Posts Tagged ‘Goldman Sachs’
Wednesday, September 1st, 2010
Goldman Sachs and Citigroup are in the process of trying to sell their fourth CMBS package in 2010 with $788 million of debt from 48 properties as investor interest in these vehicles rekindles. Although the Federal Reserve noted that commercial real estate is still slowing economic growth, bond investors believe that growth is strong enough for borrowers to meet debt payments. According to Dan Castro, chief of structured finance analytics and strategy at BTIG LLC, “CMBS is an avenue that’s going to provide better returns. There’s a lot of guys clamoring for these returns.”
Consider that corporate bond yields are only 177 basis points over Treasury, while CMBS yields are 100 bps higher. According to Business Week, “The difference between the rate to exchange floating for fixed-interest payments and Treasury yields for two years, known as the swap spread, is a measure of investor perception of credit risk. It serves as a benchmark for investors in many types of debt, including mortgage-backed and auto-loan securities. The two-year swap spread narrowed 1.43 basis point to 15.88 basis points, the lowest level since April 20,” indicating increased confidence. So while CMBS still has a ways to go to get back to previous levels, the market is in recovery which is great news for the rest of the industry which relies on CMBS for refinancing.
Tags: auto-loan securities, cititgroup, CMBS, Dan Castro, Federal Reserve, Ford, Goldman Sachs, leveraged loans, mortgage-backed securities, quality of credit, treasury yields
Posted in Economics, Financing | No Comments »
Wednesday, August 25th, 2010
Curiosity is growing about which Wall Street banks will be the first to get out of proprietary trading or the private equity business as they restructure to come into compliance with new financial regulatory reform legislation. The Volcker Rule - named for former Federal Reserve chairman Paul Volcker - limits banks from these practices and sets new levels on the size of private equity or hedge fund investments. In other words, the banks are not allowed to hold more than three percent of their Tier 1 capital - a measure of their financial strength — in private equity or hedge fund investments.
Bank of America is almost in compliance, though Goldman Sachs must act more aggressively and is reported to be weighing several options to comply with the increased regulation. The good news for the Wall Street banks is that they have several years in which they can reduce their holdings. “They have time to adjust,” said Mark Nuccio, partner at Boston-based Ropes & Gray. “I don’t think there’s any intention on behalf of the regulators to create economic dislocation at financial institutions.”
The new rules are driving certain banks to rethink their business, while others see the new law as a welcome excuse to distance themselves from unwanted hedge or private-equity funds. “If you were leaning toward a strategic change anyway then now is a good time to re-evaluate the business because you have a regulator saying you shouldn’t be in this business anyway,” said Thomas Whelan, chief executive of Greenwich Alternative Investments. This is particularly true for banks that quickly acquired hedge fund operations during the boom years. At that time, having a hedge fund was essential to the strategic mix. Since 2008, however, when hedge funds posted their worst-ever returns and clients tried to cash in assets, the math changed for many banks.
Tags: Bank of America, banking, derivatives, Federal Reserve, Goldman Sachs, hedge funds, Morgan Stanley, Paul Volcker, President Barack Obama, private-equity firms, Volcker Rule, Wall Street
Posted in Economics, Financing | No Comments »
Thursday, April 1st, 2010
The nation’s pay czar is widening his review of how much money hundreds of banks paid their top executives during 
the 2008 financial crisis. Kenneth R. Feinberg, officially the Special Master for Executive Compensation, is asking for details on compensation at 419 banks that were bailed out by the Treasury Department’s Troubled Asset Relief Program (TARP). Because Feinberg’s authority over compensation only started on February 17, 2009 - when President Barack Obama signed the $787 billion stimulus bill into law and gave Treasury the ability to shape compensation at bailed-out companies - he can do nothing about bonuses paid at the end of 2008.
The standards for deciding that compensation is excessive must be “contrary to the public interest.” Feinberg’s “look back letter” gives the firms 30 days to provide the information requested. The compensation review applies only to managers who earned upwards of $500,000 during the four-month period that is under assessment. Scott Talbott, senior vice president of the Financial Services Roundtable, said the big banks “will work with Mr. Feinberg to demonstrate that the industry has eliminated pay practices that encouraged excessive risk-taking.”
