Monday, October 31, 2011

Carlyle's Rubenstein Gives $10 Million to White House History Center


Carlyle Group co-founder David Rubenstein gave the largest gift in history to the White House Historical Center.

Rubenstein noted The White House "plays a critical role in the public’s knowledge of and appreciation for this remarkable building and its unique place in history."

My hope is his $10 million donation will be used to scrub the stench of influence peddling from the White House's hallowed walls. Carlyle and peer private equity underwriters (PEUs) have carte blanche access under both Red and Blue Presidents.

Fed Primary Dealer MF Global Bankrupt


Reuters reported on the egg Blue bankster Jon Corzine threw on the New York Federal Reserve Bank with MF Global's bankruptcy.

MF Global Holdings Ltd, just nine months after ascending to the list of primary dealers who transact business directly with the Fed, filed for Chapter 11 bankruptcy on Monday.

The bankruptcy does raise questions, however, about how the Fed picks the primary dealers -- especially since MF Global was one of four firms added to the ranks after new, more stringent requirements were put in effect in 2010.

A spokesman for the New York Fed declined to comment.

Corzine's firm bet on a EU bailout for its significant European government bond holdings.  He counted on a bailout, maybe even relied on credit coverage. Nevertheless, a Fed primary dealer went belly up after passing "stringent requirements."  

MF Global's demise leaves 21 primary dealers to execute Ben Bernanke's Operation Twist.  

Update:  ZeroHedge made Corzine out to be Bernie Madoff, one who stole from his firm's customers. 

Update 11-6-11:  MF Global's clients may be organizing. Also, BlackRock and Evercore found MF Global's commingling of the firm's and client funds, but the Federal Reserve Bank could not. 

Sunday, October 30, 2011

Vaporware Credit Derivatives for Greek Debt

Lehman Brothers imploded in September 2008, due in part to kajillions in "off balance sheet" commitments gone bad.  After Lehman's fall, credit derivatives, already in a major run up, exploded in price for investors wanting "financial protection."

Congress and global financial regulators "reformed" credit default swaps, but that's little solace to investors who expected coverage on Greek sovereign debt for an expected 50% loss.  "Standard" CDS products ended up vaporware for buyers, risk-less cash for sellers, according to Tavakoli Structured Finance

“Customers” that accepted ISDA documentation when buying credit default protection on Greece are now discovering that ISDA defends the position that a 50% discount on Greek debt is “voluntary” and therefore not a credit event for credit default swap payment purposes according to its documents.

WaPo's Robert Samuelson reported Europe's solution to their debt crisis:  One element is:

Expand the existing rescue fund, called the European Financial Stability Facility (EFSF). It would provide insurance against losses of about 20 percent on purchases of European government bonds. This protection would supposedly reassure investors, who would continue to lend at low interest rates. An estimated $1.4 trillion of bonds might be covered.

So those selling credit coverage don't have to pay, but European citizens need to fill the gap?

Meetings on a rescue package included French President Nicholas Sarkozy, and German Prime Minister Angela Merkel.  Another Sarkozy, half-brother Olivier added his perspective:

Europe’s banking system is much larger than America’s and gets three-fifths of its funds from the “wholesale” market of big deposits, commercial paper and the like, writes Oliver Sarkozy, head of financial services for the private equity firm the Carlyle Group, in the Financial Times. If these big investors fled en masse, Europe’s financial system would collapse.

“The parallels to 2008” — when Lehman Brothers’ failure caused a panic — “are too stark to be ignored,” he says.
The last time everyone fled in masse, the Chinese government walked on their derivatives commitments. The U.S. Treasury funneled billions to American and European banks to keep the system solvent.  Why does Uncle Sam and the EU back fill for credit welshers, whether banksters, shadow bankers or the Chinese?

Someone's committing fraud, by selling products they won't, or don't have to back.  Holding firms accountable is exceedingly difficult, given their proprietors fund and control institutions charged with passing and enforcing laws.  Many are literally the law.  It's the PEU way.

(PEU stands for private equity underwriter, a particularly noxious form of shadow banker)

Bill Clinton's Job Creation PEU


Fortune's Andy Serwer interviewed President Bill Clinton on how to create jobs.  The topic shifted to tax reform, where Clinton offered:

I would also like to see money repatriated now for free, with no taxes. We're the only rich country in the world that still imposes taxes on corporations on money they earn overseas. I think they ought to bring it back for nothing if they put people to work with it. And if they want to spend it on compensation or stock buybacks or dividends, let them pay the long-term capital gains rate.

This is essentially the deal private equity underwriters (PEUs) have for carried interest profits.  The Carlyle Group is a virtual nonprofit organization

One company pushing for Bill's recommended tax treatment is Apple, with Vice President Al Gore on the board.  Huck & Finn shill for those with the ability to pay more, but always want a break.  Note:  The Clinton Global Initiative annual meeting is #1 for CEOs

Saturday, October 29, 2011

Carlyle Group Aiding America's Biggest Enemy


National Defense reported on Debtpocalypse, where Army futurists see another financial meltdown.  Francis A. Finelli shared his crystal ball at the meeting:

Finelli said the United States must either slow down its borrowing or risk a big meltdown. The Federal Reserve is fueling a future crisis by flooding the economy with money. The Fed’s balance sheet more than tripled since 2007 by $2.5 trillion, said Finelli. “Such tremendous increase in the money supply has not been accompanied by economic growth in the United States.” A rather shocking statistic, he said, is that the U.S. economy was actually larger in the fourth quarter of 2007 than it was in the second quarter of 2011.

The money supply problem, combined with potentially rising interest rates and inflation, could leave the United States facing trillion-dollar-a-year interest payments and unable to continue to live on borrowed money, Finelli said. “The United States for the next couple of years probably muddles through,” but the pain will come in the second half of the decade, he forecasted. “That is when Bob Wiedemer projects the money supply will start manifesting itself in higher interest rates and higher inflation.”

The U.S. military’s feared potential peer competitor, China, is expected to overcome future economic shocks more easily than the United States or Europe could, Finelli said. The strength of China will not come from its missiles or submarines, but from its wealth, he said. “China does view financial power as an exercise of power in a way that the United States does not. The United States only exercises financial power through its corporations.”

