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Killing it like a hooker in Hong Kong

Goldman Sachs hearing: Liveblogging 2.05pm

Watching this, with the older, folksy senators, trying to skewer the young, slick, slippery GS execs brings several phrases to mind…

inchoate rage

grasping at straws

coached

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April 28, 2010 Posted by | Uncategorized | | Leave a comment

Goldman Sachs hearing: Liveblogging 12.16 pm

Dan Sparks get caught here

– “ratings agencies attempted to do their job” – attempted??

– “there was an element of competitiveness” – why admit to this?

April 28, 2010 Posted by | Uncategorized | | Leave a comment

Goldman Sachs hearing: Liveblogging 12.03 pm

Ted Kaufmann

– “Wall Street was sucking in these stated income loans”  – echoes of vampire squid

April 28, 2010 Posted by | Uncategorized | | Leave a comment

Goldman Sachs hearing: Liveblogging 11.30 am

Watching the hearing now.

Hilarious – discussing the Timberwolf deal. “This is one shitty deal”

Yet Goldman sold pieces of the deal after the date of the comment.

Of course they did, no bad bonds, only bad prices. Sparks trying to get that across, but also trying not to provide any firepower for future lawsuits.

Unfortunately, even when Goldman Sachs is in the right, Sparks comes across as a boy scout trying to kill with kindness. Does not come across as honest.

Carl Levin is looking like a rockstar, even though he has many of the technical points wrong.

April 27, 2010 Posted by | Uncategorized | | Leave a comment

Goldman Goldman on the wall…

I couldn’t resist breaking my long blogging fast to post a quick comment on Goldman’s run-in with the SEC

Firstly, I don’t think Goldman did anything illegal, and therein lies the tragedy, because at the very least what they did commit fraud, but did it without breaking the current laws in existence. Investment bankers are, if nothing else, masters of the fine print, and what this will end up revealing is really that the regulatory and legal system is so far behind the banking sector, that they have little chance of catching up. The SEC is still trying to use circa 1930s laws to prosecute modern fraud, but bankers have figures out all the little details. What do you think the whole compliance and risk management divisions are for.

Some other quick notes on what people are saying from the American Situation:

The investors who took long positions – the US’s ACA and German bank IKB – were what are referred to as “sophisticated investors” (i.e., big boys who should know that “buyer beware” applies everywhere in investment). They knew what mortgage securities they were betting on. As William Cohan wrote in a New York Times op-ed piece, “No one forced them to buy Abacus.”

Ah yes, the so called big boys. One thing you quickly learn in the hedge world,  is that not all boys are equally big. Institutions like ACA and IKB, run by professionals who get paid meagre salaries and bonuses, most of whom do not have the budgets to do independent, sophisticated research, are like 3 or 4 rungs below hedge funds run by owner-managers. An MD at IKB can’t for example, do independent credit analysis of each credit in a CDO portfolio. He simply does not have staff or budget. And in fact, the whole reason IKB is buying AAA securities is because it doesn’t trust itself to do credit analysis.  Furthermore the triple AAA yields do not lend themselves to management fees or big research organization.

So the fact of the matter is, this was the equivalent of a city boy from New York being subjected to the old Texas slow poke, you run a scam on someone who you know won’t or can’t do the analysis, and you don’t tell them that there is some real smart money on the other end.

When you can’t afford to do real credit analysis on your own, besides credit ratings, who is selling you the securities is also important. If you knew a real game player was on the other end, you would not do the deal. That is precisely was Goldman did here.

At the time the investments were made, there was no certainty that the funds would fall in value. Many were still bullish on the subprime market. And if the assets had risen in value, would the SEC be charging Goldman today?

True, the SEC wouldn’t be charging Goldman if the assets had gone up in value, but that doesn’t mean they shouldn’t. Unfortunately the SEC has limited resources, and doesn’t go after cases where the harm isn’t clear. That’s an argument for more resources for the SEC, not one about selectivity in this case alone.

The media is excited about the “billions” involved. In fact, Paulson made about $1 billion. Which, in the world of investment banking and toxic assets, is akin to Dr. Evil’s ransom claim for “one…million…dollars”.

