Friday, October 29, 2010

BankUnited's Multiple Milkings: $2.3 Billion in FDIC Cash

BankUnited (BU) filed for a $300 million IPO, less than the predicted $500 million amount.  BU's SEC filings show how the bank's private equity owners benefited.  When the original deal closed, with $4.9 billion in FDIC loss sharing, new owners imposed a transaction fee.  The Carlyle Group, Blackstone, Centerbridge and WL Ross charged BU $20 million.

In consideration of the Key Parties conducting the financial and structural analysis, due diligence investigations, and negotiations described above, the Company will pay to each Key Party the following transaction fee:

(a)       to Blackstone a fee of $5,284,360.19

(b)       to Carlyle a fee of $5,284,360.19

(c)       to Centerbridge a fee of $4,146,919.43

(d)       to WL Ross a fee of $5,284,360.19
Each of the above parties has the right to appoint a board member and have a non-voting representative in attendance.

The Carlyle Group's BU holdings are in two funds, DBD Cayman, Ltd. and TGC Holdings, LLC.  Carlyle's holdings in Hampton Roads Bankshares sit offshore in DBD Cayman.  This FDIC approved offshore corporate investments in failed or struggling U.S. banks.  Highlights from the S-1 include:

BankUnited made a $120 million profit in eight short months.

On September 17, 2010, BU declared a quarterly dividend of $14.0 million. In addition, on October 19, 2010, the bank declared a special one-time dividend of $6.0 million.
That's two $20 million bleedings by investors.  Not bad for a year and a half. But it pales relative to Uncle Sam's generosity.

Cash received from FDIC related to business combination, net--$2,274,206,000

At June 30, 2010, BankUnited was one of the most well-capitalized banks in the United States

It's no wonder, with $2.3 billion in FDIC cash.  Investors put up $945 million, roughly one third of initial capitalization.  What did the FDIC get?  Warrants for 10% of the company.  Sheila Bair should be embarrassed.

Update 1-26-11:  BankUnited is expected to go public this week.   PEU Investors are the primary sellers of 26 million shares of stock at an expected price of $23 to $25.  How will Uncle Sam get back $2.3 billion in FDIC cash? They won't.  Others got rich on the deal. 

ESPN aired the University of Miami-UNC basketball game.  Miami's home arena is the BankUnited Center.  Miami President is Donna Shalala, former Clinton official.  The facility opened in 2003.  No name change was necessary given Uncle Sam's generous aid to BankUnited.

Update 2-12-2011:  Who got rich on the BankUnited IPO?  Not Uncle Sam, who put up 2/3 of the initial recapitalization...

Update 3-9-12:  Palm Beach Post finally sniffed out Carlyle and company's sweetheart deal.

America's Powerazzi and Elections

In the week before the election, America's powerazzi do their best to impact elections.  Reds & Blues do their best to tamper with the electorate.  Inflammatory political ads run ad nauseum.  American CrossRoads, backed by professional inflammer Karl Rove, is the newest ditch witch, driving U.S. elections deeper into the gutter.

Blue Bill Clinton tried to broker a deal, where Kenrick Meek would drop out of the Florida Senate race to help independent Charlie Christ.  When citizen wishes aren't what power players want, insiders manipulate the choices.  Clinton's throwing Meeks under the bus is instructive, as Bill dragged Meeks all over the country to help Hillary's Presidential run.

Red Jeb Bush called Charlie Christ self-serving, saying "He's the most ambitious man, I've ever met in politics."  What would Jeb call an ex-Florida governor going on the board of a healthcare company he fined multiple times for improper billing?  When he comes up with a name, Jeb should look in the mirror and enunciate clearly.  Self-serving corporate Jeb earns over $300,000 a year on the board of ethically challenged Tenet Health.

Jeb's appointment came a year after the Bush White House omitted any mention of Tenet's Memorial Medical Center, where 35 patients died after Hurricane Katrina.  Tenet lobbied the White House on The Stafford Act (disaster response) and corporate governance changes in early 2006.  Was any self-serving deal making done on Jeb's behalf?

Jeb's other job, as private equity man for Lehman Brothers, may have impacted George W.'s response in September 2008.  What politician would save his brother's and cousin's firm from financial death in the midst of a closely contested election?  Karl Rove knew such a move would be political suicide for the Red team.

Big boys' money and power games have America at a crossroads.  Staying the poisonous course ensures America's crossbones.

Update 3-9-13:  Jeb will saturate the Sunday morning political talk shows.  Is this a prelude to the next Bush-Clinton Presidential run, Jeb vs, Hillary?

Thursday, October 28, 2010

It's a Carlyle Siniverse

The Carlyle Group announced its second purchase of a telecommunications manufacturer.  The two deals include a $3.9 billion buyout of CommScope and a $2.6 billion takeover of Syniverse, totaling $5.5. billion.  Marketwatch reported:

Syniverse provides a full portfolio of mobile roaming, messaging and network solutions to more than 800 mobile operators, cable and Internet providers, and enterprises in over 160 countries.
The Carlyle Group had to do something with their mountains of cash, driven by mass monetizations in the last year.

Carlyle officials referred to Syniverse's role in the "mobile global ecosystem."   That's not your father's ecosystem, which actually involved nature.    Both CommScope and Syniverse have Chinese subsidiaries.  Welcome to Carlyle's siniverse, where words have no meaning, greed is mainstream, China is king and debt is back.

Only in Carlyle's siniverse can a private equity underwriter (PEU) go public and keep its distinctive, competitive advantage (being a private firm). As they did with ecosystem, the siniverse will rewrite "The Goose with the Golden Egg."  Hint:  Carlyle ends up with the gold and fois gras to boot.

Update 10-29-10:  Hawaiian Telecom, Carlyle's failed telecom investment, emerged from bankruptcy, as the PEU made new investments in the space.