Finelli omitted how his employer, The Carlyle Group, ramped up borrowing to finance deals the past decade.  He neglected to mention how Carlyle coached Chinese leaders in the exercise of financial power.  When Finelli's boss isn't cracking jokes, Carlyle co-founder David Rubenstein is effusive in his praise of potential "peer enemy" China, the wild Far East.

Note:  The image of China came from a Carlyle Group video.  It seems the Army had probable cause to take Francis Finelli into custody.  Did they cuff and bag Finelli?  Doubtful.  I bet it was more like a standing ovation.

Ironically, the Army may reinvent itself along private equity underwriter (PEU) lines via cutbacks and partnering. 

The Alternative Futures seminar is part of the Army’s “Unified Quest” series of war games, which are conducted annually to examine issues that the Army chief of staff considers critical to current of future force development.

Watch where the 36th Army Chief of Staff General George W. Casey Jr., the 37th General Martin E. Dempsey and 38th General Ray Odierno land after their military service.   Given the revolving door, all three had a hand in picking PEU Francis "Frank" Finelli as a speaker.  Did Carlyle's Booz Allen Hamilton, a huge government/military consulting contractor, have a role in suggesting Francis?

The Army's future offers multiple ways for PEUs to profit, from anti-cyber terrorism to infrastructure enhancements to control of water resources.  Rest assured, Carlyle knows how to pry dollars from Uncle Sam's trillion dollar purse, while minimizing contributions.

Retired General George W. Casey Jr. served as John Negroponte's senior military adviser in Iraq.  Negroponte was behind the recent Concordia Summit focusing on international terrorism.  Concordia stressed public-private partnership solutions to global terror problems like cyber terrorism.  What will Concordia do with China being a financial threat?  I see armies of bankers and shadow bankers marching as to war from the safety of their trading desks, happily paid by Uncle Sam.  It's truly a PEU world and likely a matter of time before Casey is drafted by KKR, Bain, Blackstone or Carlyle.

Good luck to those who have to wait for the next economic recovery, predicted by Army futurists to begin in 2020 and run to 2028.  What kind of machinations will PEUs foist on the globe before 2020 hits?  They plan to be supremely profitable.

It's a PEU world, where everything should be remade in its image, including the military and religion.

Schwarzman's Helicopter to Twain Rescue


WaPo reported how billionaire Stephen Schwarzman saved the Twain Award ceremony:

Former Kennedy Center chairman Stephen Schwarzman — chairman and co-founder of private equity giant The Blackstone Group — has donated millions to the performing arts center.  And now he has donated the use of his personal helicopter.

Movie stars Ben Stiller and Matthew Broderick needed last-minute transportation between New York and Washington to help fete friend Will Ferrell, who won this year’s Mark Twain Award for comedy at the Oct. 23 Kennedy Center celebration.

With top performers in a squeeze, Schwarzman swung into action, offering his helicopter so the show could go on. “There are far too few laughs in Washington these days, so I was happy to help out the Kennedy Center when they asked,” Schwarzman said.

Recall Twain wrote:

What is the chief end of man?--to get rich. In what way?--dishonestly if we can; honestly if we must. Who is God, the one only and true? Money is God. God and Greenbacks and Stock--father, son, and the ghost of same--three persons in one; these are the true and only God, mighty and supreme...     - "The Revised Catechism" 9/27/1871 

Twain nailed private equity underwriters (PEUs) a century before their birth as leveraged buyout firms.

At another recent benefit headliner Schwarzman had a string of jokes on how PEU machinations could save "the church."



He didn't go so far to say "Money is God," but the crowd applauded Schwarzman as if he were one.  The world has become a black comedy.

Wednesday, October 26, 2011

Carlyle's D'Aniello Playing Hard to Get?


The Carlyle Group may slow down the pace of its independent public offering, according to peHUB. 

Saying markets are “not friendly,” one of The Carlyle Group’s co-founders said that the firm may actually not go through with its planned initial public offering after all.

“We’re in no hurry,” said Daniel D’Aniello, one of Carlyle’s three co-founders, who was speaking Tuesday at the Quebec City Conference in Canada. “We’ve been around for 25 years,” he said, saying the firm “might stay private for another 25 years.”
How will Carlyle's DBD co-founders monetize their holdings if there's no IPO?  It will be harder to shoot up the billionaires list without a Carlyle Group public offering. 

As for peHUB, they might want to use the private equity underwriter (PEU) Carlyle Group logo, instead of the executive recruiter Carlyle Group Ltd. logo.  The Ltd. version filed for bankruptcy in 2009.

Private equity Carlyle had its own spate of bankruptcies, beginning six months before the fall of Lehman Brothers.  Ironically, PEU Carlyle just hired Lehman's former Senior Vice President of Corporate Communications, Randall Whitestone.

At Lehman Brothers Whitesone was the Global Head of Media Relations for the Investment Management and Mortgage Capital divisions, as well as chief editor of the firm’s annual report
Just what Carlyle needs, the man who sold the benefits of junk mortgage securitization and wrote Lehman's fictional annual report.  There's no way the firm described in SEC filings should have gone down overnight.

The Fall 2008 financial implosion was a team effort between big banks and shadow bankers like Carlyle.  But why would The Carlyle Group hire Lehman's former mouthpiece?  Whitestone worked for George Herbert Walker, cousin of the Bush boys, one a former U.S. President and the other ex-Florida Governor.

With a bipartisan stable of political heavyweights, Carlyle tilts blue or red as times require.  Whitestone can pick up the phone and access financial and political heavyweights, as well as business reporting firms, former employers.  The DBD's need help polishing their IPO if they stand to enjoy their monetization and eventual retirement.

For an IPO to happen, there must be investor support.  Investment banks would hate to lose underwriting fees.  Might D'Aniello be teasing interest?  Did Randall Whitestone contribute to a Carlyle IPO sales strategy?  If so, he's a cagey guy.  Funny, that's where I envisioned Lehman's executives and Carlyle's ethically challenged, behind bars.  Instead they're free and remaking the world in their PEU image.

Update 10-30-11:  Carlyle is behind Blackstone in more ways than IPO valuation.  Carlyle has only filed its initial S-1.  By this time Blackstone filed two amended S-1s on its way to a total of ten.  

Sunday, October 23, 2011

PEU Google on Yahoo Deal?


