Posts from — July 2007
P/E For Publically Traded Law Firms
Regulatory issue prevent US firms from following in the footsteps of Slater & Gordon in Australia but *if* US firms were public what price level could we expect? Law.com has some guesstimates:
Assuming that law firms, like all IPO candidates, will initially be priced at a slight discount to the comparables, we came up with multiples for eight firms that seemed to represent four different classes of business. Cravath, Swaine & Moore and Wachtell, Lipton, Rosen & Katz are superboutiques: They do high-premium work for many of the largest U.S. companies and have profits per partner in excess of $3 million. We assumed that they would trade at between 18 and 20 times their 2007 earnings.
Skadden, Arps, Slate, Meagher & Flom and Latham & Watkins also do premium work, and they have more of an international presence, but their profits per partner are a notch below the superboutiques. We assumed that they would trade at between 16 and 18 times 2007 earnings.
DLA Piper US and Dechert plan big growth. Down the road, that potential may garner them a higher premium. But today, we’re assuming that investors will marginally prefer the brand of a Skadden. We assumed that they would trade at between 15 and 17 times earnings.
July 10, 2007 No Comments
Oil Comfortably Above $70
Remember when $70 was a big deal? It hasn’t been news worthy for some time.
July 9, 2007 No Comments
Wall St On Edge and Scrambling To Avoid Sub-Prime Domino Effect
From BusinessWeek:
It’s white-knuckle time on Wall Street as firms try to prevent the subprime mess from spreading. The hedge fund blowup has suddenly thrown the world’s biggest financial institutions into a game of brinkmanship that will end in one of three ways: a quick, brutal crash of the subprime mortgage market and possibly the broader corporate bond market; a slow, painful meltdown of one or both lasting many months; or a short-term blip that, over time, will be forgotten as conditions return to normal.
Disaster has been averted so far. But pressure continues to come from all sides. The decisions made by Wall Street’s bankers, hedge fund managers, and bond raters over the next several weeks will determine which way the game plays out. One twitchy move by any of them could lead to mutually assured destruction.
July 6, 2007 No Comments
Blood flows from UBS and Galena
Per HedgeWorld,
Peter Wuffli’s sudden departure from his role as chief executive of Swiss banking giant UBS has caused some speculation among the local press, who are describing it as a “surprise move.” …
… In recent years UBS has rapidly overtaken Credit Suisse as Switzerland’s largest bank, but has suffered a number of setbacks lately. As a result, the bank’s share price has underperformed those of rivals such as Credit Suisse and Deutsche Bank by a wide margin over the past year.
Reversals that have affected the performance of the bank include the closure of New York-based trading unit Dillon Read Capital Management little more than a year after it began trading in earnest Previous HedgeWorld story. The unit suffered a series of trading losses related to wrong bets in the U.S. subprime mortgage market totaling around $124 million at the beginning of the year. In early May, a UBS spokesperson said the unit would be wound up at a cost of around $300 million to the bank. Some Zürich traders suggested that it was these hedge fund losses that ultimately cost Mr. Wuffli both the leadership of the bank and his future position as board chairman. Bank spokespeople refused to confirm that.
Not to mention,
NEW YORK (Reuters)—Heavy redemptions from investors concerned about their holdings of subprime mortgage securities claimed Braddock Financial Corp.’s Galena Street Fund as the latest hedge fund victim. Braddock, a top-performing bond hedge fund manager, on Thursday said it will liquidate the $300 million fund after redemptions slashed its assets by a quarter since 2006, Chief Executive Officer Harvey Allon said in an interview. The fund’s closure comes just days after United Capital Markets Holdings Inc. suspended redemptions on its funds exposed to the risky subprime mortgages.
The bleed thickens …
July 6, 2007 No Comments
“Apple Shorts Eaten Alive”
WSJ Marketblog has the details:
Over at Minyanville, Jeffrey Cooper gets all crazy technical, whipping out charts of triangles and pennants and Triangle Pendulum Buy Signals to basically make the point that Apple shorts hoping for a post-iPhone swoon in the stock have been eaten alive. And their bad week may not be over: “The ‘Good News’ Bears may be squeezed as momentum traders pile back on board,” he writes.