Last fall, Feinberg cut executive paychecks by approximately 50 percent for the seven biggest bailout recipients. Of those, Citigroup and Bank of America have since repaid the government. Feinberg was able to pressure AIG employees to return a percentage of their compensation. James Angel, a finance professor at Georgetown University’s McDonough School of Business, said, “On one hand, some of these banks were effectively forced to take TARP money. But you could also argue that the executives of surviving banks should not be compensated highly because it wasn’t really their particular skill, it was their luck that they were in an institution that survived when the government bailed out the financial system.”
Tags: AIG, Bank of America, Capitol Hill, Chrysler, Chrysler Financial, Citigroup, financial crisis, Financial Services Roundtable, General Motors, Georgetown University, GMAC, Goldman Sachs, Kenneth Feinberg, Morgan Stanley, pay czar, President Barack Obama, stiumulus bill, TARP, Treasury Department, Wall Street
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Monday, February 1st, 2010
David Tepper’s shrewd bet that the nation would avoid a second Great Depression inspired him to buy bank shares at rock-bottom rates, a move that has earned his Appaloosa Management hedge fund an estimated $7 billion worth of profit during 2009. Last winter, Tepper invested heavily in Bank of America stocks selling for $3 a share, as well as Citigroup, Inc. preferred stock, then priced at a bargain-basement $1 per share.
Tepper, a philanthropist who funded the Tepper School of Business at Carnegie Mellon University, made a gamble that is paying off in a big way - surprising skeptics who insisted that he was making a costly error. “I felt like I was alone,” Tepper said. There were days when “no one was even bidding.” An improving market has seen Appaloosa Management earn a 120 percent return. As a result of those gains, Tepper now manages approximately $12 billion, making his company one of the world’s largest hedge funds.
In general, hedge funds had a bad year in 2008, when they experienced a 19 percent decline. Approximately 1,500 funds - 16 percent of the total - went out of business in 2008. The funds had a far better year in 2009. According to Hedge Fund Research, Inc., they are seeing a 19 percent return, the best annual gains in 10 years.
Alan Shealy, a long-time Tepper client, says “Investing with David is like flying, with hours of boredom followed by bouts of sheer terror. He’s the quintessential opportunist, investing in any asset class, but you have to have a cast-iron stomach.”
Tags: Bank of America, Citigroup, David Tepper, Goldman Sachs, Great Depression, hedge fund, recession
Posted in Economics, Financing | No Comments »
Wednesday, December 30th, 2009
Gold fever seems to be on the decline as the precious metal fell $90 an ounce in just two days after the commodity reached a high of $1,226 an ounce in early December. The lion’s share of the blame for the decline was placed on newbie investors, who got skittish in their belief that gold is an investment safety net. Gold isn’t down and out yet. According to Goldman Sachs’ precious metals group, if the Federal Reserve keeps interest rates at current low levels, the price of an ounce could climb as high as $1,350 next year.
Dennis Gartman, a trader and publisher of the Gartman Letter investment newsletter, said “Too many naïve investors got involved in gold. They must be taken out and given a good caning.” Professional investors are likely to stay away from gold for a while, a move that will “inflict pain on the people who came late to the market” in coming months.
A somewhat different viewpoint is offered by Jim Paulsen, chief investment strategist with Wells Capital Management, who believes that the tumult makes it unclear why gold prices are acting erratically. “Gold has been the answer to inflation; gold has been the answer to disinflation; gold has been the answer to too much debt and to the China bubble. But I have never known an asset that was the answer to everything,” Paulsen said. He believes that gold is currently overpriced and vulnerable to fluctuations.
Ibbotson Associates notes that someone who invested in gold in 1980 would have seen an average annual yield of 2.6 percent. As attractive as gold looks now, compare that with stocks which averaged an 11.2 percent return despite last year’s slump.
Tags: AARP Financial, CRB Commodity Index, Federal Reserve, Gail Marks Jarvis, gold, Goldman Sachs, Ibbotson Associates, Jim Edgar, Midas, scrooge, Wells Capital Management
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Thursday, December 17th, 2009
The world’s central banks are easing up slightly on the generosity they have shown over the past year when the financial crisis threatened to destroy the global economy. After European Central Bank president Jean-Claude Trichet said his bank would withdraw some liquidity operations, the euro rose. Similarly the pound went up after the Bank of England started purchasing bonds at a slower rate. The Federal Reserve detailed the conditions in which it would raise interest rates - though it hasn’t acted on that yet.
Juergen Michels, chief European economist at Citigroup, Inc., in London, says that “As soon as the first exit measures are put in place, there’s the risk that the market overreacts. We’ll probably see a tightening of financing conditions, and hard-fought-for improvements will be in jeopardy.”