RTT News reported Google may join private equity underwriters (PEUs) bidding on Yahoo.  With over $42 billion in cash, Google might finance part of a PEU deal.  The article highlighted private equity firms in the Yahoo mix:

Silver Lake Partners, Blackstone Group (BX), TPG Capital, KKR & Co. (KKR), Bain Capital, Carlyle Group, Hellman & Friedman, Providence Equity Partners and Warburg Pincus are among the several private equity firms that are said to be considering buyout offers for Yahoo.

Microsoft may team up with Silver Lake and a Canadian pension fund for a Yahoo bid. Does this mean tech firms are the new banks?  How does that impact Dodd-Frank?  It's a dark, squirrely PEU world.

Idea for Bill Conway to Help Poor

Carlyle Group co-founder William Conway, a multi-billionaire by virtue of his life's work as a private equity underwriter (PEU), dangled $1 billion to help the poor.  Ideas poured in, the latest from WaPo's Robert McCartney.

Does Robert know about Carlyle's propensity to cut jobs to pay for corporate interest and management fees?  Does he know Conway & company sent jobs to "low wage portions" of the globe?  It doesn't take much research to find Conway's imprint on the poor and elderly.

Starting with a British carpet maker, Brintons, which Carlye purchased after Conway issued his $1 billion challenge, PEU Conway dropped Brintons pension fund and cut 10% of its UK jobs, 70 out of 700.  Most of Brintons jobs are moving to China,, where the firm is completing a "state of the art" manufacturing facility.


One could chalk Brintons up to bad timing.  However, Carlyle's ownership of United Components reinforces the job shift to China, only these were U.S. auto parts manufacturing jobs.  Carlyle owned United Components from 2004 to 2010.


When Carlyle purchased UCI it had no Chinese subsidiaries.  By 2010 UCI had thirteen subsidiaries in China or Hong Kong.  The number of employees fell from 6,900 to 4,350.  Carlyle pulled $35.3 million from UCI via a special dividend in 2007.   Add their $2 million annual management fee and the total rises to $47.3 million.  How many jobs did Conway send to China outside UCI?

WaPo's McCartney voiced:

Conway’s money can help ensure that those jobs go to people who already live here but have been outside the workforce, rather than to people who’d move here from elsewhere.

Is Conway's challenge regional?  Does he desire to burnish his impeccable D.C. reputation?  At least Blackstone co-founder Pete Peterson's "Don't Tax the Rich" Foundation has a national focus.  

Nonetheless, a billion dollars would pay for a lot of basic education and work skills. That would translate into jobs that would change lives in the long run, just as the philanthropist wants.

Basic education in what?  If it's a Carlyle Group subsidiary, they best teach Chinese.  The question is which dialect, Mandarin, Cantonese, Shanghainese, etc.?  It's a PEU world.

Gadhafi's Cash: Uncle Sam's Suprise


Libyan leader Muammar Gadhafi had billions stashed around the world, according to the LA Times:

Moammar Kadafi secretly salted away more than $200 billion in bank accounts, real estate and corporate investments around the world before he was killed, about $30,000 for every Libyan citizen and double the amount that Western governments previously had suspected, according to senior Libyan officials.

The new estimates of the deposed dictator’s hidden cash, gold reserves and investments are “staggering,” one person who has studied detailed records of the asset search said Friday. “No one truly appreciated the scope of it.”
When will those detailed records become public in the new Libyan self-appointed democracy?  The Obama team should be well aware of one Libyan investment, Arab Banking Corporation, given the bank received $35 billion in Fed loans.  The report went on to say:

Obama administration officials were stunned last spring when they found $37 billion in Libyan regime accounts and investments in the United States, and they quickly froze the assets before Kadafi or his aides could move them.

The Bush administration courted Gadhafi billions, as did Obama his first two years in office.  America went from no diplomatic presence to opening a liaison office in June 2004. By 2009 the U.S. had a full embassy in Tripoli. Libya's ambassador to the U.S. under Gadhafi is now a key rebel leader.

Wouldn't a U.S. administration know how much money Gadhafi invested in America and around the globe, especially given Gadhafi's money was a reason for opening up Libya?  A spate of private equity firms courted Muammar Gadhafi, The Carlyle Group, Blackstone, Colony Capital, etc. 

Colony Capital looked to sell a portion of the firm to an unnamed Middle East (ME) Sovereign Wealth firm (SWF).  Could it have been the Libyan Investment Authority?  Colony Capital's deal for Libya's Tamoil fell through, as did Colony's monetizing a portion of the firm via a ME SWF.

Most of the money was under the name of government institutions such as the Central Bank of Libya, the Libyan Investment Authority, the Libyan Foreign Bank, the Libyan National Oil Corp. and the Libya Africa Investment Portfolio.
The Libyan Investment Authority gave The Carlyle Group $118 million to invest.  Shadow bankers, like private equity underwriters and hedge funds, are opaque.  There is nothing transparent about them.  Goldman Sachs lost 98% of a $1.3 billion Libyan investment.  Wall Street hit Gadhafi in the pocketbook long before the latest round of UN sanctions.

I wonder if the same legendary group of PEUs and politicians will line up for Gadhafi's funeral, like they lined up for his money.  Will Rubenstein, Schwarzman, Carlucci, Baker, Bush, Townsend, Specter, McCain, Blair, or Mandelson make the burial?  Will they give their condolences to Gadhafi's son Saif?  Doubtful.  A relationship forged on money evaporates when the ka-ching is gone.

Update 1-9-16:  Hillary Clinton's e-mails mention Gadhafi's billions in gold, whilst Tony Blair continues to spin his Gadhafi story to his favor.

Saturday, October 22, 2011

Carlyle Monetizes Diversified Machine


The Carlyle Group sold one automotive supplier, as it works to acquire several others, Cooper Standard and TI Automotive. Crain's Detroit Business reported:

Beverly Hills, Calif.-based private equity firm Platinum Equity has acquired Howell-based aluminum and iron castings supplier Diversified Machine Inc., unnamed sources told Crain's.  Financial terms of the deal were not disclosed.

Reports surfaced in August that its previous private equity owner The Carlyle Group was looking to unload Diversified Machine, looking to fetch more than $400 million.

