skip to main |
skip to sidebar
Sadly, were he living today, bank robber Willie Sutton would have to rethink his characterization of banks as, "where the money is." In the last twelve months, sovereign wealth funds (SWFs) have rescued (or tried to rescue) UBS, Morgan Stanley, Citigroup and Merrill Lynch.
Using the M&A-DEALS database on Westlaw you can track the activities of SWFs. To search for SWF deals use the "buyer description" field like so: BD("sovereign wealth fund"). A search run today generated 250 hits. The data in M&A-DEALS comes from Thomson Reuters' SDC Platinum product.
For more background on SWFs have a look at this report from Price Waterhouse Coopers and this one from The Council on Foreign Relations.
Westlaw Business has recently published a number of articles illuminating aspects of the Emergency Economic Stabilzation Act of 2008 (PL 110-343, 122 Stat. 3765) - including:
Say on pay
Rules for asset managers and
Disclosure requirements for banks
For a more general treatment, the Harvard Law School Corporate Governance Blog has posted memos from Davis Polk and Gibson Dunn.
This morning Goldman Sachs Group (GS) filed its third quarter 10-Q. Attached to it as exhibit 10.1 is the Securities Purchase Agreement between Goldman and Berkshire Hathaway Inc.
See this post for the location of other crash-related agreements.
This post, and others that will (hopefully) follow, grew out of my conversations with my boss, Mark Schwartz. Mark and I have been talking through the crash to establish for ourselves what went wrong. Hopefully, our discussions will be useful to others.
In April, I heard Larry Summers on the radio. He opined that all financial crisises have two things in common, "greed and leverage." Since greed is pretty straightforward, I'm going to start by talking about leverage. Put simply, leverage is a measure of how much borrowed money a business is using. It is generally expressed as a ratio: a highly leveraged business has a lot of debt in comparison to equity.
There are regulatory constraints on how leveraged banks and investment banks can be. Government regulators use leverage and other ratios to measure the financial stability of regulated entities. These "capital adequacy" requirements are designed to ensure (in the case of the Fed) that a bank can continue to do business, or (in the case of the SEC) that a broker-dealer can repay all its debts.
Any entity loaning money will also look at the borrower's leverage ratio as a measure of the likelihood that the loan will be repaid.
Imagine a hypothetical company wishing to borrow money - it's lender asks for financial statements and a number of financial ratios. To do the math necessary to arrive at these ratios, every asset must be given a value, and that's where things get complicated ... NEXT: Valuation
Things are rather gloomy these days. As a tonic (warning?) I offer a few terrifying facts about the last giant crash. For more information, have a look at the timelines from NPR's Marketplace and The American Experience.
* The speculative run that preceeded the crash started in 1922. Between 1922 and 1929 the Dow quadrupled in value, from 100 to 381 points.
* The crash, apparently, was triggered by an economist named Roger Babson who said, " ... sooner or later, a crash is coming, and it may be terrific."
* The crash started in October of 1929, but the Dow kept going down until 1932. By the time it hit bottom, it had lost 89% of its value.
* The stock market crash led to bank runs which caused hundreds of banks to fail.
* The Hoover adminstration didn't enact a rescue plan until 1932 (The Glass RFC Recovery Act, 47 Stat. 5)
* It took over 25 years for the Dow to get back to 381. People who bought stock in 1929 didn't get ahead until 1954.
Are you cheered up yet?
As I mentioned in an earlier post, there has been discussion about the role of the valuation rules of FAS 157 in the gruesome fate of many of our financial institutions. Even Newt Gingrich (via Forbes) has weighed in.
Section 132 of the bailout bill passed by the Senate and the House (2007 CONG US HR 1424, 10/1/08 engrossed amendment) would allow the SEC to suspend FAS 157. Section 133 of the bill would require the SEC to produce a report analyzing the role of FAS 157 in bank failures.
Today, Thomson Reuters released its 3rd quarter, 2008 Global M&A Legal Advisory Review. This report, along with a wide range of legal and financial league tables including:
* Debt & Equity
* M&A
* Global Loans
* Project Finance
* Municipals
* Private Equity,
may be found at Thomson Reuters' new league tables site.
Today Bank of America and Merrill Lynch filed an S-4 joint proxy statement. To help you navigate the recent deluge of filings, here's a recap of other major crash-related documents filed thus far:
Washington Mutual, Inc (WAHUQ)
9/30, Bankruptcy Court, District of Delaware
* Voluntary petition for bankruptcy, file # 08-12229
American International Group & The Federal Reserve (AIG)
9/26, 8-K:
* Credit Agreement (ex 99.1)
* Guarantee and Pledge Agreement (ex 99.2)
Bear Stearns & JP Morgan Chase (JPM)
4/11, S-4
* Joint proxy statement and prospectus
* Agreement and plan of merger (Appendix A)
Lehman Brothers
9/15, Southern District of New York, Bankruptcy Court
* Voluntary Petition for Bankruptcy, file # 1:08-BK-13555
Merrill Lynch & Bank of America (MER, BAC)
10/2, S-4
* Joint proxy statement and prospectus
* Agreement and Plan of Merger (Appendix A)