These actions mean that investors will have to operate without the liquidity that has been propping up the world’s economies, even as new concerns about additional asset bubbles grow. Mistiming the withdrawal of support could spoil the fragile recovery. Central banks are changing course at a time when factories are restocking inventories, and the price of commodities like gold and sugar are climbing. The MSCI All-Countries World Index has soared 66 percent since March and sugar has increased 90 percent this year.
“There are all kinds of risks,” said Jim O’Neill, chief global economist at Goldman Sachs Group, Inc., in London. “We don’t know how much of the improvement in markets is due to the central banks’ largesse, and neither do they. They’re pretty nervous, but they’ve got to get out of it at some stage.”
Tags: Bank of England, Ben Bernanke, Citigroup, euro, European Central, Federal Reserve, Goldman Sachs, Great Depression
Posted in Economics, Financing | No Comments »
Monday, November 9th, 2009
The markets are keeping a close eye on a transaction that may jump start the commercial property debt market, even though the Federal Reserve has expressed some uneasiness with the deal. If the transaction is successful, it could pave the way for the initial sale of commercial mortgage-backed securities (CMBS) under the government Term Asset-Backed Securities Loan Facility (TALF). The credit-hungry commercial real estate industry is hoping that the debt sale by shopping center owner Developers Diversified Realty Corporation will lead to additional CMBS sales.
Developers Diversified has obtained a $400 million loan from Goldman Sachs Group, Inc., which is intended to be converted into a CMBS offering through TALF. The Fed, keeping the taxpayers’ best interests in mind, has reservations about financing the transaction since it involves a single borrower. These are considered riskier than deals involving multiple borrowers, where the risk is spread over different borrowers, building type and even location.
“The Fed is being very conservative, very diligent in reviewing collateral and very risk-averse,” said Frank Innaurato, managing director at Realpoint LLC, a credit-ratings firm. Currently, the Fed is reviewing the transaction, which involves 28 shopping centers with stable cash flows. If the Fed says “no” to the transaction, Goldman Sachs is said to be considering selling the $400 million loan outside TALF.
TALF was created to revive the CMBS market, as well as jump start securitized debt markets by offering low-cost financing from the Fed so investors can once again purchase these securities. The program lets investors borrow as much as 95 percent of the bonds’ value by pledging the securities as collateral - meaning the risk is on taxpayers if there is a default.
Tags: borrowers, CMBS, Commercial property debt, default, Fed, Federal Reserve Bank, Goldman Sachs, real estate market, Real Estate Roundtable, TALF, taxpayer money
Posted in Economics | No Comments »
Tuesday, October 21st, 2008
The Treasury Department is spending the first $250 billion of the $700 billion rescue bill that Congress recently approved in an attempt to defuse the financial crisis that has dominated the headlines for weeks. According to a recent article on GlobeSt.com, the move - which partially nationalizes the banking system - is seen by some as conflicting with the free-market principles that typically have characterized the American economy. To shore up the United States banking system, the Treasury Department is partially nationalizing nine banks by using $125 billion to purchase minority stakes in major financial institutions. Although the banks haven’t been named, they are believed to include Citigroup, Goldman Sachs, Wells Fargo, J.P. Morgan Chase, Bank of America, Merrill Lynch, Morgan Stanley, State Street and Bank of New York Mellon Corporation. The Treasury Department is also expected to make the remaining $125 billion available to banks and thrifts across the country to purchase their preferred shares.
According to Treasury Secretary Henry Paulson, “Today’s actions are not what we ever wanted to do, but are what we must do to restore confidence to our financial system. The needs of the economy require that our financial institutions not take this new capital to hoard it, but to deploy it.” Just weeks before the presidential election, outgoing President George W. Bush sees the move as a short-term measure. “The government’s role will be limited and temporary. These measures are not intended to take over the free market, but to preserve it,” Bush said.
The question now is whether the banks will use the capital as the government intends - lend it to businesses and consumers again - or will they use it to sweeten their own balance sheets? The government, no doubt, intends to exert significant pressure on the institutions to loosen credit so that people can start buying big-ticket items like houses and cars again.
Tags: Bank of America, Bank of New York Mellon Corporation, Citigroup, congress, financial institutions, finanical crisis, free-market principle, George W. Bush, Goldman Sachs, Henry Paulson, JP Morgan Chase, Merrill Lynch, Morgan Stanley, rescue bill, State Street, Treasury Department, Treasury Secretary, United States banking system, Wells Fargo
Posted in Economics | No Comments »