New York-based Carlyle Group formed Diversified Machine in 2005 by acquiring all of the assets of Howell-based supplier UniBoring out of bankruptcy and adding assets from then-bankrupt Metaldyne and Hayes-Lemmerz.

Carlyle lists both Diversified Machine and Metaldyne as affiliates.  DMI took on Metaldyne's chassis business and Spanish operations in 2009.  Both DMI and Mataldyne have production sites in China, Carlyle's favorite low cost part of the globe.

Carlyle leeched Metaldyne via an $88 million special dividend, financed by floating $225 million in debt.  Now it's ready to monetize DMI.  One has to wonder what kinds of conversations took place between Carlyle's co-founders and GM's CEO Daniel Ackerson, a former Carlyle Managing Director. Did Ackerson indicate where the growth niches are in the automotive segment?

Was it just time to cash in?  It's the PEU way.  (PEU stands for private equity underwriter.)

Update 5-7-12:  WaPo used Diversified Machine to wax poetic on the virtues of PEU's.  Value, resale, bag holder, it's all in the eye of the beholder.

Thursday, October 20, 2011

Carlyle's IPO: Double Cash In?

The NYPost reported The Carlyle Group's planned IPO values the private equity underwriter (PEU) at $8.5 billion.  That's a little more than half of rival Blackstone's valuation.

Despite sinking valuations, there are signs Carlyle will push ahead with its public offering. Sources said the firm recently lined up a $600 million loan to replace its existing $150 million credit facility.

The banks providing the loan, led by JPMorgan Chase, will have a difficult time reselling it in the tight credit markets and will take a loss on the deal, sources said.

But the lenders hope t recover that money and more through feeso they collect by underwriting the IPO, expected to happen in early 2012, they added.

As for Carlyle, companies often borrow money right before a public offering because they can gain access to capital at below-market rates.
NYPost missed that PEU affiliates borrow before a public offering to pay special dividends, a pre-cash in to the later IPO cash in.  Before HCA's public offering, KKR and company bled the for-profit hospital firm for $4.25 billion, a hefty chunk of it debt financed.  Blackstone later ran the debt for dividend scheme on Vanguard Health Systems, its captive for-profit hospital affiliate.

How much of Carlyle's new $450 million in debt will end up in their founders' pockets?  The greedy billionaire race continues...

Tuesday, October 18, 2011

Carlyle's Bill Conway: Quit Firing People

Carlyle Group co-founder Bill Conway, the billionaire that wants to grow jobs, could start by not firing people.  BBC News reported:

Carpet company Brintons is to axe 70 jobs as part of a cost-cutting programme at its Worcestershire base.  The firm was bought out by the Carlyle Group last month in a £40m deal to secure its future.  Brintons employs 1,700 people globally, of which 700 are in the UK. It plans to lose 70 mainly office-based staff in Kidderminster, a spokesman said.
Brintons employees should enter the Conway $1 billion sweepstakes.  Carlyle's Chris Ullman  wants to hear from Conway's latest group of de-poled fishermen.

First, Carlyle axed worker pensions, then they cleavered workers.  It's a Halloween nightmare, courtesy of the DBD's (Carlyle's co-founders).

Financial Vaporware: BOA's Sleight of Hand


Bank of America moved risky derivatives to a federally insured banking unit within the company, according to Bloomberg.  The Federal Reserve Bank of New York is in favor of the move, while the FDIC objects.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties.

Requested by counterparties?  They're the "investors" (gamblers) who took the other side of BOA's derivatives bet.  

Bank of America’s holding company -- the parent of both the retail bank and the Merrill Lynch securities unit -- held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades. 
Lehman Brothers failed due to bad derivatives bets and the evaporation of short term credit used to finance its balance sheet.  Nobody trusted Lehman to pay its debts or its bets.

The Fed is trying to prevent another Lehman.  While far from Lehman crash levels, credit default swaps sit at:

Merrill Lynch - 431 basis points (down from 513)
Morgan Stanley - 418
Bank of America - 380
Goldman Sachs - 360

A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Moving credit and other derivatives to a federally insured banking unit, shifts risks to the FDIC.

(Thanks to Economic Policy Journal)

Monday, October 17, 2011

Bloomberg Misses Perry's TEF Vought Fiction


Bloomberg got Texas Governor Rick Perry's swagger.  They missed his put on. Author Joshua Green pushed the Perry line.

Perry has fared much better in situations where success depends upon his own formidable charm. The leading example of this, often touted by the governor and his campaign, is the Texas Enterprise Fund (TEF). In 2003, even as the state was facing a $10 billion budget shortfall, Perry persuaded the legislature to commit $295 million to lure businesses from out of state.
The Governor's most outlandish jobs claim concerned Vought Aircraft Aviation, a Carlyle Group affiliate when Rick Perry forked over $35 million for a promised 3,000 new jobs.  After six years with a Texas sized jackpot, Vought hadn't added to their workforce.  They cut 35 Texas jobs, meaning Rick Perry gave Vought $1 million per job eliminated.

Bloomberg wouldn't have to look far to garner these facts.  Vought's SEC filings and corporate website detailed job numbers.  I tracked those statistics over the years, as well as Governor Perry's preposterous claims of over 26,000 new Vought jobs in his TEF report.  Take away Perry's Vought fiction and the Texas jobs picture changes dramatically.

The bar continues to fall in ethical leadership and business reporting.

Sunday, October 16, 2011

What Occupy Wall Street Doesn't Know


Does Occupy Wall Street know Obama's top two White House staffers, William Daley and Nancy-Ann DeParle have JP Morgan roots?  For his first three years President Obama continued the Bush Corporawhorehouse on Pennsylvania Avenue.

Does Occupy Wall Street have a clue about private equity underwriters (PEUs), the new Wall Street?  Infamous Blue and Red political names retire, join lobbying houses and accept a plum Senior Advisor PEU position. Blue Tom Daschle and Red Bill Frist symbolize the new Wall Street.

Does Occupy Wall Street realize the Clinton Global Initiative is the #1 event for CEOs?  Do they know Larry Summers, architect of Gramm-Leach-Bliley, is now Senior Advisor for Andreessen Horowitz, a high tech vulture capital firm?  Summers is also on the board of Square, a Kleiner Perkins Caufield & Byers investment.

