Carlyle Owned Power Plant Declares Chapter 11

Bloomberg reported:

Lincoln Power LLC, the owner of two Illinois power plants, filed for bankruptcy after its financial strain was exacerbated by nearly $39 million in penalties levied by the biggest US electric-grid operator.

The Chapter 11 filing allows Lincoln, a unit of Carlyle Group-backed Cogentrix Energy Power Management LLC, to keep operating while working on a plan to repay creditors.

The storm penalties and the cash withheld weighed on the company’s already-strained finances. 

The company owes lenders more than $150 million across a term loan and revolving credit facility, court papers show. It also has about $8 million in letters of credit outstanding.

It will be interesting to see if creditors take over Lincoln Power LLC.  Carlyle raised $1.5 billion for North American power assets in April 2016. 

Carlyle branched out into renewable energy assets through Aspen Power and Amp Energy.

Cogentrix's website did not share the Bloomberg story under its news page.  

Stay tuned for what be the beginning of a number of private equity underwriter (PEU) bankruptcies.  PEU practices place many affiliates in a precarious financial position.  Something changes and boom, bankruptcy.

Carlyle in Hunt for Medtronic Divisions

The Carlyle Group remains a bidder for Medtronic's patient monitoring and respiratory interventions businesses.  Reuters reported:

Carlyle is bidding through its newly formed healthcare investment platform Atmas Health

Other bidders include ICU Medical, GE Healthcare, Clayton, Dubilier and Rice (a fellow private equity underwriter-PEU).

The patient monitoring technology portfolio includes Nellcor pulse oximetry and BIS brain monitoring, while the respiratory interventions business comprises ventilators and breathing systems.

Carlyle lists its healthcare portfolio on its website.

The portfolio companies listed below have been acquired, invested, or exited within 5 years of the current quarter.

The list does not include ManorCare, the giant nursing home company Carlyle drove into bankruptcy.

ManorCare declared bankruptcy in March 2018, i.e. five years ago.  Yet, Carlyle does not show ManorCare on its healthcare portfolio.  The greed and leverage boys hide their losers.

WaPo did an expose on Carlyle's ownership of ManorCare in November 2018.  Former Medicare Chief and ManorCare board member Gail Wilensky profited mightily from Carlyle's purchase.  She served on a "quality" committee post buyout.   It's not clear how her $3.4 million in share proceeds impacted Wilensky's service on the quality committee.  It certainly raised questions as to her level of independence.

That committee had nothing to say on Carlyle's financial schemes or operational squeezing that choked the life out of ManorCare. 

If Carlyle couldn't take care of society's most vulnerable, why should they be allowed to buy critical healthcare companies for the sole purpose of flipping them for grand returns?   Because elected officials serve the policy making billionaire class, not the average citizen.

Politicians Red and Blue love PEU and increasing;y, more are one.

Blackstone Founder to Back CMBS Bonds?

The Real Deal reported:

Two months after a $271 million Blackstone loan secured by 11 Manhattan multifamily buildings went to special servicing, Moody’s downgraded the CMBS debt, citing cash flow that wouldn’t cover the debt service.

Blackstone co-founder Stephen Schwarzman need only use a small portion of his $1.27 billion in 2022 pay to make CMBS bondholders whole.  I'm sure he'll get right on that... 

Of course he won't.  It's the PEU way.

Update 3-31-23:  The man who gates BREIT withdrawals and marks assets to fantasy standards said Silicon Valley Bank failed due to people with IPhones.

Update 4-3-23:  Schwarman's gate remains on BREIT:

"individuals asked Blackstone to redeem $4.5 billion from BREIT, but the PE firm only allowed $666 million to be withdrawn."

PEU Tax Freedom Matters

The George W. Bush Presidential Center interviewed Carlyle co-founder David Rubenstein.  Before his term as President George W. Bush served on the board of directors of Carlyle affiliate CaterAir.

As a companion program to the Bush Center’s 2023 Freedom Matters special exhibit, the Bush Center hosted Carlyle Group Co-Founder and Co-Chairman David Rubenstein and “America’s Government Teacher” Sharon McMahon.