Update 3-9-12:   Carlyle's buyout enriched the top two managers at Syniverse.  Higher interest expense, up over 320%, and management fees of $3.7 million helped turn Syniverse into unprofitable territory.

Update 11-30-14:  It's layoff time for Syniverse employees in Tampa, Florida.  I doubt their exit packages are near former CEO's Jeff Gordon.

Wednesday, October 27, 2010

Carlyle Takes Out CommScope for $3.9 billion

The Carlyle Group will buy out CommScope, a maker of telecommunications equipment, for $3.9 billion.  SEC filings show the deal has committed financing, but does not reveal how much is equity vs. debt.  The DEF 14a, yet to be submitted, may detail the financing mix. 

Bloomberg reported:

CommScope, based in Hickory, North Carolina, is working to revive sales after the global recession hurt demand last year. Carlyle is banking on an increase in demand for fiber-optic networks as phone- and Internet-service providers update their systems to accommodate increasing amounts of video and data. .

Carlyle is in a position to know about growing data needs from affiliate Coresite Realty, a data center provider.  How much does Coresite buy from CommScope?  Only the private equity underwriter (PEU) knows.

As for CommScope's sales, here are the last eight quarters:

1st quarter '09--$742 million
2nd quarter '09-- $783 million
3rd quarter '09-- $750 million
4th quarter '09--$748 million
1st quarter '10--$721 million
2nd quarter '10-- $838 million
3rd quarter '10-- $821 million
4th quarter '10--$730 -780 million (projected)

While revenues bounce around significantly, is there incentive to push revenue into 2011, when the firm is private?

Financial filings reveal other interesting features. CommScope lost a patent infringement lawsuit and faces a judgment of $48 million and an injunction on further sales.  The case is under appeal with U.S. Court of Appeals for the Federal Circuit.

Carlyle is renowned for its political connections. While these aren't supposed to extend to courts, judges generally have a Red or Blue bent.  Carlyle plays both sides of the political divide.  While influence peddling is unseemly to the average citizen, it is a time honored tradition in our nation's capital.  Carlyle co-founder William Conway loves a field tilted in his PEU's favor.

CommScope could benefit from health reform's ERRP, early retiree reinsurance program.  Uncle Sam reimburses 25 to 35% of retiree medical expenses.  Commscope's non-pension retirement expenses are roughly $3 million a year.  I can't imagine Carlyle turning down a free $1 million a year from HHS, but so far, CommScope has not made the official ERRP list..

CommScope has foreign subsidiaries, including ones in China and Mauritius.  Carlyle loves China, as well as offshore tax havens like Mauritius.  It remains to be seen how many Carlyle Cayman Island funds will beneficially hold stock in CommScope.  None of this may be news, given it's now a mainstream PEU world.

Tuesday, October 26, 2010

BankUnited to Join Bedbugs in Invading New York?

WSJ reported:

BankUnited, the Florida bank acquired last year by private-equity firms, has set its eye on territory far from the Sunshine State: If it has its way, it will take Manhattan.

In about two years, the bank hopes to be in Manhattan, through acquisitions or branch openings; such a move would combine two of the nation's most attractive deposit markets, New York City and Florida. 

First bedbugs, then BankUnited.   Somehow, this seems appropriate for a PEU sponsored bank.  (PEU stands for private equity underwriter)..

Update 10-27-10:  It turns out BankUnited already had a presence in New York, via a $1 billion mortgage securitization.  Who holds liability for any fraud committed by the old BankUnited?  Is that part of Sheila Bari's $4.9 billion subsidy?   Surely, Carlyle & company didn't take on that risk.  That would put a damper on their $500 million IPO, expected to return "some cash" to investors.  As the S-1 is not yet available, details are unknown.  Many see the IPO as potential egg on Sheila Bair's face.

Update 5-31-11:  BankUnited may enter New York via an acquisition, Herald Bank.  

Dubai CDS Still of Interest

Bloomberg reported:

Dubai World in September reached an agreement with creditors to repay debt over five and eight years to allow asset prices to recover as it seeks to maximize the value of its investments. Dubai Holding LLC, which controls Dubai Group and Dubai International, said it aims to reach a similar deal with lenders.
This explains the ongoing interest in Dubai CDS amongst PEU Report readers. Lebanon's Daily Star reported:

Dubai’s debt mountain now totals about $115 billion, meaning the emirate’s flagship firms are likely to be forced into further restructurings and asset sales, according to a Reuters poll of economists and investors.

Dubai’s five-year credit default swaps (CDS), the cost of insuring the emirate’s debt against default, were trading at 385 bps on Wednesday (Oct. 13), down from around 634 points in February, reflecting improving investor confidence.

State-owned firms owe more than $100 billion to creditors, including $30 billion due to mature in 2011-12.

A recently released IMF report spoke to the CDS issue in the Middle East.  It stated:

"Since the summer of 2008, credit default swap (CDS) spreads for GCC sovereigns have generally fallen by 50180 basis points," it said, with Dubai, understandably being the exception. 
The IMF had more to say on the completed restructuring.  According to Zawya:

IMF also said that banks accepted to take a haircut on their loans of $14.4 billion to Dubai World, by extending maturities to 2015 and 2018 at below market rates. Nakheel's loans would be rolled over at market rates.

IMF also said that the government of Dubai's cash injection will allow Nakheel to complete ongoing projects.

The orderly sale of these properties until 2018 is projected to generate enough cash to repay the restructured loans at maturity.

IMF also warned that Dubai faces short-term challenges, while the government of Abu Dhabi has substantial fiscal buffers.

I  take it uncompleted restructurings fall into the short-term challenge category.

Carlyle Group co-founder David Rubenstein said his firm poked around possible Dubai sales.  Rubenstein's other favored method?  Buying distressed debt and getting an equity stake from any default.  It would be difficult for Carlyle to play hardball with Dubai Holding, given their 7.5% ownership by Mubadala Development Co, another UAE sovereign wealth fund.  Might any private equity underwriters have employed Rubenstein's strategy?