July 5, 2007 No Comments
Equities in Slovenia on a sprint
Move over, Shanghai?
Bloomberg has the goods on a surprise star of 2007′s second quarter: Slovenian equities.
The Slovene Stock Exchange Index, known as the SBI20, was the best-performing equity benchmark in the world last quarter, jumping 39 percent in dollar terms, according to data compiled by Bloomberg. It has more than quadrupled since the end of 2002, paced by Petrol d.d., Slovenia’s largest refiner and retailer of petroleum products, and Intereuropa d.d., a logistics company.
Companies in the index trade at an average of 38.9 times estimated earnings, more than twice as much as their average for the past year. The price-earnings ratio is also more than double that of the Morgan Stanley Capital International Emerging Markets Index, a global gauge for developing economies. Members of China’s CSI 300 Index trade at 32.9 times earnings.
July 5, 2007 No Comments
Buyers shy away from Bear’s “toxic waste”
According to the Financial Times, buyers are showing no interest whatsoever in the wreckage left over from Bear’s two subprime hedge funds — at least, not at Bear’s ask price of 11 cents on the dollar.
Investors in the worse-hit of two stricken Bear Stearns hedge funds are offering to sell their holdings for as little as 11 cents on the dollar but still finding no buyers, according to unfilled trades on Hedgebay, a secondary market for funds.
Vulture funds and others have been quick to bid for holdings in the two funds, but the best bid for Bear Stearns High-Grade Structured Credit Strategies Enhanced Leveraged Fund, the more geared of the two, is just 5 cents on the dollar.
ADVERTISEMENTPrivate sales of stakes are the only way investors can exit the two Bear funds, after the bank suspended redemptions in May amid a wave of withdrawals.
“There are buyers but they can’t agree on price,” said Jared Herman, co-founder of Bahamas-based Hedgebay.
The less-geared Bear Stearns High-Grade Structured Credit Strategies Fund, which the bank has rescued with a $1.6bn loan, is being offered at about 70 cents on the dollar. The fund is only attracting bidders at about 30 cents, according to people who use the system.
All the talk about “hedge funds containing the contagion” was laughable. Sure, there are bidders; but the value of the bids is less than half of the offers!
Also, note that the bigger Bear fund will probably end up liquidating for 5-10% of total value. You can’t do much worse than -90% return. The question is, how many other funds are sitting on the same time bomb?
July 5, 2007 No Comments
Sub-Prime Mortgages Down 42% Since January
John Mauldin’s always brilliant newletter explains:
Subprime mortgages are bought by investment banks and re-packaged as Residential Mortgage Backed Securities (RMBS). These securities, which can contain thousands of loans, are split up into varying groups, or tranches, and each tranche is given a rating by one or more rating agencies, typically Moody’s, S&P, or Fitch. The highest-rated levels get the first monies paid back into the fund, the next level is next in line, on down to the bottom rung which is last in line to get repaid and first in line to get shot if there are losses in the mortgage revolution. The bottom rung is called the equity tranche, also called toxic waste by those in the industry.
Let’s look at a chart of an index of BBB-rated tranches, which is typically the mid-level tranche. They have dropped 42% since January. This is not a pretty chart, but it tells the story. (www.markit.com) Some BBB tranches from 2006 are down as much as 60% already.
July 3, 2007 No Comments
Pound Hits 26 Year Highs – Again
Currency research website Dailyfx.com discusses the chances it will go ever higher:
…the market expects the Bank of England to raise interest rates this Thursday to 5.75 percent. The minutes from the most recent monetary policy meeting held in June revealed that 4 out of the 9 members wanted to deliver a back to back interest rate hike. With oil prices hovering near $70 a barrel, the world’s concern for inflationary pressures will not be going away anytime soon. Whether or not the BoE signals that we will see 6 percent rates this year will be the key in determining if 200-300 points of further strength will mark the top in the GBP/USD.
July 2, 2007 No Comments
Make your Money Go Further
Our monthly reports tell you what countries and currencies offer the best deals. Travel and buy smart!