Policy making billionaire David Rubenstein non-lobbied Congress to keep private equity's preferred "carried interest" taxation.

Barron's reported in 2021:

A key tax break for private-equity and hedge-fund managers that has been targeted for elimination by every president since George W. Bush survived the latest attempt to kill it.

Politicians Red and Blue love PEU (private equity underwriters) and increasingly, more are one.

ESG Loving Youngkin Now Anti-ESG

Forbes reported:

Florida Governor Ron DeSantis’ recently announced anti-ESG alliance has grown with the addition of Virginia Governor Glenn Youngkin. 

The story missed two things with this characterization of the Virginia Governor:

Governor Youngkin is the former CEO of the Carlyle Group....If Youngkin can convince the General Assembly that ESG is harmful to state investments

Youngkin was co-CEO of Carlyle and very pro-ESG.  In a "2020 Impact Review" letter Youngkin and Kewsong Lee stated:

This work remains grounded in our long history of ESG integration, as we believe that strong ESG competencies are hallmarks of management excellence. This commitment is critical for investment performance...

...we have increased the transparency and detail of our own corporate ESG disclosures through our first Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) disclosures...

Another Youngkin flip-flop.   When it padded his pocketbook Youngkin loved ESG.  

It's even signed...

 Politicians Red and Blue love PEU and increasingly, more are one.  Watch out for Slippery Glenn.

Carlyle Capital Raise?

The Carlyle Group filed with the SEC for a possible capital raise.  It states:

We and any selling security holders identified in this prospectus or in supplements to this prospectus may from time to time offer and sell, in one or more series or classes, separately or together, the following securities:

• common stock;

 • preferred stock; 

• depositary shares;

• debt securities; 

• warrants; 

• subscription rights; 

• purchase contracts; and 

• units. 

It's unclear at this time if funds will go to Carlyle or to selling security holders:

Unless otherwise indicated in the prospectus supplement, we intend to use the net proceeds we receive from the offering of securities under this prospectus for general corporate purposes. Further details relating to the use of net proceeds we receive from the offering of securities under this prospectus will be set forth in any prospectus supplement, where applicable. 

We will not receive any of the proceeds from the sale of securities to which this prospectus relates that are offered by any selling security holders. 

Interesting that mismarked asset holders, like banks and private equity underwriters (PEU), are seeking additional capital.

Banking Crisis of the Rich to Make Rich Richer?

 

Billionaires caused the banking crisis according to one CEO.  The crisis required government institutions to funnel resources to shore up underwater banks.  

Assets = Liabilities + Owner equity

Many bank assets are not worth the amount initially paid for them due to Fed increases in interest rates.  Unwinding failed banks means harming the right side of the above equation, bondholders and shareholders.

Silicon Valley Bank catered to wealthy venture capitalists and private equity CFOs.  That subsection of billionaires got nervous and yanked their money in a digital bank run.  Oddly, a different subsection stands to gain by buying discounted bank assets, private equity underwriters (PEU).

The Carlyle Group led a PEU consortium that took on BankUnited after the 2008 financial crisis.  Uncle Sam subsidized that deal to tune of nearly $6 billion.  Carlyle et al more than doubled their money.

So a banking crisis of the rich could make some of the rich richer.  It's a PEU world.

Update 3-28-23:  More proof as to who got saved:

"the 10 largest deposit accounts at Silicon Valley Bank held a combined $13.3 billion"

The bailout really did protect billionaires from taking a modest haircut," offered Matt Stoller.

Update 3-29-23:  Former FDIC Chair Sheila Bair raised a number of questions about who benefited from the bailout.

Baxter BioPharma Solutions to Go PEU?

The Carlyle Group and KKR expressed interest in Baxter International's BioPharma unit.  Reuters reported:

Baxter's biopharma solutions unit supports drugmakers in the formulation, development and commercialization of drugs typically given by infusion or injection, such as biologics and vaccines.

Thermo Fischer Scientific and Celltrion are also exploring buying the division.  

Carlyle has a huge healthcare portfolio.  It would behoove officials to remember Carlyle's driving nursing home giant ManorCare into bankruptcy.  