This argument is so ridiculous, I don’t even know how to address it. Would you like a billion dollars? Nuff said.

Goldman itself lost money on the deal ($90 million), making it a fraud to deceive… itself?

Another ridiculous argument, only possible when someone doesn’t know finance, or knows finance and is trying to be facetious. If Goldman had a long position of 90 mil on Abacus, but was overall short 10 bill on the mortgage market, then they were short the mortgage market and made money. At the end of the day, the big banks look at risk from a portfolio perspective, so the risk manager at Goldman would have said OK we take on 90 mil of mortgage risk here, but we already have a overall very short position in the mortgage market, and we earn 15 mil in fees immediately, so that makes economic sense, let’s do it.

We already know that Goldman was net short the mortgage market, so this whole 90 mil exposure may have been something they took on just to do the deal. The loss on it was more than offset by the short, so it’s completely facetious to only point to the loss.

It appears that only one Goldman executive, Fabrice Tourre (who referred to himself as “Fabulous Fab”) was involved, with no connection to the top executive team.

Well this is the obvious defense, that Fab got himself into this by being a loquacious Frenchman with a flair for words. The fact of the matter is that he was not a rogue trader and that the deal was approved by Goldman’s credit, risk and legal. That means the firm is implicated. How much of the details were made known to the upper level guys remains to be seen, but I think senior management below the C-suite were aware of the details.

Unfortunately for Fab, his comments have been embarassing to the Firm, so any opportunity GS counsel sees to hang him out to dry in order to save the Firm, they will take. He’ll join the long list of ambitious youngsters who have been crucified in the last three years, poor kid.

The case might drag on for months if not years, and, since this is a civil (rather than criminal) case, the most that is likely to happen is that Goldman, if found guilty, would face a fine (that would probably represent a tiny portion of its assets).

I agree here. It’s highly unlikely that GS is touched too deeply by this, unless other allegations can be found and a snowball develops.

April 22, 2010 Posted by | Uncategorized | , , , , , , | Leave a comment

Investment Banking and Oligarchies

One of my favorite alltime articles is Simon Johnson’s piece The Quiet Coup in The Atlantic. His thesis is basically that investment bankers have become the oligarchs of Western society, extracting rents by manipulating politics.

One of the funny things that has occurred to me over the last year is that this is precisely the reason there is boom in investment banking across Asia now, where oligarchies are being legitimized by investment banking.

The Asian’s who have long been branded with the red letter of corruption and cronyism,  are now moving into the more sophisticated legitimate financial nepotism which has been the hallmark of Western capitalism for the last two decades.

The signs are there if you care to interpret them. In Hong Kong, Singapore and most of the other stock exchanges in Asia, insider trading is widespread and rarely if ever prosecuted.  Stock pools to manipulate prices are present on a level similar to the 1920s in the US. The regulatory bodies of these countries exist to hoodwink the populace and maintain the facade of fairplay,  allowing middle class money to be channelled en masse into the market.

Related party deals to channel profits out of public companies are present in many of the family owned businesses which are now public. Amankudari, the Japanese practice of bureaucrats joining companies that they regulate post retirement is present to a large degree in China and most of the North Asian countries. This is becoming blended with the Government Sachs model which is being adapted across Asia.

The Asian elites have become more experienced at hiding nepotism through the mask of meritocracy. Most tycoons and even upper middle class professionals in Asia pack their kids off to Australia, the US, and the UK for education. The much higher high school educational standards in the elite Asian high schools ensures that these kids outperform their peers in Western institutions. A mediocre student from the Island School in Hong Kong or Raffles Junior College will probably be in the top of his class at USC or Cornell as long as he avoids engineering.

Tycoons then cycle their kids through a couple of years of investment banking and a couple of years at the family business and then pack them off to  HBS  or Stanford GSB. The desks of Credit Suisse and Citi in Asia used to be filled with sons-and-daughters. Don’t even get me started on Goldman.

