Italy is lying... UniCredit plunges again... German yields go negative... Wall Street compensation plummets... Rattner returns... U.S. debt surpasses GDP... Booze in the mailbag...
Italian Prime Minister Mario Monti is assuring the public that Italian banks are "solid," according to today's Wall Street Journal.
Throughout our years of following global markets – and the subsequent political comments surrounding them – we've come to a conclusion... Any time a government official makes a declarative statement – such as the one above – during panicked times, you can assume the opposite is true.
We know for a fact Italian banks aren't solid. We've been saying so for years now. Italian banks, particularly the country's largest bank, UniCredit, are teetering on collapse. On January 4, UniCredit announced a rights offering to raise capital...
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UniCredit launched a $9.7 billion rights offering (an offer made to existing shareholders, who are entitled to buy a set number of new shares at a set price over a specified time frame). This is a huge offering – over half of UniCredit's market capitalization. But here's the thing... The offering was priced at 1.943 euros, a 43% discount to Tuesday's close. If you account for the value of the option to buy more shares in the offering, the offer is nearly 70% less than the shares' quoted price. Still, shareholders only took up 24% of the offering. |
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So Italy's largest bank can't obtain credit. And it can only sell 24% of the shares it's offering (to existing shareholders, nonetheless) at a near-70% discount. What do you think these shares are actually worth? – Sean Goldsmith, January 4, 2012 S&A Digest |
UniCredit shares are down 44% in the last four trading sessions (they fell more than 10% today to 2.29 euro before being suspended).
As we said above, the new shares are being offered at 1.943 euro (a 43% discount to the pre-offer share price). Analysts expected the rights to trade at 1.36 euros, but they were suspended Monday, having fallen more than 54% to 0.62 euro. Despite UniCredit's embarrassing performance, CEO Federico Ghizzoni said the bank would be stronger after the capital raise. We wonder how existing shareholders will feel after their shares are diluted by 50% at prices 80%-90% below market...
In a related fib, Monti also said Italy could eliminate its deficit by 2013 without additional budget-cutting. How will he accomplish such a feat, you may ask? Monti says he will "modernize" the country's labor force to create more employment. And the government will work on "many fronts" to increase competition by opening up closed professions, Monti said.
According to sovereign yields, the market doesn't believe Monti can magically create jobs. In fact, it's paying for the privilege of exiting Italy... For the first time ever, Germany issued debt today with a negative yield. Germany's 4 billion-euro auction of six-month bills carried a yield of -0.0122%.
German debt has traded at negative yields in the secondary market for weeks. Six-month debt hit a low of 0.3% after Christmas. Meanwhile, Italian 10-year yields are still greater than 7%, the level at which Greece, Ireland, and Portugal were bailed out.
Compensation on Wall Street is set to be the lowest since 2008, when the financial crisis hit. According to people familiar with the situation, compensation for most of Goldman Sachs' approximately 400 partners will fall at least in half from 2010 (though that still amounts to more than $3 million per person). And pay for Goldman's fixed-income trading division could see compensation fall by 60%, with some people receiving no bonus at all.
Morgan Stanley is expected to cut bonuses for some investment bankers and traders by 30%-40%.
These compensation cuts are after banks made plans to slash more than 200,000 jobs over the next few years.
We've had a love/hate relationship with former Obama "car czar" Steve Rattner for years now. We think the guy's a complete sleaze and fraud. However, we love writing about him in the Digest…
We thought we'd share his latest exploit, which just came to our attention…
Rattner spoke last month at the Detroit Economic Club, a nonpartisan organization that hosts public-policy discussions. To promote that appearance, Rattner agreed to an interview with local radio personality Frank Beckmann... The host opened the interview by asking if Rattner stepped down from his White House post in anticipation of the Security and Exchange Commission's (SEC) suit that would later allege a kickback scheme involving Rattner's private-equity firm.
Things did not go well... I won't ruin the surprise, but the fireworks are well-worth listening to the interview posted to the WJR talk radio station website...
We've long held up Rattner as an example of the kind of disingenuous thieves who run rampant in our government…
We first highlighted him in the Digest after Porter and I heard him speak at the 2010 Ira Sohn Investment Conference in New York. As Rattner spoke, Porter heckled him – in his usual, booming voice – from the crowd. It's been more than a year since the infamous "boo" – and it's likely the first time many of you have heard of the incident – so I'll excerpt Porter's reaction from the May 28, 2010 Digest…
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I don't think I can recall ever being more disgusted in public... and certainly not at an investment conference. On Wednesday, I attended the famed Ira Sohn Investment Research Conference in New York City, which benefits pediatric cancer. The conference was good, and I'm glad I went... but one presentation made me want to vomit. |
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It was Steve Rattner – the New York financier turned OBAMA! "car czar." Listening to him tell one lie after another about the bankruptcy of General Motors was bad enough. (And believe me... I know a little bit about GM's balance sheet, having been the first analyst anywhere to predict the carmaker's bankruptcy as early as 2005.) But having to listen to this scumbag lecture me about the evils of "income inequality" was truly more than I could bear. |
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This man was personally implicated in bribing New York state pension officials (but hasn't been indicted yet). He made close to $500 million via his private-equity fund (Quadrangle), while his investors underperformed municipal bonds. This guy lives in a $15 million home on Martha's Vineyard and in the same Fifth Avenue apartment building as George Soros. This is a guy who flies his own plane... whose wife is the leading fundraiser for the Democratic Party. This is Arthur Sulzberger Jr. and Michael Bloomberg's best friend. And Barry Diller's. This guy spent his entire life in the rarified world of Ivy League colleges, investment banks, and New York City's most elite social circles. |
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And yet... even with all of these advantages, he ended up accused of bribing New York State pension officials to get them to invest with his private-equity firm. (By the way... I have to hand it to OBAMA! on appointing Rattner as the "car czar." OBAMA! knew about the corruption charges, and he appointed Rattner to restructure General Motors anyway. After all, who better to steal from bondholders than a crook?) And now, Rattner was going to lecture us, the great unwashed, about "income inequality." It was simply unbearable... |
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After spending about 20 minutes congratulating himself on the bailout of GM (which cost taxpayers roughly $80 billion and bondholders roughly $27 billion), Rattner put up a chart he seemed to believe indicated rich people in America were making far too much money. I let out a loud "Boooo..." |
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Really, it was more of a moan of agony. I just couldn't take anymore. How could such a person ever have been allowed to reach such levels of power and influence? How could an idea as obviously repelling as government-directed income redistribution ever be discussed at an investment conference filled with thousands of capitalists? |
Rattner ended up settling his SEC case for $6.2 million, a pittance for the billionaire. He was also banned from "associating with any investment advisor or broker dealer" for two years. And as his appearance with Frank Beckmann makes clear… he doesn't want to talk about it.
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New 52-week highs (as of 1/6/12): Invesco Insured Municipal Income Trust (IIM), Pretium Resources (PVG.TO).
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Goldsmith comment: Stay tuned...
Good investing,
Sean Goldsmith
New York, New York
January 9, 2012