They also may wish to recall KKR's ownership of hospital giant HCA.  KKR bled HCA of billions in management fees, dividends and distributions.  KKR and Bain Capital's HCA ownership added an unnecessary $15 billion in costs to our absurdly expensive healthcare non-system.

The Fed and FDIC just saved Silicon Valley Bank which directly marketed to private equity CFOs.  Private equity underwriters (PEU) win, time and time again.  

Let's hope the greed and leverage boys don't land another important healthcare company.  Our nation can't afford it.

Update 3-30-23:  Carlyle is using Atmas Health to bid on Medtronic's patient monitoring and respiratory interventions businesses.

Rubenstein Honors Adam Sandler

Carlyle Group co-founder David Rubenstein honored comedian Adam Sandler with the Kennedy Center's Mark Twain Prize.  

Sandler reflected on playing unlucky characters – a common theme in movies.  "Oh man, I always liked them growing up," said Sandler."I liked pulling for somebody who needed something. I relate to all different types of people, but I enjoy playing these guys who are struggling. I like that."

Kennedy Center Chairman Rubenstein has been unlucky of late.  Cryptocurrency play Paxos had a rough time after FTX's failure. Add Carlyle's executive turnover hurt fundraising.

Rest assured Mr. Rubenstein is using his legendary political connections for a better Paxos future to bolster his family office investment.  

As for Mark Twain he had a few things to say about the wealthy:

How unfortunate and how narrowing a thing it is for a man to have wealth who makes a god of it instead of a servant.

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...

Private equity underwriting (PEU) with its excessive greed and leverage is the answer to all of societal ills.  That alone should be comical.  Politicians Red and Blue love PEU and increasingly, more are one.  The comedy grows ever darker.

Fortune Forgot About BankUnited

Fortune reported private equity underwriters (PEU) are circling the carcass of Silicon Valley Bank and Signature.

Should the FDIC fail (again) to find a white knight to buy the whole bank, it will be forced to sell it off piecemeal, and that's where private equity comes in, a group of investors the FDIC does not look upon favorably. Several alternative asset managers including Blackstone, Ares and Carlyle Group are interested in the $74 billion loan book and are evaluating whether or not to bid, several sources familiar with the sale process said.

The FDIC had no problem subsidizing Carlyle, Blackstone, Centerbridge and WL Ross to the tune of nearly $6 billion on BankUnited.   

U.S Presidents of both political parties host PEU founders regularly at the White House.  Those same founders are known as "policy making billionaires" in D.C. circles due to their outsized influence on government actions.

The FDIC saved SVB which catered to private equity CFOs and venture capitalists.  It did not have to guarantee uninsured deposits from wealthy risk takers, but it did.

Politicians Red and Blue love PEU, and increasingly, more are one.

SVB Bankruptcy: Bob Rubin and Larry Summers

"The Committee to Save the World" eliminated bank protections in the late 1990's.  Two of the three men pictured on the cover of Time are connected to Silicon Valley Bank's failure, Robert Rubin and Larry Summers.  

Summers was front and center calling for SVB depositors to be made whole.  He did not disclose his advisor role with NYCA Partners, a venture capital and advisory firm focusing on financial technology.  Was Larry Summers arguing his personal financial book or that of NYCA in his calls to save depositors?

Bob Rubin's Centerview Partners has been hired by bankrupt SVB for investment banking services.  It's ironic that Rubin might help clean up a mess he created decades ago by loosening bank regulations.

An opinion piece noted:

SVB’s meteoric rise and fall serves as a reminder that many of the guardrails erected after the last crisis have since been dismantled – at the behest of banks like SVB, and with the help of lawmakers from both parties beholden to entrenched finance and tech lobbies.

Former Clinton Labor Secretary used SVB's bankruptcy as a history lesson.  He omitted his former Cabinet peers Bob Rubin and Larry Summers in his assessment.  To me that's part of the deeper story.

Update 3-22-23:  Lazard is advising First Republic Bank in the midst of the current banking crisis.  Peter Orszag is CEO of Lazard's Financial Advisory. 

SVB's Boston Private Rescued Again

Uncle Sam saved  Boston Private during the 2008 financial crisis such that The Carlyle Group could more than double its investment in the wealth management firm/bank.  