Ex-BP CEO Reforms British Education

Lord John Browne of Madingley was surprisingly clueless of BP's operations in his deposition on the Texas City explosion, which killed 15 people.  Despite this clear lack of knowledge and horrific track record, British Prime Minister David Cameron tapped Browne to lead a higher education overhaul.

Browne's penchant for culture has some hopeful that he won't decimate higher education institutions (HEI) like BP.  Lord of Madingley loves Venice, ceramics, pre-Columbian artifacts, papyrology, opera, Chinese terracotta soldiers, contemporary art and artist's lofts. 

Browne's report lists three aims:

1.  Ensure higher education teaching is sustainably financed
2.  Ensure teaching is of world class quality
3.  Higher education remains accessible to anyone

It concludes that higher education financing should be drastically altered, with students "paying more in order to get more."  This means students should pick up where the government cuts, i.e. university operating funds.  Recall BP's 25% cuts at their Texas City refinery under Lord Browne.  After Amoco merged with BP, Browne ordered:

"Reduce business unit cash cost for the year 2001 by at least 25 percent from the year 1998 levels."

The Texas City plant exploded in April 2005.  How long before university operations explode or implode?

The fascinating thing about the HEI report is how Browne positions his current employer, The Carlyle Group, to benefit.  Riverstone Holdings is Carlyle's energy joint venture.  Carlyle is making a large investment in London student housing.  Browne's report states:

Support for living costs available to all through an annual loan of £3,750. No means testing to access to loans for living costs.
Carlyle has a government guaranteed income stream, no risk.  They'll be able to rent their student housing for premium rates during London's Summer Olympics.  Lord Brown is maddeningly slippery.

As for his three aims, I suspect the first two will worsen under any Browne scheme.  His HEI report refers to universities "maintaining minimum quality standards." Lord Browne repeatedly proved he knows nothing of quality.  But he loves money and his boy toys. Carlyle keeps him in both.

Update 7-24-11:  FT noticed Carlyle's strategic investment in 4,000 student beds for British higher ed. It cited how Lord John Browne's report impacted housing prices. "Rental values in Docklands have increased dramatically, with the average one-bedroom apartment rising from £250 to £350 per week in the course of four months at the end of 2010."

Update 2-29-12:  Carlyle's Leap Day luck found the PEU landing three additional student housing sites in London.  They should be up and running for Olympic cash generation.

Update 11-11-12:  Carlyle's  Pure Student Living struggled to fill rooms intended for London college students.

Friday, October 22, 2010

PPIP's Dark Knights: BlackRock, Wilbur Ross & Bob Johnson

Three of the eight private funds in Treasury's Legacy Securities Public-Private Investment Program have interesting histories. 

Blackrock had nearly $2.1 billion in Treasury investment as of April 2010.  The partnership began 10-2-09.  Three months later Blackrock defaulted on $3 billion in government backed loans through Fannie Mae and Freddie Mac.  Treasury Chief Tim Geithner never mentioned this fact in his Congressional testimony.  I'm sure it's not in Treasury's report highlighting 36% PPIP returns  Will Blackrock make enough back for Uncle Sam to cover their mortgage dump on taxpayers?

Wilbur Ross' Invesco got $2.5 billion in public money for their PPIP partnership, which started 9-30-09.  Ross' banking investments received over $5.7 billion in FDIC subsidies.  Apparently, owning a coal mine which killed 12 people is not a barrier to government partnership.  Ross keeps on buying banks, domestically and abroad, frequently partnering with The Carlyle Group.

Robert L. (Bob) Johnson is a joint venture partner with The Carlyle Group.  Once President Bush's favorite community banker/billionaire, Johnson has Blue connections as well.  RLJ Western Assets has $1.8 billion in public financing.  RLJ's website has a picture of the White House.  Should he add the U.S. Treasury?

Blackrock, Wilbur Ross and Bob Johnson know the government gives and gives and gives.  They're happy to take.

Data shows PPIP Returns 1%, Maybe 8% Overall

Bloomberg stated:

A U.S. government program aimed at reviving the mortgage-backed securities market returned more than triple what stocks or bonds gained in the past year.

The eight funds created under the Public-Private Investment Program, or PPIP, reported net internal rates of return averaging 36 percent through Sept. 30, the Treasury Department said in a report this week. 

Data in the article points to smaller returns for Uncle Sam's $22 billion PPIP investment.

The government has gotten $215 million of interest, dividend and other payments, and the funds have more than $1.5 billion in unrealized gains.

Interest and dividends paid is roughly 1%.  Adding unrealized gains the return rises to 7.8%.  That's far below Treasury's advertised 36%.

Had the $22 billion returned 36%, Bloomberg would have shown nearly $8 billion in interest, dividends, and realized gains.  That I didn't see.

Thursday, October 21, 2010

PEU Index at 104

Bloomberg reported:

Private-equity firms invested a record $40.1 billion of cash in the third quarter.

The private-equity council said it’s creating an index to measure the industry based on equity investment, fundraising, transaction volume and the dollar value of private-equity exits such as initial public offerings.

The index rose to 104.3 in the third quarter from 100.8 in the second quarter, according to today’s report. Its low point was 60.4 in the first quarter in 2009.

When the index stands at 100, the four components are at their 10-year moving average. The index is calculated using data from Thomson Reuters, Pitchbook, Preqin and the council.

Notice the PEU Council waited for the index to be above 100, before releasing the data.  Some might consider 104.3 a high fever.  From a health care perspective, PEU's are clearly an infection.

Make Up Hides Valerie Jarrett's White House Bio

The White House bio on Senior Advisor Valerie Jarrett is incomplete.  Corporate boards are mentioned but not detailed.  Valerie Jarrett sat on the board of RREEF America II, Harris Insight Funds,  the Chicago Stock Exchange and CHX Holdings.