A KPCB partner is former Vice President Al Gore, a double PEU given his status at Generation Investment Management.  Also at Kleiner Perkins?  Reds Meg Whitman and  Colin Powell

The big money game is truly bipartisan.  Wall Street supported candidate Obama in 2008.  They'll place their bets for 2012, knowing the winner will appoint their people to key White House slots.  I venture nary an Occupy Wall Streeter will be among them.

While serving the public, the aforementioned Nancy-Ann DeParle raked in residual PEU stakes that didn't appear on her financial disclosure forms, much like Red Rick Scott.

The Blue plated Podesta lobbying clan is happy to take money to influence legislation or buy face time with White House staffers.   How long before a Podesta offers to help the Occupiers?

Occupy Wall Street is great political theater, but they can't reform a system they don't understand and don't have the means to replace. 


It's a PEU world.

Morgan Keegan, Beware Your Only Hope


A consortium of private equity underwriters (PEUs) may be broker-dealer Morgan Keegan's only hope.  Investment News reported:

Private equity may be the last, best hope for Regions Financial Corp. in finding a buyer for Morgan Keegan & Co. Inc. A consortium of private-equity buyers, including The Blackstone Group LP, The Carlyle Group and Thomas H. Lee Partners, are finalists in the bidding for the broker-dealer, which Regions put on the block in June, according to Reuters.
Regions has at least two reasons for dumping Morgan Keegan.  One, it owes Uncle Sam $3.5 billion in TARP money.  The second relates to Morgan Keegan packaged mortgage security funds that exploded in 2007.  That prompted investor lawsuits, which claimed:

The four closed-end mutual funds are: (1) RMK Advantage Income Fund (“RMA”); (2) RMK Strategic Income Fund (“RSF”); (3) RMK High Income Fund (“RMH”); and (4) RMK Multi-Sector High Income Fund (“RHY”) (collectively, the “Funds”).

Investors in the Funds lost approximately $1 billion in 2007 because of the Funds’ investments in poor-quality asset-backed securities, leveraged many times over by complex capital structures.

The suit went on to claim "Morgan Keegan’s gross mischaracterization of risky asset backed securities as conservative corporate bonds and preferred stocks, and the undisclosed highly-leveraged credit risk in the low-priority asset-backed securities held by the Funds."

The company reached a settlement with authorities, according to Al.com:

Morgan Keegan and an affiliate agreed to pay up to $210 million in penalties after authorities said investors were misled into putting money into the company's RMK Select Funds, which were tied to the performance of sub-prime mortgages.

Authorities said Morgan Keegan misled investors about the risks of the funds, misrepresenting material facts in promotional and regulatory documents. The company's settlement of the matter last week neither acknowledged nor denied the majority of the allegations.

That should sound a familiar ring to The Carlyle Group, whose mortgage backed security investment, Carlyle Capital Corporation, imploded in March 2008, when the firm failed to meet $400 million in capital calls.

Carlyle has an investor lawsuit, just like Morgan Keegan.  Rest assured, Carlyle won't settle with any admission of guilt.  They have their good name to save.

While Carlyle dumped CCC and distanced the firm from the venture, it will gladly use Morgan Keegan's distressed position to negotiate a cheaper price.  Consider the price Morgan Keegan could fetch for Regions:

7-26-11 - "Some investors say the unit might fetch as much as $1.5 billion."

9-18-11 -  "Regions hired The Goldman Sachs Group Inc. to find a buyer and hoped for a price of at least $1 billion."

10-18-11 -  "Regions may be lucky to get the $789 million it paid for the firm back in 2001."

I smell a PEU brown-pile special.  It's a perfect fit for Carlyle, where the new affiliate mirrors the parent.  Now, how to grow Morgan Keegan's government subsidized business?  Blackstone has its tentacles deep inside the U.S. Treasury and New York Fed

This ain't no Obi-Wan Kenobi "only hope."  It's much darker.

Update 10-23-11:  Bloomberg reported Regions plans to pull $250 million in dividends from Morgan Keegan before the sale.   Interestingly, the deal is back to $1.1 billion with Regions putting up $200 million in debt financing.

Saturday, October 15, 2011

PEU Health Care Deals Get More Expensive


Financing private equity health care deals for PPD and Kinetic Concepts got more expensive with the latest round of debt concerns.  The Carlyle Group's deal for PPD was the "third-largest and had the highest debt multiple of 2011 year to date," according to The Deal.  The story noted:

One knowledgeable private equity investor says, "The financing [caps] on that deal were 300 to 400 basis points above what it was three months ago." And flex provisions, which give banks wiggle room to change pricing if markets shift, have become dramatic due to bank fears of losses.
That means higher interest costs, courtesy of private equity underwriters (PEU's).  The Deal caught up with my earlier observation on PPD's lack of long term debt before selling out.  Health care costs are clearly not going down, not in a PEU invasion.

Carlyle Group Bids on Auto Parts Makers

The Carlyle Group is in the race for two car parts makers, Cooper Standard and TI Automotive, according to Reuters.

Companies looking to sell out to The Carlyle Group should consider the private equity underwriter's (PEU's) track record in the automotive parts space.  Carlyle owned United Components from 2004 to 2009.  The number of employees fell from 6,900 to 4,350.  Carlyle pulled $35.3 million from UCI via a special dividend in 2007.

Will Cooper Standard and/or TI Automotive suffer the same fate as UCI?  That would entail a Rank ending, but that's common for PEU's.

Update 11-22-11:  Carlyle's winning bid for TI Automotive has not been able to secure debt financing due to seized debt markets. 

Friday, October 14, 2011

Carlyle Group Fundraising: Top Ten Tips


Carlyle Group co-founder and front man David Rubenstein spoke at the British private equity underwriter (PEU) gathering.  Amidst the greedy, stiff upper lips Rubenstein shared his top 10 fundraising tips:

1) Believe in what you are doing
2) Know what you are talking about
3) Make sure you enjoy what you are doing
4) Listen to potential investors
5) Make sure your materials back up what you are saying
That's why the following don't make Carlyle's materials, Carlyle Capital Corporation, Blue Wave Partners, Semgroup, Oriental Trading, Stallion Oilfield Service, IMO Carwash, Hawaiian Telecom, Edscha, and Verari.  All went bankrupt under Carlyle ownership.  Other blemishes include China Forestry and China Argitech with accounting scandals and LifeCare Hospitals, which has the highest patient death toll after Hurricane Katrina.  Here's the rest of David's Top Ten.