Boston Private received the 82nd-largest amount from TARP out of 822 recipients

Silicon Valley Bank bought Boston Private in July 2021.  A major BP investor opposed the deal citing conflicted management and a non-existent sales process.

Boston Private is giving itself another week to win enough shareholder votes to secure approval for its sale to Silicon Valley Bank. An activist shareholder slammed the delay as a "shameless maneuver ... to manipulate the voting process."

Over this past weekend the government saved SVB's Boston Private yet again.  Axios reported:

By 2022, SVB had become the 16th-largest bank in the nation, and the 10th-largest in Massachusetts by deposits.

...what would happen to the Boston area's emerging startups if the SVB holding company doesn't get bought, or if a buyer shifts focus away from the innovation economy?

Many powerful people pushed for SVB's rescue.  Boston Private may be sold with SVB or separately.

“Boston Private will be a high priority because their clients are likely in panic mode and demanding answers. No doubt there will be plenty of interested parties knocking on the door, so I wouldn’t expect it to go for bargain-basement pricing like the Lehman assets.”

History sometimes repeats, as in the case of Uncle Sam saving Boston Private.  

....private equity firms are looking to bid on all the components of SVB.

Will it repeat in another round of Carlyle Group ownership?  Can the current FDIC Chair offer a sweeter deal to Carlyle and company than BankUnited?   That was most generous.

Another history repeat is Randall Quarles.  Carlyle Group Managing Director Quarles commented on the investment stake in Boston Private summer 2008:

Randal Quarles, a managing director on Carlyle's financial services team, adds: 'In these challenging economic times, we have looked at many investment opportunities in the financial services sector and have seen few that we have found as attractive. We are attracted to Boston Private's strong history of growth and their diversified business structure that derives revenues not only from the private banking business but from strong fee-based businesses.'

Quarles later joined the Fed as Chair of Supervision.  BIG by Matt Stoller reported:

...Fed Governor Randy Quarles, pushed to get rid of these stress tests. As Quarles said in 2019, “I think we’ve moved not too quickly, but quite quickly, in adjusting — again, with an eye toward efficiency — some aspects of post-crisis regulation.”

Quarles rejoined The Cynosure Group after leaving the Fed.  Cynosure has a number of former Carlyle Group executives.

A European bank regulator offered on the SVB rescue:

“At the end of the day, this is a bailout paid for by the ordinary people and it’s a bailout of the rich venture capitalists which is really wrong.”

Don't forget the greed and leverage boys.  SVB had a whole department dedicated to private equity underwriters (PEU).

Uncle Sam backstops the super wealthy so they can have yet another profit-gasm while keeping their preferred taxation.  It's that way because politicians Red and Blue love PEU and increasingly, more are one.

Update:  A Guardian opinion piece stated:

SVB’s meteoric rise and fall serves as a reminder that many of the guardrails erected after the last crisis have since been dismantled – at the behest of banks like SVB, and with the help of lawmakers from both parties beholden to entrenched finance and tech lobbies.

Update 3-23-23:  Bids for SV Private Bank have been postponed until Friday.  Will Carlyle rebuy its former affiliate?

Update 4-29-23:  The Fed now says Congress caused them to go lighter on supervision.

Mr. Silicon Valley Deployed Political Network to Save Deposits

NBC News reported on non-lobbying lobbying around Silicon Valley Bank's implosion:

Ron Conway, a prominent San Francisco venture capitalist, said in an email that his investment firm “was able to deploy its business and policy/government relationship network to pursue a positive outcome to help thousands of small business clients of SVB resume business with normalcy.” 

At a dinner Friday in San Francisco, he had pressed his case to former House Speaker Nancy Pelosi and former President Barack Obama, according to the news website Puck, which labeled the rescue “The Ron Conway Bailout.”

Conway's SV Angel funds had $200 million in SVB.

Obama let widespread financial fraud go unprosecuted after the 2008 financial crisis.   It's hardly a surprise billionaire insiders sought him out for help saving SVB uninsured deposits.

Tech firms worried about a blow to their Hollywood villain image.

A general partner at the venture capital firm Andreessen Horowitz, said on Twitter that he had realized in the past few days that people didn’t appreciate the tech industry’s value. “We need to do a better job of telling our story or our enemies will do it for us."