You want to look at the prototype:  here’s the Bakrie heir’s facebook and linked in profile

Grad School:
College:
High Schools:
  • Finance Analyst

    Solmon Brothers Inc, New York

    (Investment Banking industry)

    July 1996 — June 1997 (1 year )

    Investment Banking

If I have one definition of investment banking, it’s legal rape. It’s about figuring out loopholes in laws and contracts and policies to extract low risk persistent profits. Investment bankers and hedge funds specialize in the fine print and plausible deniability. And this is the great gift that Western civilization has given the East. The old stigma of corruption and envelopes under the table, has been replaced by “consulting” arrangements and offshore transfers. Nominees and power of attorney are used to hide the ownership of assets, and every tycoon understands the use of SPVs (Special Purpose Vehicles) in BVI (British Virgin Islands), HK, Singapore etc.

What surprises me now is that Western MSM reporters are still enormously biased against these nepotistic arrangements in Asia, all the while ignoring what happens in Western markets on a daily basis. The FT has no problem identifying shady goings on in Indonesia (say in the Dipasena/Red Dragon) transaction, while shoving shadiness in say Sbir Energy to the Alphaville blog. I mean are they even able to come to terms on how corrupt the AIM market is? Once upon a time, every single shady two bit company with a license for something that I would come across in Asia would say they plan to list on AIM.

February 6, 2010 Posted by | Uncategorized | , , , , , , , , , , , , , , , , | 1 Comment

Fund info: Och-Ziff Asia

General

Och-Ziff (NYSE:OZM) is a traded hedge fund initially seeded by the heirs to the Ziff publishing fortune and founded by Dan Och, a protege of Robert Rubin and alum of the Goldman Sachs risk arbitrage desk. Och-Ziff Asia has been around for a while, primarily trading liquid instruments and equities in Hong Kong, before they expanded their distressed business in early 2008. It was a disastrous move, and the the Asia Master Fund was down 31% in 2008. They ended up firing the entire distressed and private equity and credit section, and hiring real estate guys.

OZ has offices in Beijing, Tokyo, Hong Kong and Bangalore. It hired real estate guys for HK,  Singapore, China and India.

Deals

China Healthcare Holdings (HKSE:673):  A provider of healthcare services in China. OZM only owns 2% of the convertible shares according to news. Have to investigate further.

Fisherman’s Wharf: Stanley Ho promoted casino in Macau. Greenfield project. ML arranged a USD400mm private convertible in 2006. Looks like the CB value has crashed. Chow is offering 50 cents on the dollar or less to buyback the debt. When is this thing going to IPO given that the Macau gaming market has generally crashed? TPG was also in there…

People

Zoltan Varga: partner, head of Asia-Pacific. based in HK

Punit Patel: HK, Analyst, Ex JPM, Ex NYU Stern. Capital structure arb

Stephen Yuen: HK, Analyst, Ex GS, Wesleyan University

Manoj Jain: HK, MD, Ex-CS, Cambridge

Raaj Shah: former partner, former co-head Asia Pacific, head of credit and distressed, based in HK, former head of European credit trading

Mary Schroeder: former distressed debt head, based in HK,  joined the firm at the beginning of 2008 from Asian Debt Management.  Got axed by the end of the year. Poor woman, talk about a bad move.

Oliver Wimmer: former employee, formerly of Lehman Brothers.

Deep Mishra: Indian real estate. fired at end of 2008

View this document on Scribd

Josh Katzin: Analyst, HK, ex Mckinsey, Fenway Partners, HBS

Kirti Ram Hariharan: Analyst in Bangalore office, National Law School of India University, Partner at Amarchand Mangaldas

Zain Fancy: new hire, former head of Morgan Stanley Real Estate Asia Pacific. Zain joined Morgan Stanley in 1996. Prior to joining MSRE in 1998, he worked in the Mergers & Acquisitions Department. Zain has spent five years in the U.S. business and the remainder in Asia. Zain received a BS from Georgetown University’s School of Foreign Service.

Roy Kwok: new hire from MS

Annan Madduri: new hire from MS

Bharat Khanna: new hire from MS

Entities

April 1, 2009 Posted by | China, Hedge Fund, Hong Kong | , , , , , , , , , , , , , , , , , , , , , , | 1 Comment