PrefBlog

The New York Times considers the sale of Philbro to be a public policy success:

Bankers will surely say “we told you so.” Citigroup’s sale of its profitable energy trading unit Phibro is exactly the kind of unintended consequence that the nation’s financiers warned us would happen when the Obama administration set out to limit their pay.

We see it as a public policy success. Phibro is a high-risk, high-reward hedge fund. It has no place on the books of one of the nation’s too-big-to-fail banks. If a policy to cap bankers’ pay forces all banks to get rid of their hedge funds, it will be a winning policy.

I’m a simple kind of guy. I figure, if the real problem is highly leveraged hedge funds within banks, then the regulators should concentrate their attention on highly leverage hedge funds within banks. But I guess that kind of fuzzy thinking is getting a little old fashioned in these modern times.

Investments can be a really dirty business:

A fund associated with TPG is exploiting an unintended wrinkle in the $650 billion market for CDOs by asking holders of the riskiest portions to allow asset sales in exchange for millions of dollars in fees. While equity holders have the right to decide which assets the CDOs sell because they’re first in line for losses, they may no longer have the incentive to ensure that assets are sold at fair value because their investments have been wiped out by the worst financial crisis since the Great Depression.
…
TPG Credit, a Minneapolis-based firm founded by former Cargill Inc. executive Rory O’Neill and associated with private equity firm TPG, has offered in the past week to buy $470.8 million of bank trust preferred securities from seven different CDOs for 5 cents on the dollar, according to trustee reports obtained by Bloomberg News. TPG Credit will pay holders of so- called equity portions another $23.5 million in fees to allow the sales, the documents say.

The slide continued today, with PerpetualDiscounts down 17bp and FixedResets losing 6bp, on slightly lower volume dominated by FixedResets.

This entry was posted on Friday, October 16th, 2009 at 7:16 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.