For decades private equity underwriters (PEU) have lamented the public's inability to appreciate all the good they do.  That's likely because most Americans have worked for a PEU affiliate at some point in their career and seen the damage done.

Are disruptors misunderstood or does the public actually get it?  Here's a clue:  Libertarian greed kings needed government rescue for disrupting their bank holdings.

Underwater assets (worth less today than when purchased) exist well beyond Silicon Valley Bank.  How far are the Reds and Blues willing to do to backstop the policy making billionaire class?

Fed Advisor Rubenstein Predicts Fed Course Amid Bank Blowups

Carlyle Group co-founder David Rubenstein suggested a 25 basis point rate hike at next week's Fed meeting.  Rubenstein is a member of the Fed's Investor Advisory Committee on Financial Markets and former employer of Fed Chief Jay Powell.

Rubenstein didn't mention the removal of "mark to market" requirement for bank assets.  Private equity underwriters utilize "mark to model."  These practices have resulted in private equity valuations (often highly levered) being much less volatile than public equity.  Levered private equity should swing more than less levered public equity.  It does not.

Banks face the prospect of increased operating costs as they have to pay more to depositors to keep their accounts.  Private equity underwriters (PEU) face a wall of debt refinancings that will dramatically increase interest expenses.  There are predictions that many PEU affiliates will fail.

Rubenstein said monetary policy makers during this tightening cycle were focused on tamping down inflation and likely didn't spend much time worrying about the ability of banks to survive the surge in borrowing rates. 

 He suggested the Fed can't walk and chew gum at the same time.

At the New York Fed, our mission is to make the U.S. economy stronger and the financial system more stable for all segments of society. We do this by executing monetary policy, providing financial services, supervising banks and providing thought leadership on issues that impact the nation and communities we serve.

The Fed was not alone in failing to warn the investing public about SVB.  Debt rating agencies and certified public accountants provided zero warning.

Moody’s had given the lender an ‘A’ rating prior to its collapse.  Accounting giant KPMG signed off on the now-beleaguered bank’s audit just 14 days before it went bust.

President Joe Biden had no sympathy for SVB shareholders which included large pension funds from California, Ohio, Illinois, North Carolina, Colorado New York and twenty other states.

Biden saved SVB depositors which included billionaire and PEU Peter Thiel while shafting public pensions.  

Should the American people trust the system partially built by insider David Rubenstein?   Rubenstein and his PEU brethren ensured preferred "carried interest" taxation, generous valuation models and affiliates' long term access to Uncle Sam's wallet.

Politicians Red and Blue love PEU and increasingly, more are one.

Update:  SVB's executive team was loaded with former KPMG.  Bloomberg Law reported:

CEO, CFO, some board members, risk officer all worked for KPMG

Update 3-19-23:   With the Fed meeting looming Insider put together predictions from connected persons, including Carlyle's Rubenstein.

Premiering April 26th:

Iconic America: Our Symbols and Stories with David Rubenstein (PBS, new documentary series)

Barr to Lead Fed SVB Investigation

Michael S. Barr is leading the review of Fed supervision of failed Silicon Valley Bank.  Barr is a former Treasury official under the Obama administration.  He became an advisory board member for Ripple Labs in 2015.  That usually comes with compensation, often in the form of equity.

Ripple had funds in SVB bank.

Does Michael S. Barr hold stock in Ripple?  If so, he may not be the best person to lead an investigation.

Update:  Barr's 4-9-22 financial disclosure form indicates no equity holdings in Ripple.  It does show stock options and warrants for a number of fintech companies (82 in all).  He indicated he would divest those.

It turns out Barr served as advisor and limited partner for NYCA Management LLC beginning in early 2017.   NYCA Investment made a nearly $10,000 distribution to Barr.  He showed carried interest from two NYCA investment funds.  That means Barr is a private equity underwriter (PEU).

NYCA Partners lists Larry Summers as part of its network.  Summers may have been pushing his own book with his recommendations to bail out SVB depositors.

Saving PEU Depositors

Over the weekend the federal government declared "systemic risk" in order to fully back depositors at two banks, Silicon Valley Bank and Signature.  