6) Follow up
7) Know how to ask for money
8) Make sure you say thank you when you get it
9) Accept what you are given
10) Accept “no” for an answer gracefully.
Meanwhile, other PEU leaders waxed on and off regarding mega deals returning.  And Carlyle's Charles Rossotti recommended it's "smarter to damn the torpedoes" and "grow the federal business faster." 

Even though Carlyle loves federal business, it hates paying taxes.  The Carlyle Group is a virtual nonprofit, paying a mere 1% of profits in taxes.  Add the nonprofit nature of most of Carlyle's debt securitizations and things become more distorted.

Thursday, October 13, 2011

The Boys that Landed Bush


Two young men, a year after graduating college, established a nonprofit organization focused on counter-terrorism.  Matthew Swift and Nicholas Logothetis drew an all star cast to their inaugural meeting.



The A list included President George W. Bush, John Negroponte, Frances Townsend and Tom Kean.



Former Colombian President Alvaro Uribe said, "This morning when I met Nicholas and Matt I was amazed, they are so young and they have this commitment and this force to convene this summit."

This pair got The Heritage Group to show up and video proceedings.  The young duo pushed a decidedly pro-business agenda in regard to terrorism.  They spoke public-private partnerships (PPP's), trusted business and global brands as the solution to terrorism. 

1) Institute public-private partnerships to alleviate the social and economic conditions in at-risk countries that give rise to extremist thought and behavior
  • Support from the private sector is vital in creating alternatives for youths that are at risk of being driven to extremist behavior due to the conditions surrounding them.
  • Foreign investment and coordination with governments bring critical jobs. 
  • Businesses should work with governments to design a subsidy program, similar to U.S. subsidies for farmers, incentivizing farmers in foreign countries who grow illegal substances to instead turn to crops that benefit the community as well as produce income.
  • Businesses should establish a meaningful presence in communities to educate and support local leaders in their efforts to transform at-risk areas.
2) Modifications are needed to the Patriot Act and similar programs to improve efficiency and effectiveness
A. Governments should institute a "trusted business" program akin to the global "trusted traveler" program to allow honest and respected businesses to operate without being hindered by cumbersome regulations.
    • This would result in significant savings in financial and labor resources for governments.
B. Governments should have strengthened capabilities to track, freeze and seize assets of suspected terrorists and drug dealers/distributors.
    • With improved control over the resources of suspected terrorists, counter-terrorism teams will more effectively hinder their ability to operate.
3) Global brands could play a significant role in improving the image of governments among those that live in "at-risk" communities
  • Conduct a study on how youths abroad view the United States and other countries through the lens of leading consumer brands, which play a powerful role in the perception of nations.
  • Numerous educational opportunities exist for global corporations to leverage the power of their brands for the good of communities around the world.

Concordia is the new counter-terrorism brand, complete with an Index.  A toast to the young and well heeled.



It's a PEU circle of power, influence and greed.


Concordia Summit's star studded crowd drew media, even a double dose of Fox, where the boys once worked..

Swift "co-founded and serves as Chairman of Concord 51, a policy-based political action committee for young professionals focused on promoting fiscal responsibility, energy advancement and a strong defense policy."  He also established Concordia LLC, a company that manages the careers of former heads of state and luminaries. 


Swift is seen with Virginia Governor Bob MacDonald celebrating Thomas Jefferson's 268th birthday.  Former PEU and Blackstone co-founder Peter G. Peterson spoke at Monticello in honoring Jefferson.  I suspect Thomas Jefferson, the man who called for the right of Secret Societies to protest until all rights are restored, would be appalled by this crew.

Consider what Matthew did in less than a year:

2011Present (less than a year)
-Formed Concordia LLC, which serves as a representative agency for luminaries including former heads of state.
- Concordia designs the formal post-careers for key individuals including book publishing, speaking engagements, consulting contracts, corporate positions, academic posts and their overall public relations and online profile.
-The Concordia Foundation (subset of Concordia LLC) hosts a series of mini global series, aimed at bridging the divide between the private and public sectors. 
It takes connections to deliver all that, especially the retirement prize for politicians, senior advisor PEU slots.

Update 11-2-11:  Fran Townsend called Iran's plot to assassinate the Saudi ambassador an act of war.  

Wednesday, October 12, 2011

Carlyle's Bill Conway Gets HuffPo Accolade

Huffpo Small Business reported:

Recently, Charles Schwab of Charles Schwab and Bill Conway of the Carlyle Group, who have both built sizable businesses, created thousands of jobs, paid pensions and college tuitions, and created returns for mom-and-pop investors and unions, put their focus on entrepreneurship and jobs. Conway concedes that, after years of extremely generous philanthropy, that he now calls 'stopgaps,' jobs, not handouts, matter most to individuals and to the strength of the country. 

The Carlyle Group also cut thousands of jobs, dumped pensions, and purchased companies making money off college students via housing and travel   They promised the state of Texas 3,000 new jobs for $35 million, but never delivered.  As for "mom and pop" investors, Conway and company walked away from Carlyle Capital Corporation, defaulting on $16.6 billion in debt.  CCC's failure was a canary in the coal mine, portending Bear Sterns and Lehman Brother's failure.  Carlyle helped "mom and pop" investors lose trillions in 2008.

While Conway said "jobs matter most," Carlyle's record of greed involved  exporting jobs to low wage portions of the globe and being a tax-free private equity underwriter (PEU).  Carlyle manipulates the capital side of companies, adding debt and siphoning billions in special dividends from affiliates.  Both moves hinder job maintenance, much less expansion. 

Does anyone conduct research anymore or do they just write accolades for politically connected billionaires, knowing there's little down side? 

Tuesday, October 11, 2011

Carlyle Loads Up on YRC


Seeking Alpha reported:

YRC Worldwide Inc. (YRCW) is an international provider of asset and non-asset based transportation services across the U.S., Puerto Rico, Canada, Guam and Mexico. DC-based The Carlyle Group, with over $150 billion in assets under management diversified over 84 distinct funds, filed Form SC 13G with the SEC on Thursday, indicating that one of their funds, DBD Cayman Holdings, holds 292.8 million shares or 14.1% of YRCW stock, a new position since the company last filed their quarter 13F with the SEC for the period ending June 2011.
Carlyle's YRCW holdings are direct shares and indirect stock holdings via convertible bonds.  Nearly 293 million shares come from 128.9 million shares of stock + 163.9 million convertible from debt.  Unmentioned are another 93.2 million shares convertible in July 2013.