Jarrett knows real estate development, having worked at The Habitat Company from 1995 to 2008.  She succeeded Daniel E. Levin as President of Habitat in 2007.

The Habitat Company is one of the nation’s premier developers and managers of residential apartments and condominiums. Habitat has developed more than 17,000 housing units and currently manages more than 20,000 units.

The Habitat Company oversaw the Chicago Housing Authority through a receivership arrangement for twenty three years.  Habitat earned a 3% fee plus overhead costs.  In 1999 that amounted to a taxpayer supported 6.6%.  While the arrangement ended in June 2010, it existed for all of Jarrett's tenure.

RREEF America tapped Valerie's real estate acumen.  Their website describes the company:

RREEF acquires and manages investments in commercial and residential property, and real estate securities on behalf of its institutional and private clients worldwide. Its product offering is global and comprehensive, including core, value-enhanced and high yield property investments as well as investments in publicly traded real estate securities.

RREEF is the real estate investment management business of Deutsche Bank’s Asset Management division. RREEF employs more than 650* employees in 13 cities around the world to help investors meet a wide range of objectives – from diversification, to preservation of capital, to long-term performance.  Named one of the world’s largest real estate investment managers in Watson Wyatt’s Global Alternatives Survey, June 2009, RREEF has €41.0/$50.3 billion in assets under management worldwide as of 30 June 2010.

Habitat developed public housing projects with federal money.  Did any of Habitat's projects end up in securitized mortgages?  Were any backed by Fannie Mae or Freddie Mac?  Did Freddie Mac board member Rahm Emanuel provide any leverage for hometown projects?

Next up is Jarrett's Harris Insight Funds, which provided investment products via Chicago's Harris Bank:

Harris Insight Funds is a family of 19 funds with more than $10.5 billion in assets under management, including approximately $2.4 billion in equity, $936.8 million in fixed income, and $7.2 billion in money market assets at February 28, 2006.

The vast majority was in money market funds.  Harris conducted a strategic alliance with Phoenix Wealth Management in 2006. Money market funds experienced trouble in 2007.  Difficulties accelerated into fall 2008.

Interestingly, Harris (HT) Insight Funds abandoned its SEC registration in 2000.  A 2001 filing illuminated practices like short sales, securities lending, investing in warrants and a master fund/feeder fund structure.  It also stated:

No Fund may purchase or sell commodities or commodity contracts, except that it may enter into (a) futures, options, and options on futures, (b)forward contracts, and (c) other financial transactions not requiring thedelivery of physical commodities.
In other words, derivatives.  Jarrett played a role in America's financial sins, which came due.  Her bio states:

Ms. Jarrett served as Chairman of the Board of the Chicago Stock Exchange, Inc, from April 2004 through April 2007, and Chairman of the Board of the Chicago Stock Exchange Holdings, Inc., from February 2005 through April 2007.

CHX's 2006 annual report showed:

In July 2006, CHX Holdings entered into a strategic transaction in connection with the investment by Banc of America Strategic Investments Corporation; Bear REX, Inc., an affiliate of Bear, Stearns & Co., Inc.; E*Trade Capital Markets Execution Services, LLC; and The Goldman Sachs Group, Inc. (together, the “Investors”).
Did the Chicago Exchange help implode Wall Street or add to its darkness?  Valerie welcomed Wall Street's investment:

Valerie Jarrett, CHX Chairman, said, "This transaction represents an endorsement of the Exchange's strategic plan to leverage existing volume and connectivity, and to integrate a state of the art electronic trade matching engine in order to attract significant new business. We welcome these key industry leaders as shareholders and we are confident that they will play a vital role in increasing shareholder value while we continue to serve the investing public."

The 2006 report stated:

The SEC and CHX currently are conducting investigations of certain trading activity by the former CHX specialist firms, focusing on instances where a former specialist firm might have traded for its own account to the disadvantage of customer orders.

Under Valerie's chair-womanship, the exchange fired 30% of its employees in 2005. In March 2007, a Jarrett-chaired board terminated the defined-benefit pension plan for employees.  A portion of the pension funds returned to CHX, which undertook strategies to have this taxed at 20% vs. 50% (page 19 of the 2007 annual report).

Change?  Hardly.

P.S. Another omission is her time on the board of the German Marshall Fund.   Surely, Tea Partiers noticed this connection, given their predilection for calling Obama Fuhrer?  

Update 11-23-13:  Valerie Jarrett's secret lover is not Ronald McDonald, but Ahmad Rashad.  This according to HuffPo

Update 6-25-17:  Valerie Jarrett joined the board of Ariel Investments.  She'll join Arne Duncan, a Managing Partner at Ariel

Wednesday, October 20, 2010

Pushing PEU Brands

Carlyle Group cofounder David Rubenstein sees private equity firms pushing their brands.  At SuperReturn Middle East, Rubenstein predicted firms will start advertising their brands. 

Will they end up like political ads, pushing their firm or running down "evil" or "incompetent" competitors?  Like politics, money fuels private equity underwriters (PEU's).  I expect a similar amount of honesty from both.

Carlyle's Latest Debt for Dividend: Metaldyne

Metaldyne issued $250 million in debt, of which $88 million will be used to pay dividends to The Carlyle Group   Special dividends are the third way private equity underwriters (PEU's) earn money from affiliates. 

Carlyle cofounder David Rubenstein spoke on the other two methods in Abu Dhabi.  They are 2% management fees and a 20% carry on sale profits.

PEU Hunters & Hunted

FT reported on the evolving state of private equity underwriters (PEU's):

David Rubenstein, co-founder of the Carlyle Group, has predicted the private equity industry will be split between the hunters and hunted, as the big global groups diversify by acquiring smaller niche investment companies.