Silicon Valley Bank catered to private equity underwriters (PEU).  The Biden White House is chock full of former PEUs.  The just retired Chief of Staff Ron Klain worked for Revolution LLC.  

PEU Peter Thiel put out the word last week to pull funds from SVB.  It's ironic a billionaire helped kick off last week's bank run.

Signature Bank served the crypto world and held $250 million of Paxos funds.  That money is fully guaranteed to the relief of Paxos board member Sheila Bair (former FDIC chair) and major investor David Rubenstein (Carlyle Group).  Paxos has a bank, Paxos Trust.  Might they benefit from crypto firms seeking a banking home?

"The Big Short's" Michael Burry called SVB "Enron" and anticipates a soon to fall "Worldcom."

"People full of hubris and greed take stupid risks, and fail."

This weekend's government action could be the biggest PEU boon since FDIC Chair Sheila Bair gifted BankUnited to Carlyle et al in the aftermath of the 2008 financial crisis.

PEU presents all around!  Politicians Red and Blue love PEU and increasingly, more are one. 

Update 3-14-23:  The greed and leverage boys are circling SVB Bank and the other parts of SVB Financial

Bloomberg reported that Apollo Global and Blackstone have expressed interest in snapping up a book of loans held by Silicon Valley Bank.

SVB Securities may end up independent if CEO Leerink can find financing.  The Carlyle Group used SVB Securities for Accelerate Learning and TriNetX.  It predicted Carlyle would partner with UnitedHealth to buy Magellan Health.

Signature Bank Possessed, Depositors Saved

Fortune reported: 

On Sunday, two days after the stunning failure of Silicon Valley Bank, the New York Department of Financial Services announced it had taken possession of Signature, which has deposits totaling $88.59 billion.

In a joint statement, the Treasury, Federal Reserve, and FDIC announced a systemic risk exception for Signature, guaranteeing that all depositors to the institution would be made whole, with no losses incurred by taxpayers.

Was Paxos' systemic risk designation aided by former FDIC Chair Sheila Bair (Paxos board member).  Add that Carlyle Group co-founder David Rubenstein's family office participated in several Paxos fundraising rounds.

A Paxos spokesperson told Fortune that the crypto firm currently holds $250 million at Signature as well as private deposit insurance, adding that it was always looking to expand its network of banks. 

 Flashback to 2021 when Barron's ran a piece on crypto co-authored by Sheila Bair.

If investors lose confidence in a stablecoin’s ability to redeem funds at par, as they have before, they could run, causing the token’s value to drop meaningfully below $1. Were a large stablecoin to “break the buck,” it could induce additional runs in other stablecoins. And if stablecoins continue to grow at their current pace, a panic could precipitate instability in the broader financial system.

Paxos is the only issuer to publicly support regulations making such limits mandatory. It also believes stablecoin issuers should be subject to comprehensive prudential regulation. It has always been subject to oversight by the New York Department of Financial Services and has received conditional approval for a national trust charter overseen by the Office of the Comptroller of the Currency. 

Barron's disclosed Bair's board slot at Paxos.

Back to bank failure weekend.  It helps when other powerful insiders call for action

The weekend saw many in the tech industry, as well as financial luminaries such as former Treasury Secretary Larry Summers, calling for depositors at SVB to be made whole to avoid further spreading panic.

Will Mrs. Bair or Mr. Rubenstein be on CNBC in the morning?  If so, I doubt Rubenstein will reiterate his "titillating" view of crypto.

Update 3-13-23:  Paxos put out a statement:

Statement from Paxos: The protection and safety of customer assets is Paxos’ top priority, which is why we always take active measures to safeguard customers’ funds.

 In other words Paxos Trust is ready to take your money.

Update 3-14-23:  Rubenstein spoke at the New Orleans book festival.  He compared cryptocurrency to Las Vegas casinos.  He told Tulane students:

“I want everybody to think about what they can do to give back to society by giving time or energy to ideas in a way that will make the country better.” 

That does not include paying his fair share of taxes.

