam LLC

Business Insider reported Carlyle Group co-founders David Rubenstein and Daniel D'Aniello rapped a holiday message for investors:

It takes a lot of brains to do what we do,
Looking for a way to make some dough for you.
Energy, commodity, we do it all,
So pick up the phone and give us a call.
Corporate mezzanine, private equity,
Carlyle Group is the place to be.
We’re global, we’re mobile, we’re aiming to please.
Only goal in mind: serve the LPs

Take dat unitholders...

Thursday, December 18, 2014

Dodd Frank Toothless for PEU's Until 2017

BBC News reported on the sweet hand Congress and regulators continue giving taxpayer backed banks:

The new extension applies to other types of "legacy covered funds", according to a release on the Fed's website, which include "having certain relationships with a hedge fund or private equity fund".

Dodd Frank's PEU tooth may come in by mid-2017.

Sunday, December 14, 2014

Carlyle, Warburg Could Have Captive Rating Agency

Reuters reported:

A private equity consortium of Carlyle Group LP and Warburg Pincus LLC is in advanced talks to acquire privately held credit rating agency DBRS Ltd for more than $500 million, according to people familiar with the matter.

After final bids were submitted this week, Carlyle and Warburg Pincus have so far prevailed in the auction for DBRS, which also attracted Canadian private equity firm Birch Hill Equity Partners Management Inc, the people said on Friday.

No exclusivity has been awarded to any bidder and the outcome could still change, the people cautioned. Carlyle and Warburg Pincus are in the lead partly because they have a global footprint that can help DBRS expand further internationally, one of the people said.

The Carlyle Group has been known to bleed affiliates for dividends by floating debt.  How might a captive rating agency help Carlyle's cause?  

Carlyle junk:  never too hot to loan.  Might this be DBRS new mantra?

Saturday, December 13, 2014

This Week's Signs of Political Elder Abuse

It was a rough week for America's retired seniors.  First, PPACA architect and physician Ezekial Emanuel suggested people over age 75 should stop taking any life extending medications.  He framed it as his personal decision before talking about "population based" medicine.

“It is really about what you are doing to contributing and enriching the world.  I want people to stop focusing on just more years, focusing on quality,” Emanuel says.

Older people can die early to save other people money.  This leads to the second abuse of retirees.  Kansas Governor Sam Brownback cut funding for the Kansas state employee pension.

The governor cut state contributions to KPERS $40.7 million for the next six months, dropping the employer contribution rate to 9.5 percent from 12.1 percent.

Read more here:
This reduction does not impact the pension liability, so theoretically the state of Kansas will make up the shortfall over time.  Then again, maybe not.

The third harming of retirees came from Congress and it jeopardizes any pension promise.   Congress considered and passed:

A measure that would for the first time allow the benefits of current retirees to be severely cut is set to be attached to a massive spending bill, part of an effort to save some of the nation’s most distressed pension plans.

The rule would alter 40 years of federal law and could affect millions of workers, many of them part of a shrinking corps of middle-income employees in businesses such as trucking, construction and supermarkets.

Congress included a bankster bonus feature.  Government insured banks will keep their derivatives franchises, which write and sell financial wagers.  How many bets will they make on pensions going under?  It's derivitable.

Thank heaven Congress is keeping billionaire, bankster and PEU taxes low.  America's politicians, for the most part,serve one class.  They regularly tell the rest to sod off.  For seniors that's could be an early six feet under.  

Tuesday, December 9, 2014

Frist Joins Carrick Capital as Senior Advisor

Carrick Capital announced former Senator and Dr. William H.Frist joined its stable of special advisors.  Frist already is a private equity underwriter (PEU) with Cressey and Co.  Carrick Carrick is an investment firm focused on fast growing software and technology-enabled services firms and it's targeting health care technology companies.  Thus the need for Dr. Frist's sage advice.  The company's press release stated:

“Healthcare technology services companies are a primary focus for Carrick. We see an opportunity to deliver better healthcare and address industry pain points through great business models and the application of innovative technology. Bill’s expertise and policy insights are invaluable to our portfolio companies that are serving this market,” added Carrick Capital Partners Co-Founder and Managing Director Marc McMorris. 
Those pain points are purposely designed by the U.S. Congress and regulators charged with implementing healthcare legislation.  Former Senator Frist knows of such legislative pain points.  Carrick invests more than capital.  It's betting its investment in Dr. Frist pays off.  I expect it will do so handsomely.

Sunday, December 7, 2014

Uncle Sam to Backstop Bankster Derivatives & PEU Stakes

Bloomberg reported:

Goldman Sachs Group Inc. (GS) has $7 billion invested in private equity that it might have to sell at a loss. For Morgan Stanley (MS), it’s $2.5 billion. 

The big sums explain why Wall Street has been lobbying regulators to delay a July deadline for complying with the Volcker Rule, which restricts banks from investing in private equity as part of a ban on making market bets with their own capital. 
This makes it sound like bank money is invested in a myriad of private equity funds, as opposed to the bank having a private equity subsidiary within the holding company.   Banks frequently spin off and sell subsidiaries.  Why not their PEU divisions? 

HuffPo noted the second barbarian run at Dodd-Frank's gate:

Wall Street lobbyists are trying to secure taxpayer backing for many derivatives trades as part of budget talks to avert a government shutdown.

According to multiple Democratic sources, banks are pushing hard to include the controversial provision in funding legislation that would keep the government operating after Dec. 11. Top negotiators in the House are taking the derivatives provision seriously, and may include it in the final bill, the sources said.

The bank perks are not a traditional budget item. They would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. -- potentially putting taxpayers on the hook for losses caused by the risky contracts. Big Wall Street banks had typically traded derivatives from these FDIC-backed units, but the 2010 Dodd-Frank financial reform law required them to move many of the transactions to other subsidiaries that are not insured by taxpayers.

Four banks dominate the derivatives market, J.P. Morgan, Bank of America, Citi and Goldman Sachs. 

Big banks may get to keep their PEU stakes and keep public backing for risky derivative trades. Time reported last year.

While there’s no way of knowing for sure, estimates of the face value of all derivatives outstanding tops a quadrillion (1,000 trillion) dollars, or more than 14 times the entire world’s annual GDP.  

The risk underlying derivatives is they are sold for little to no money relative to the underlying bet. 

Each actual dollar in the derivatives market is supporting between $35 and $70 of nominal value. Losses of only a few percent of face value therefore would be enough to wipe out even the best-capitalized derivatives traders. 
Leverage of 35 to one (potential risk to underlying fund) brings to mind Carlyle Capital Corporation which levered 36 to 1 (debt to equity).  CCC was the canary in the financial services coal mine imploding in Spring 2008, months before Lehman Brothers fall. 

The more things change the more they stay the same.  Same sponsors, same political system which requires huge fundraising to be elected. 

Politicians Red and Blue love PEU.