“In five years’ time I think we’ll see all the big global players develop into broader alternative asset management houses,” he said. “Pure private equity firms will have to be more niche players, but a lot of those might be bought up or attach themselves to these larger players.”

Too big to fail goes PEU.  It already was global.

PEU Fees to Emerge

WSJ reported on private equity fees, traditionally 2% of assets under management and 20% of profits.  Carlyle Group cofounder David Rubenstein said "a market in fees was likely to emerge as the returns from recent funds become clear:"  Is he hedging on Carlyle's historical 30% annual returns for investors?  He offered that number in April.

Rubenstein recently sold lower fees, but not less than the 20% carry.  Watch what emerges from private equity underwriters (PEU's).

Tuesday, October 19, 2010

Carlyle's Middle East Fundraising: Complicated

Reuters reported:

Private equity giant  Carlyle Group expects fundraising in the Middle East to remain "complicated" for another year as the region's sovereign wealth funds prefer to invest directly, its founder said on Tuesday.
"Fundraising in the Middle East is complicated because a lot of the sovereign wealth funds which have money feel they are to some extent over-allocated in private equity," David Rubenstein, who is also Carlyle's managing director, told reporters on the sidelines of a private equity conference in Abu Dhabi.

"They want to get some money back before they start putting money out again."
Rubenstein spent much of the last year doing just that, monetizing affiliates to put money back in the hands of investors.  He made another strategic move in the Middle East.  It's not a Turkish hospital chain or a Saudi lighting company, but a Brazilian lingerie maker.  Rubenstein knows how to entice, which got him in trouble in the first place.

Update 10-30-10:  Rubenstein presented a vision for the Middle East's future, which called for reclaiming the great leadership it showed 1,000 years ago when it was at the cutting edge of civilization.

Monday, October 18, 2010

Sad State of Super Heroship

The National Republican Congressional Committee (NRCC) embezzlement scandal winds down.  The NRCC agreed to a $10,000 settlement with the Federal Election Committee for filing false reports.  Embezzler Chris Ward coped a plea deal, with sentencing scheduled for December.

CPA Magazine cited superhero Rep. Mike Conaway's role in outing Ward.  Conaway became chair of the NRCC's audit committee in January 2007.  Mike smelled something fishy and confronted Ward.  The embezzler failed to appear at their showdown in late January 2008.  Ward sent an e-mail, admitting audits were faked. 

The Superhero analogy seems strained, at best.  Conaway stated "no past auditors had been on the review board", in defense for the NRCC's letting the scheme run for five years.  Recognizing this, what might a CPA do in January 2007 as the new audit chair?  Might he look at internal controls?

The essence of Ward’s apparent scheme was that he used his authority to order wire transfers to direct funds through various committees and ultimately to his own accounts.

The investigative report recommended:

The NRCC should adopt a written compliance program, and should consider amending its bylaws, to formalize its accounting practices and procedures, including oversight of accounting [ongoing]. Those practices should include a requirement of two signatures for all wire transfers and a requirement that the NRCC’s Oversight Committee meet with the NRCC’s outside auditors annually [adopted].
The NRCC allowed Ward to move money with only his signature, a huge accounting no-no for any nonprofit, but a fatal move for a political fundraiser moving millions around.  CPA Mike Conaway didn't discover this lack of basic internal controls.

NRCC Executive Committee members should enter the management hall of shame.  They failed to meet basic governance standards.  Any nonprofit board member (worth their salt) knows partners from the accounting firm present the audit/management letter.  If it's handout, someone has their hand in.

Mike Conaway should give that shirt away and responsible NRCC leaders should spend a day in a stockade on the Capital steps. How far would Chris Ward have to travel to watch?

CPA Mike did not defend his profession, when under attack by West Texas Congressman Randy Neugebauer.  Congress bullied FASB's chief accountant into changing fair value accounting.  If Mike Conaway is a hero, the leadership bar is abysmally low.  Duck like Mike.

Update 2-5-13:  Conaway is now chair of the House Ethics Committee.  As one commenter noted, "Irony at it's best."

Sunday, October 17, 2010

Middle East SuperReturn's PEU Odor

Private equity underwriters (PEU's) will gather in Abu Dhabi, United Arab Emirates, this week for the annual SuperReturn Conference.  Carlyle Group co-founder David Rubenstein will speak at the event.  It's also a pilgrimage to Mubadala Development Company, part owner of Carlyle.

Reuters reported:

Experts expect deal activity to pick up in 2011 on the back of stronger regional economic growth, but PE firms will spend more time on small-to-medium sized enterprises (SME's) and even angel funding -- providing funding for start-up businesses -- to ensure the sector's long-term appeal.
"Angel financing" brings to mind Goldman Sachs CEO Lloyd Blankfein's "God's work" comment. Yet, a potential devil from Deloitte made the piece.

"The fundraising environment in MENA remains tough, but sentiment appears to be moving in a positive direction," said Chris Ward, chief executive of Deloitte's corporate finance operations in the Middle East..

Deloitte's Chris Ward has no work history prior to October 2008 on his LinkedIn profile.  A rascal accountant with the same name stole $750,000 from the National Republican Congressional Committee from 2003 to early 2008.  That Chris Ward resigned and seemingly disappeared after a confrontation with Rep. Mike Conaway, CPA.  Or was it Jeff Burton?.

Did the NRCC's Chris Ward resurface in the United Arab Emirates as Deloitte's PEU man?  Did the man who presented fake Deloitte & Touche audits get a job with the firm?  12-11-11:  Deloitte wants you to know the answer is a definitive NO!

If so, how could such a thing happen?  Chris Ward's knowledge of Congressional shenanigans, personal and/or financial, could pave the way for such a deal.  Cindy Hampton, who had an affair with Senator John Ensign (R-NV), served as Chris Ward's assistant Treasurer at the Senate Majority Committee.

Does Cindy know what this man did before October 2008?