SVB CEO and CFO Sell Stock Before Implosion

Bloomberg reported:

Silicon Valley Bank Chief Executive Officer Greg Becker sold $3.6 million of company stock under a trading plan less than two weeks before the firm disclosed extensive losses that led to its failure.

On Friday, Silicon Valley Bank failed after a week of tumult fueled by a letter the firm sent to shareholders that it would try to raise more than $2 billion in capital after taking losses.

SEC filings indicate SVB's CFO sold company stock grossing $575,000 in late February.

SVB executives know how to get theirs before the equity pot evaporates.  That's the PEU way.  

SVB Financial targets private equity underwriters (PEU), offering private equity fund banking.

SVB has the back of PEU CFO's:

Time will indicate if the greed and leverage boys use any of their ample dry powder to support SVB Financial.   I'm sure it's been a busy weekend for all parties, examining the fallout from SVB's failure on the PEU greedosystem.

Update:  As for irony: 

Bank Runs Sink Silicon Valley Bank, Silvergate

Time will reveal the significance of two bank failures, Silicon Valley Bank and Silvergate.  Pittsburg Post Gazetter reported:

VC firms ranging from Peter Thiel's Founders Fund to Union Square Ventures had told portfolio companies to pull their money from Silicon Valley Bank.

At Silvergate, which caters to cryptocurrency clients, customers yanked their money in the panic that followed the 2022 collapse of cryptocurrency exchange FTX.  

Bank runs mean massive withdrawals requiring forced asset sales.  Forced asset sales in a down valuation market means losses.  Peter Thiel knows this, as does every venture capitalist and private equity underwriter (PEU).  

How did this supposedly "patient money" in an FDIC insured bank became an instant "got to have."  Disrupters did the disrupting. 

The article raised questions like:

....how a financial institution pushing so deeply into crypto didn’t prompt action on the part of its regulators.

“Where were the regulators on Silvergate?” asked Jerry Comizio, an adjunct law professor at American University and a former U.S. Treasury Department official. “In a real sense, they missed Silvergate.”

Not only were the regulators absent but the Federal Home Loan Bank propped up Silvergate with billions.

Did it help that a former FDIC Chair is on the board of crypto infrastructure firm Paxos?  Did it help that Carlyle Group co-founder David Rubenstein personally invested in Paxos and kept D.C. regulators at bay?  Rubenstein considered FTX's Sam Bankman-Fried his peer in August 2022 and pushed crypto as "titillating."

Crypto infrastructure company Paxos said in a statement that the company “has virtually no exposure to Silvergate.”

That's because Paxos has its own bank.  Former FDIC Chair Sheila Bair minimized Silvergate's fall:

“Silvergate’s troubles are as much if not more about traditional banking risks — lack of diversification, maturity mismatches — as it is about its exposure to crypto,” said Sheila Bair, who headed the FDIC during the global financial crisis.

Did she do so to stem a Paxos bank run?  Turn over a rock and one may find a PEU or conflicted former member of government doing what's best for them.  They don't even pretend to care about you.

Update 3-15-23:  Silicon Valley Bridge Bank put quite the spin on its emergence from insolvency:

Silicon Valley Bank is now marketing themselves as the single safest "place to keep or transfer your deposits (fully insured with no limits or caps)."

Update 10-21-23:  Marc Cohodes wrote "Peter Thiel is and always has been Dirty."

Social Security SWF is PEU Trojan Horse

Negotiations are underway to extend the life of Social Security another 75 years.   Insider reported:

 ..... a group of bipartisan lawmakers may have come up with a compromise in the form of a sovereign wealth fund (SWF) — something that the United States does not currently have at the federal level. SWFs are typically investment funds owned by the government.

Sovereign Wealth Funds invest capital with the goal of making returns.   Arabian Business reported real estate and private equity as the two largest holdings of Middle Eastern SWFs.

....favour private equity, allocating an average 21 percent of the portfolio to asset class.

 Institutional Investors reported:

State-owned investors, including sovereign wealth and public pension funds, have increased their private market allocations to an average 22 percent this year, up from 10 percent in 2008.

“The largest proportionate changes were observed for private equity, which more than tripled between 2008 and 2020” for public pension and sovereign wealth funds, the researchers said. 