YRC isn't Carlyle's first venture into the transportation arena.  Carlyle purchased CSX Lines, converting the company into Horizon Lines.  They monetized Horizon after 18 months for a quick double.   Carlyle also owned intermodal facilities operator ITS.  It lost out on Inchscape and withdrew from Galveston's port privatization.

DBD Cayman's holdings (prior to the YRC stock/convertible bond purchase) stood at $9 billion.  Roughly $450 million or 5% of DBD's holdings are U.S. banks, most of which received TARP funds.  BankUnited got over $2 billion in cash subsidy from the FDIC.  Given Carlyle's love for Uncle Sam's wallet, it's no surprise YRC Worldwide has a Government Solutions division.  They don't break out government revenue, instead lumping it into National or Regional shipment revenues. 

Carlyle could always read Uncle Sam's tea leaves.  It helps to have a former White House lawyer as a co-founder and huge government consultant Booz Allen Hamilton as an affiliate.  What does David Rubenstein know that makes YRC ripe for 30% or greater annual returns?

Monday, October 10, 2011

LMS Capital: PEU to Wind Down

WSJ reported:

LMS Capital PLC (LMS.LN) announced a change in strategy and said it would make no new investments and focus instead on selling off its portfolio, effectively caving in to an influential group of investors who wanted a swift break-up of the company.

Shareholders representing 35% of the mid-market private-equity firm and led by Chairman Robert Rayne had objected to the company's revised strategy to sell existing quoted, direct and fund investments and focus exclusively on direct investments. 
LMS faced down their Chairman led investor revolt.

The group, self-styled as the Concert Party, had wanted the company to sell assets and return cash to shareholders--a strategy it said was of greater value than investing in illiquid assets at a time when the company's share price was already trading at a 38% discount to net asset value.

Monday, LMS Capital said it had tried to initiate a sale of the group's holding, but it had been impossible to establish an appropriate price that would be acceptable to the sellers and that buyers would be prepared to pay in current market conditions. 

This story has implications for The Carlyle Group's IPO.  LMS Capital is already publicly traded, something Carlyle aspires to be.  With existing shareholders unhappy, LMS will execute a wind down.  How might that impact investor appetite for Carlyle's PEU shares?     

Carlyle Group: British Pension Dumper to African Pension Partner


After taking over two British companies sans pension plan, the Carlyle Group, a private equity underwriter (PEU), will partner with Nigeria's PENCOM.  Nigeria's The Nation reported:

Nigeria’s drive to attract foreign investors is yielding results as one of the world’s largest global alternative asset management companies, Carlyle Group, is in the country to invest in agriculture and financial services.

Carlyle's David Rubenstein, said the group’s private equity investments in Nigeria will have positive impact in job creation, capacity building, infrastructural and economic development as well as increased revenue from taxes. 

Nigeria should know Carlyle dumped RAC's and Brinton's pension plans.  Carlyle's nearly tax free status in the U.S. became clear in their S-1 filing with the SEC.  Will PENCOM get a cut of annual management fees?  Surely, they'll take a slice of special dividend distributions.

Rubenstein, said a significant portion of Carlyle Sub-Saharan Africa Fund's (CSSAF’s) capital would be deployed in Nigeria.

What happens when billionaire kings of disparity teach their models to former European colonies, accustomed to the white man's greed and bleed?  The good news is Carlyle only intends to stay 5-10 years. That is unless they launch CSSAF II.

Saturday, October 8, 2011

It's a PEU World

Quote of the day from USAToday:

"How will shuffling the crappy debt of broke (European) countries from broke banks into a leveraged 'special purpose vehicle' ultimately backed by the taxpayers of broke and nearly broke countries solve anything in the longer term?

This came from an article titled, "You Think the Economy's Bad?  You Haven't Seen Anything."

Meanwhile, private equity underwriters (PEU's) look to burnish their websites to burnish their image, still lackluster after all those billions.  PEU's can buy Congress but the public knows their distinct odor.  

PEU affiliates get loaded down with interest expense and new management fees.  That generally comes out of two hides, payments to Uncle Sam's Treasury and employee backsides.  

While billionaires can buy PR, they can't make a skeptical public believe dung is perfume.  Bean up...

Tuesday, October 4, 2011

Rubenstein: China Needs to Invest in U.S.

Carlyle Group cofounder David Rubenstein advised China to redeploy its significant financial reserves in the United States.  He asked how America can encourage China to do it and make our country more receptive to Chinese investment.  His sales pitch went like this, with my comments following each Rubenstein point:

1)  Chinese investment will create more jobs

The Chinese clearly want U.S. energy assets and want American business for Chinese banks.  China's heavy handed, greedy management style fits with private equity underwriters (PEU's), but is generally anathema to quality.

2)  Make the CFIUS process more clear so the Chinese can understand it.

I.e., who do the Chinese need to bribe in America?  That leads back to what private equity does best,employ political influence. 

3)  American companies with operations/investments in China need to help their Chinese counterparts learn how to invest in America.  If they don't, U.S. companies won't be as welcome in China. 

Greed teaches greed.  China only allows U.S. companies as long as the Chinese benefit.  Benefits end and American companies get the boot.  Sound familiar?

Update 10-7-11:  China Daily finally picked up the story.

WSJ's PEU Beat


WSJ reported on billion dollar health care deals:

Just as celebrities seem to die in threes, it seems multi-billion dollar deals seem to come in pairs. The same day that Carlyle and Hellman announced their $3.9 billion deal for PPD, a group led by Apax Partners agreed to pay $6.5 billion for wound-care company Kinetic Concepts Inc. Interestingly, though that deal is nearly twice the size of the PPD deal, the investors are putting in less equity–$1.75 billion compared with the $1.8 billion for PPD.
The WSJ reporter failed to notice PPD and Kinetic Concepts current capital structure, prior to private equity underwriter (PEU) deals.  Take Kinetic Concepts now, with its $3.3 billion balance sheet and $1.1 billion in long term debt:


Mix in Apax Partners and two Candian pension funds and Kinetic Concepts explodes in blue debt:


PPD currently has no long term debt, thus a complete absence of blue.