(The picture of Deloitte's Chris Ward has been removed after a request from the company on 12-11-11.  The link to his picture has also been removed.) 

CQPolitics reported NRCC's Christopher Ward awaits sentencing, after pleading guilty last month to embezzling hundreds of thousands of dollars. It didn't state where he is waiting.  For all the news about embezzler Ward, there are no pictures of him on the web.

I expect Deloitte's Ward is not the NRCC's, but it is conceivable given today's low standards.  Too many with dark pasts, Tom Donilon, Jamie Gorelick, Eliot Spitzer, Lord John Browne, and Bill Clinton, act like they have no history.

One speaker at the SuperReturn Middle East has a scandal in his background. Ex-Fannie Mae CEO Daniel Mudd took Countrywide VIP loans, a form of "pay to play."  Mudd is now CEO of Fortress Investment Group and will address the convention.

Financial devils will gather in Abu Dhabi for the SuperReturn conference.  The question is how many?

Update 8-22-11:  Ward worked under Tom Davis (R-VA) at the NRCC.  Davis is now Director of Federal Government Affairs at Deloitte, the employer of one Chris Ward.  Davis couldn't perform his basic fiduciary function as chair of the NRCC, yet he now teaches how to transform the way government works.  Amazing.

Update 12-7-11:  Deloitte's Chris Ward attended Southampton University, graduating in 1971.  As I expected, their man is not the NRCC embezzler.

Update 12-11-11:  A Deloitte representative contacted me with concerns about this opinion piece.   At the time this was written, there was not much information about the two men with a common name.  In 2011 Deloitte's Chris Ward was promoted and is not in jail.  The NRCC's is behind bars.

Update 1-20-12:  Fortress' Daniel Mudd took a leave of absence to defend himself from a SEC lawsuit regarding Fannie Mae disclosures under Mudd's tenure.

Saturday, October 16, 2010

Mozilo Settles with SEC, Donilon's Fannie Ties Ignored

America seethed over Angelo Mozilo's Countrywide profiteering, while yawning for White House National Security Adviser Tom Donilon's Fannie Mae history.  Citizens ignored Tom Donilon's role at "arrogant and unethical" Fannie, where he worked as an executive from 1999 to 2005.

Eyes opened for Mozilo's $67.5 million settlement with the SEC over his Countrywide sins.  While that sounds like a spanking, Mozilo is personally liable for only $22.5 million of that amount.  Insurance will pay two-thirds of the fine.  Mozilo will avoid trial as a result of the settlement, much like Donilon's peers at Fannie Mae.

Former Fannie Mae chief Franklin Raines and two other top executives have agreed to a $31.4 million settlement with the government announced today over their roles in a 2004 accounting scandal
Raines defended the settlement, while slamming subordinates (like Donilon):

"While I long ago accepted managerial accountability for any errors committed by subordinates while I was CEO, it is a very different matter to suggest that I was legally culpable in any way," Raines said in a statement. "I was not. This settlement is not an acknowledgment of wrongdoing on my part, because I did not break any laws or rules while leading Fannie Mae. At most, this is an agreement to disagree."

Fannie Mae and Countrywide are linked in other disturbing ways:

Dozens of Fannie Mae employees accepted VIP loans and VIP treatment from Countrywide.  

Those loans came in two waves.  The first came around 1999, when Countrywide agreed to sell Fannie Mae billions of dollars in mortgages, for what amounted to a volume discount.

According to the documents, the second spike in Countrywide loans to Fannie Mae workers happened in 2001-2003 on the leading edge of the mortgage boom - from late 2002 and 2004 - when Countrywide expanded its VIP loan unit.

Specifically, around the time that the partners were negotiating their exclusive partnership in 1999, documents indicate Countrywide CEO Angelo Mozilo gave Fannie Mae CEO Jim Johnson preferential treatment on more than $10 million in personal loans.

The documents show Countrywide also gave VIP loans to other senior leadership of Fannie Mae including:
--Then-CEO Franklin Raines, who succeeded Mr. Johnson on Jan 1, 1999.

--Then-Fannie Mae Vice Chairman Jamie Gorelick

--Then-Fannie Mae COO Daniel Mudd
Fannie Mae's Executive Vice President for Law and Policy was Tom Donilon. SEC filings from 2003 describe his role:

Thomas E. Donilon has been Executive Vice President—Law and Policy and Secretary since May 2000. He served as Senior Vice President, General Counsel and Secretary from September 1999 to May 2000.

Law and policy includes corporate compliance.  While he didn't take a loan, his employees did.  Three Fannie legal counsels made the Countrywide VIP list, as did others.

Recipients of VIP loans from Countrywide included Senator Christopher Dodd (D-CT) and Senator Kent Conrad. (D-ND)  After a yearlong investigation, a Senate ethics committee cleared Sens. Dodd and Conrad saying it found "no substantial credible evidence" that they broke Senate gift rules. 
 In an odd coincidence, Dodd and Donilon ended up next to one another on a White House State Dinner guest list:

The Honorable Chris Dodd, United States Senate (D-Conn.)
Mrs. Jackie Clegg Dodd

The Honorable Thomas Donilon, Assistant to the President, Deputy National Security Adviser, NSC
Ms. Cathy Russell, Chief of Staff to Dr. Jill Biden

Cathy Russell is Tom Donilon's wife.  Was a Countrywide VIP mortgage ever issued in her name?  Never the less, Countywide VIP Dodd and Fannie Mae EVP Donilon have a distinct odor. Where is accountability in today's world?  Missing in action...

Northrop Grumman's New Ships, Inc.

Northrop Grumman announced in July its intention to consolidate its Gulf Coast shipyards and explore strategic alternatives for their shipbuilding business.  CEO Wes Bush stated at the time:

"Recognizing our company’s long-term strategic priorities, we foresee little synergy between Shipbuilding and our other businesses."