 Wharton@Work has advice on SWFs investing in private equity underwriters (PEU):

Sovereign wealth fund managers must be increasingly adept when adjusting the investments in their portfolio, and particularly when considering investing in private equity. Making the right choices requires skill in analyzing whether their returns will beat the realized return (after fees) offered by venture capital and private equity (PE) firms, and whether to take a more direct role in their investments.

Their main strategies are:

1. Direct investments, effectively competing with private equity funds
2. Co-investments, in which the sovereign wealth fund (SWF) invests alongside a private equity partner; this offers enormous potential as an SWF does not pay the high fees generally assessed the limited partner, and the private equity firms — or general partner (GP) — have deep resources to pursue larger assets
3. More passive and traditional investment as a limited partner
4. Investment in the secondary market

The greed and leverage boys must be salivating over the prospect of Social Security dollars going into their various PEU fund offerings.  They're already on tap for addition to 401(k) plans.

PEUs could get retirement funds from the new Social Security SWF (top down) and from individuals through their 401(k)s (bottom up).  Sweet!

This is the result of decades of political investment by policy making billionaires.  

Politicians Red and Blue love PEU and increasingly, more are one.  It's no surprise the PEU solution is the tonic for all our nation's ills.  

Update:   Carlyle offered investors in a 2018 fund the opportunity to cash in for 81 cents on the dollar in order to use the money toward a new Carlyle fund.

Big Frauds Everywhere

The news has been full of big frauds in various sectors of the economy.  Frauds have been revealed from finance to media to higher education to healthcare.  

JP Morgan is a serial ethics violator.  The storied Wall Street firm doesn’t want CEO Jamie Dimon questioned under oath in Jeffrey Epstein case.  

Too many have something to hide.  

Update 3-7-23:  Wall Street on Parade reported on the Virgin Islands complaint against JP Morgan Chase regarding Jeffrey Epstein:

....charges that the bank sat on a pile of evidence that Jeffrey Epstein was running a child sex trafficking ring as it continued to keep him as a client; accept his lucrative referrals of wealthy clients; and provided him with large sums of cash and wire transfers to pay off victims – one of whom was a “14-year old sex slave.”

Update 3-8-23:   The Perth Mint sold diluted or doped gold to China and then covered it up.

Update 3-12-23:  Reuters reported:

JPMorgan Chase & Co has sued Jes Staley, its former private banking head and later Barclays Plc's chief executive, accusing him of entangling it with sex offender Jeffrey Epstein, and saying Staley himself had been accused of sexual assault.

Update 8-18-23:  As for seeing a concert, that's been redefined down:

Ticketmaster will begin to sell “listening seats” that do not have any view

They do it because they can.  There is no counterbalance, no authority to prevent the crapification of everything.

Update 8-2-24:  Thoughtful Money's Adam Taggart referred to "crapification" imposed by private equity owners in an interview with noted author Gretchen Morgenson. She provided a number of PEU cases where owners won but employees, customers and nearly everyone else lost.

Two Stories on PEU Junk

 

Private equity firms are increasingly financing each other's deals, according to Bloomberg.  

...Apollo Global Management Inc., Blackstone Inc., HPS Investment Partners and Ares Management Corp. Direct lenders, already among the largest players in leveraged buyout financing, see an extraordinary opening to grab market share — and hang onto it for the long haul.

The four are among the shops offering $5.5 billion to fund Carlyle Group Inc.’s purchase of a 50% stake in Cotiviti Inc., according to people familiar with the matter.

Will they refinance each other's affiliates when their debt comes due?  Dividend recaps are back in vogue.

Private equity firms are using some of their companies as automated teller machines again.  The firms are piling more debt onto companies they own to fund payouts to themselves.

It may be the only way to keep "mark to fantasy" valuations from imploding.   

Update:  Oaktree entered the "I'll fund yours if you'll fund mine" with a new $10 billion PEU lending fund.

Update 3-20-23:  WSJ reported some public pension funds are cutting back on private equity investments.

Update 4-12-23:  Carlyle's deal for Cotiviti fell apart.  FT reported "late in the process Carlyle tried to reduce the purchase price.."  Maybe "I'll fund your junk, if you fund mine" isn't in play at all.