The $1.8 billion in Carlyle-Hellman equity means $2.1 billion in new PPD debt. The picture blues under PEU ownership:

PEU deals look to make health care costs blue.  Interest costs on $6.85 billion in new debt and 2% annual PEU management fees will add significant costs, roughly $640 million per year, to America's obscenely expensive health care system. 

That's what the Morning Leverage missed.

Update 10-17-11: Carlyle will pay PPD executives and board members $21 million in golden parachute money.  That's on top of their stock holdings.

Monday, October 3, 2011

PEU Business As Usual for PPD

The Carlyle Group and Hellman & Friedman will buy PPD for $3.9 billion, down from a previously estimated $4.3 billion.  PPD is a clinical research organization, which helps drug companies study potential new drugs. SEC filings on the deal state:

What changes will come as a result of this transaction?

Following completion of the transaction, PPD will be owned privately by The Carlyle Group and Hellman & Freidman. As such, PPD will no longer be a publicly traded company.

For our employees, it will be business as usual in delivering on the research programs that our clients have entrusted to us. Under the ownership of The Carlyle Group and Hellman & Friedman, we will continue to provide the highest quality drug discovery and development services in the CRO industry. We also expect, as a private company, to have increased flexibility to pursue our long-term strategic goals.

The company omitted two major changes, PEU management fees and dramatically higher interest costs.  "Business as usual" will change to pay these increased expenses.

Will there be changes to my health, welfare and retirement benefits?

No changes are expected this year or next year as a result of this transaction.
It's a good thing PPD isn't in Great Britain, where Carlyle's recent deals dumped the employee pension plan at Brintons and RAC. The merger agreement between PPD and Jaguar Holdings LLC, Carlyle and Hellman's merger subsidiary, speaks to employee benefits:

During the period commencing at the Effective Time and ending on December 31, 2012, Parent shall cause the Surviving Corporation to provide individuals who are employees of the Company and its Subsidiaries at the Effective Time with employee benefits, including cash-based bonus opportunities, that are substantially comparable in the aggregate to those provided by the Company and its Subsidiaries immediately prior to the Effective Time.
Benefits can change substantially as long as they are comparable in the aggregate.  PPD employees should watch their benefits closely.  They could monitor Carlyle Partners V, monetizer of BankUnited and Booz Allen Hamilton.

Carlyle cofounder David Rubenstein told Milken Institute attendees that U.S. healthcare costs weren't going down.  Contrast PPD & Carlyle's press release with Rubenstein's words:


Karen H. Bechtel, managing director and head of the healthcare group at Carlyle, said, “Fred Eshelman and PPD’s management team have built a leading and extremely high quality global research and services organization that will continue to help pharmaceutical and biotech companies develop new drugs at lower costs.

PPD's fees are going up due to increased interest expense, currently nonexistent, and new management fees.  PPD's balance sheet will more than double from $1.9 billion to $3.9 billion.

How much research work will Carlyle and company send to lower cost countries?  Americans will likely get higher health care costs and fewer jobs.  That's Carlyle's pattern.

Cheating to Garner the Prize: Clueless Uncle Sam

Medicare bonuses for home health visits, instituted in 1997 to discourage inadequate care, resulted in a different distortion as for-profit companies manipulated visits to maximize reimbursement.   Bloomberg reported:

A Senate Finance Committee report released today alleges that companies encouraged employees to make enough home-therapy visits to reach thresholds for bonuses, no matter whether the sessions were medically necessary, from the federal program for the elderly and disabled.

Medicare noted the distortion when the rule gave the bonus based on ten visits.  They shifted to a tiered bonus, which caused several levels of cheating to attain the prize. 

The federal government had the opportunity to learn from private industry, where executive stock options, supposedly the most pure form of incentive compensation, became the focus of widespread manipulation by corporate chiefs over a decade.  It ignored the potential lesson, pushing pay for performance to the point where Medicare has a word salad menu of extrinsic motivation schemes.

Accountable Care Organizations - ACO
Medicare Shared Savings Program - MSSP
Value Based Purchasing - VBP
Bundled Payment Pilot - BPP
Comprehensive Primary Care Initiative - CPCI
Hospital Consumer Assessment of Healthcare Providers and Systems - HCAHPS

Due to an inability to learn, new incentive schemes will end up like the old. Behavior will change to garner the prize.  A good chunk of that behavior, 25-30% will be unethical.  Pay for performance is toxic.

Gail Wilensky should be intimately aware of this toxicity given her board role at UnitedHealth Group, which had a massive stock option cheating scandal, and her director seat at Gentiva, one of the home health companies accused of manipulating visits by the U.S. Senate.

Wilensky served on Gentiva's board from 2000 to 2009.  She left with three other board members as a result of a March 22, 2009 board meeting, where one board member disagreed with policies and practices of the company.  Wilensky served on the Clinical Quality Committee and chaired the Corporate Governance and Nominating Committee.  Did something smell like UnitedHealth Group circa 2006?  One doesn't give up a $152,000 a year part time job easily.  Were leaders dipping into the unethical P4P bin?

Wilensky pushed for Medicare pay for performance in 2003 amongst a who's who of health care leaders, Dr. Don Berwick, Nancy-Ann DeParle, William Roper and a smattering of insurance executives.  Their letter was a critical driver of current P4P efforts.



Qui tam lawyers must be drooling as Uncle Sam slams on the brakes, while simultaneously flooring the gas.  Pedals of extrinsic motivation must be manipulated.  Medicare has proven it knows how to create fraud, at least on the corporate level.

Update 10-4-11:  The full Senate report can be read here.   Medicare noted the system could be open to manipulation when they designed it.  "CMS recognized in its original rulemaking that a 10-visit threshold was ‘‘susceptible to manipulation.’’  Extrinsic motivators change behavior, usually to the detriment of quality.

Update 2-25-14:  A lesson from Wall Street on incentives and how they distort.  A trader on trial in New Haven federal court accused of defrauding investors of $2 million by lying on trades of mortgage-backed securities.  He said, "My lying is part” of making deals, although I generally consider myself a truthful person."