The firm filed an information statement regarding the spin off of Northrop Grumman's shipbuilding business to existing shareholders.  It stated:

In anticipation of a spin-off, Northrop Grumman and the company (New Ships, Inc.) are planning to enter into a separation and distribution agreement under which Northrop Grumman will transfer various assets, liabilities and obligations (including employee benefits, intellectual property, information technology, insurance and tax-rated assets and liabilities) associated with the shipbuilding business. The assets and liabilities transferred to the company will be recorded at historical cost as a reorganization of entities under common control. Northrop Grumman is not planning to have any ownership interest in the company subsequent to the spin-off. 

Who, besides existing shareholders could have an ownership interest in New Ships, Inc.?  Private equity underwriters (Carlyle Group, Bain Capital, KKR, TPG and slightly less mysterious Cleveland Ships) have kicked the hull of Northrop's shipbuilding, which includes nuclear powered submarines and aircraft carriers.  From Northrop Grumman's SEC filing:

99 percent of revenues during 2009 were derived from products and services ultimately sold to the U.S. Government. In addition, more than 99 percent of future orders/backlog was U.S. Government-related.

The Gulf Coast, responsible for roughly 40% of revenues, had an operating loss in 2009.  Shipbuilding was a cash drain on Northrop Grumman last year.

Northrop Grumman was approved by HHS as a participant in the Early Retiree Reinsurance Program (ERRP).  

New Ships, Inc. could receive $40 to $55 million in federal reimbursement over a four year period via ERRP.  That expense savings adds frosting to any PEU deal.

Northrop CEO Wes Bush noted the impact of the Gulf Coast consolidation.

"The consolidation will reduce future costs, increase efficiency, and address shipbuilding overcapacity. This difficult, but necessary decision will ensure long-term improvement in Gulf Coast program performance, cost competitiveness and quality.” 

Who will pay the consolidation costs?  The government.

In connection with winding down the Avondale, Louisiana facility, the company recorded $51 million of liabilities as of June 30, 2010 related to the co-operative agreement with the state of Louisiana and asset retirement obligations on this facility. In addition, the company anticipates that it will incur substantial restructuring and facilities shutdown-related costs, including, but not limited to, severance, relocation expense, and asset write-downs related to the Avondale facility decision. These costs are expected to be allowable expenses under government accounting standards and thus will be recoverable in future years’ overhead costs.

Northrop Grumman stated it would keep no equity in New Ships, Inc.

Northrop Grumman is not planning to have any ownership interest in the company subsequent to the spin-off. 
Who will take on shipbuilding's $537 million debt?

As for quality, supposedly boosted by the consolidation, consider:

"leaks discovered in the USS San Antonio’s (LPD 17) lube oil system, the company became aware of quality issues relating to certain pipe welds on ships under production as well as those that had previously been delivered."

"certain bearing wear and debris were found in the lubrication system of the main propulsion diesel engines (MPDE) installed on LPD 21"

"investigation of the failure of MPDE bearings on LPD 17 subsequent to the Navy’s Planned Maintenance Availability (PMA), which was completed in October 2009. During sea trials following the completion of the Navy conducted PMA, one of the ship’s MPDEs suffered a casualty as the result of a bearing failure."

"The company has also encountered various quality issues on its Aircraft Carrier construction and overhaul programs and its Virginia Class Submarine construction program at its Newport News location. These include matters related to filler metal used in pipe welds identified in 2007, and in 2009, issues associated with non-nuclear weld inspection and the installation of weapons handling equipment on certain submarines."

Might this information have a bearing on potential investors?  For new owners to grow the business, they'll need supreme government connections.

Update 11-5-10:  Northrop Grumman will spin off New Ships and not sell it to a private equity underwriter, mystery or legendary.

Update 10-23-12:  The shipbuilding division was spun off as Huntington Ingalls Industries, Inc.

Friday, October 15, 2010

Carlyle's Brazil Criteria: It's Not America

Carlyle Group co-founder Daniel D'Aniello spoke on his firm's interest in Brazil. Reasons include:

Brazil’s burgeoning middle class, increased transparency in business, low dependence on foreign imports, and abundance of self-sustaining natural resources all make the country particular appealing to the Carlyle Group, which boasts over 1300 investors in 72 countries.

Brazil is a hot place for Carlyle's bazillians.  It's the anti-America for this politically-connected private equity underwriter (PEU).

Thursday, October 14, 2010

Yashili IPO to Raise as Much as $458 million

WSJ reported:

Yashili International Holdings Ltd., a Chinese infant-formula maker in which U.S. investment firm Carlyle Group owns a stake, is planning to raise as much as US$458 million in a initial public offering this month on the Hong Kong Stock Exchange.

What disclosures are required in a Hong Kong prospectus? Will it include the following:

The Legal Weekly, an affiliate of the Legal Daily, a Chinese state-owned newspaper published by the country's Ministry of Justice, claims that Yashili, a Chinese dairy, repackaged 30 tonnes of contaminated milk powder as new product. Yashili, in which global private equity fund Carlyle Group owns a 17.3%  stake, emphatically denies the accusation.
Carlyle invested in tainted milk supplier Yashili a year ago.  What % return will they get from the looming IPO?  History shows Carlyle garnering 300% in China vs. their normal 30% annual returns.  China is beloved by private equity underwriters (PEU's).  It's easy to see why.

PEU's Sniff Around Nuclear Sub Builder

Northrop Grumman's shipbuilding unit is on the block, with five private equity underwriters (PEU's) inspecting the hull.  Four household PEU's, The Carlyle Group, Bain Capital, KKR & TPG, join mystery firm Cleveland Ship LLC in pursuit of the nuclear sub builder.

Future growth is expected from the Navy's new, double-hulled oil tanker.  Northrop might cash out at the top, normally a PEU strategy.  Time will tell if that's true, as well as which PEU wins the shipbuilding bomb.

Also, future conflicts or texting captains could drive refurbishing business.

Chicago Style "Infrastruction"

CNBC interviewed Dana Levenson, Chicago's former Chief Financial Officer and now with RBS North America Infrastructure.  They discussed President Obama's infrastructure initiative.  I offer the following summary of his remarks:

America's infrastructure needs are great.  It will take an estimated $2 trillion to upgrade the country's infrastructure from "D" to "B" grade.

Government is a critical player, but it doesn't have the resources to do the job alone.  Private capital is needed.  

The $50 billion must be levered to have an impact.  $50 billion in direct spending will fall far short.  

Public facility bonds are good, but it will take more than this program to solve the problem.

There are 45-50 projects that are accretive to the economy.  The list includes new roads and funding for these projects is $200 billion. 

The press release on Levenson's RBS hiring stated:

Levenson led the $1.83 billion sale of the Chicago Skyway and the $563 million sale of the Chicago Downtown Parking System to private investors. These landmark transactions, to monetise municipally-owned toll road and parking assets, represent the first of their kind in the United States.
Chicago leased its parking meter concession for $1.15 billion in 2009.  What happened to the money?  Much of it has been spent.  SunTimes reported:

The city will have just $76 million left from the 75-year, $1.15 billion deal that privatized Chicago parking meters. There will be $500 million remaining from the $1.83 billion deal that privatized the skyway for 99 years.

Chicago will have spent nearly $3 billion of the total $3.5 billion in infrastructure proceeds or 85% of  75-99 year money.  That's front-loaded infrastructure spending.

Chicago's next Mayor will need to sell more public assets.

Asked what his successor should do with reserves largely depleted, Daley talked about reviving the $2.5 billion deal to privatize Midway Airport that collapsed in April, 2009 for lack of financing.

“You have the Midway Airfield deal very close, could be closed …. That’s a big asset, infrastructure [funding] coming into the city. ... It’s very close. That’s what we think the next mayor should do,” he said.
Rahm Emanuel is the perfect hawker for the job.

Update:  WSJ did a piece on public infrastructure sales.

Tuesday, October 12, 2010

Carlyle's Cayman Pirates & Hampton Roads Bankshares

SEC filings show five of The Carlyle Group's six funds invested in Hampton Roads Bankshares are "Cayman Islands exempted limited partnerships."  The list includes:

DBD Cayman, Ltd.
TCG Holdings Cayman II, L.P.
TC Group Cayman Investment Holdings, L.P.
Carlyle Financial Services, Ltd.
TCG Financial Services, L.P.
Carlyle Financial Services Harbor, L.P.
The filing stated the relationship between the various Carlyle holdings.  Think Russian nesting doll:

DBD Cayman, Ltd. is the general partner of TCG Holdings Cayman II, L.P., which is the general partner of TC Group Cayman Investment Holdings, L.P., which is the sole shareholder of Carlyle Financial Services, Ltd., which is the general partner of TCG Financial Services, L.P., which is the general partner of Carlyle Financial Services Harbor, L.P. The shares of Common Stock reported in this Schedule 13D are held directly by Carlyle Financial Services Harbor, L.P.
Why so many offshore partnerships for Carlyle and their founders, known collectively as DBD (David, Bill, Daniel)?  Why are so many tied to one American bank?

Hampton Roads Bankshares received TARP funds and was delinquent on dividend payments.  Thus, Treasury had to agree to the deal.  It didn't hurt that Carlyle had former Undersecretary of Treasury Randall Quarles in their employ.  The filing referred to Quarles:

Carlyle shall be able to designate an individual to serve as Carlyle’s representative on the board of directors of the Issuer (the “Board of Directors”) as well as on the boards of directors of the following subsidiaries of the Issuer: The Bank of Hampton Roads and Shore Bank (the “Bank Boards”). In connection therewith, Randal K. Quarles was appointed as Carlyle’s representative to the Board of Directors.
Simpson Thatcher and Bartlett represented Carlyle in this investment.  It's not clear whose interests Tim Geithner represented, given all the Carlyle Cayman connections.

How long before pirate Carlyle flips the bank, like BankUnited, and runs their booty to the Western Carribean?  Aaaarrrgghhhh!

Update 5-21-11:  Hampton Roads stock price is up, how long before the cash-in?

Monday, October 11, 2010

Obama's $50 billion Infrastructure Bank

President Obama conducted a hard sell today on a $50 billion national infrastructure bank.  It'd already grown from $5 billion to $10 billion a year ago.  The now $50 billion would join mountains of private cash dedicated to infrastructure.  Wall Street and private equity firms have $120 billion ready to invest in infrastructure.

Ironically, desperate state and local governments look to lease revenue streams on a long term basis.  Chicago leased its parking concessions in two separate deals.  Pittsburgh took bids on leasing its parking assets. Citizens of Pittsburgh might want to call their Chicago cousins to find how rapidly parking meter rates soared.  They're slated to rise further, even though Chicago spent 75 years of lease proceeds in four short years.

Obama showed his usual humor in today's speech.  He lambasted the country for not investing enough in infrastructure the last two decades.  Obama did so after proudly introducing the government leaders responsible for pinching infrastructure pennies. Former Secretary of Commerce and Transportation Norman Mineta has several dogs in the infrastructure hunt with his work at Hill & Knowlton and his board service at Horizon Lines and AECOM Technology.  Sam Skinner has a long list of corporate board seats.

Here's what Obama might have said under a "no lying" spell.

The federal government will provide billions in capital leverage for private equity underwriters to profit handsomely.

Stressed local and state governments will sell their infrastructure revenue streams on the cheap, a sign of difficult economic times.  How will this impact you?

Your parking meter rates, sewer, water and road tolls will go up, but investors will garner guaranteed 20% annual returns.  That's good news in tough economic times.  

Let's give a big round of applause to my profit loving friends from Chicago.