Tax wars: A fight worth billions
Financial Times, 10:30pm Sunday September 25th, 2011
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By Vanessa Houlder, Megan Murphy, Financial Times, and Jeff Gerth, ProPublica
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US banks' deals with Barclays come under scrutiny, write Vanessa Houlder, and Megan Murphy of the FT and Jeff Gerth of ProPublica
Read the full article at: http://on.ft.com/o7aCav
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Grübel resigns as chief executive of UBS
Financial Times, 12:43pm Saturday September 24th, 2011
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By Haig Simonian in Zurich
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Oswald Grübel resigns as chief executive of UBS in the aftermath of $2.3bn rogue trading loss at the Swiss bank
Read the full article at: http://on.ft.com/njhACJ
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Investors are back in a 2008 mindset - FT.com
see the whole article here: Investors are back in a 2008 mindset - FT.comA bond bull only has to look at Japan and Switzerland for inspiration when it comes to US Treasuries and pay attention to what the Fed is saying. Both countries in effect have zero overnight rate policies, and their respective 10-year bond yields are below 1 per cent.
In the US, the yield on 10-year notes has fallen to 1.71 per cent, and barring an economic rebound, the Fed says its near zero overnight rate policy will stand for the next two years.
The chief executive of a Wall Street investment bank sold a large stake in his company to pay off a personal debt on Thursday, a move that frightened its shareholders during an already scary day in the markets.
Richard B. Handler, the head of the Jefferies Group — and the highest-paid chief executive of a major Wall Street bank last year — sold two million shares, or $25.2 million worth of stock, to the bank’s largest shareholder, according to a securities filing.
The news sent shares of Jefferies tumbling more than 11 percent, before they recovered. Shares closed at $12.37, falling 3.7 percent, roughly in line with the broader market.
Mr. Handler sent a short memo to his employees explaining his reason for the sale. The transaction was tied to “significant tax payments” that he owed because of recently vested Jefferies stock. He said he had previously taken on debt to pay the tax bill because, as chief executive, he had been blocked from selling shares.
“While I am not happy about reducing my interest in our firm,” Mr. Handler said, “being out of debt is the prudent thing for me and my family in a turbulent world.”
Mr. Handler sold his stock in a turbulent market. The Dow Jones industrial average dropped more than 500 points Thursday before closing down 391 points, or 3.5 percent.
It was also an unpropitious time to sell Jefferies stock. All financial services shares have been hard hit this year, but Jefferies has fallen more than most. Its stock has fallen more than 50 percent year to date, while the Standard & Poor’s 500 stock-market index is down about 10 percent. Its shares fell sharply on Wednesday as analysts called the bank’s third-quarter results disappointing and cut its earnings estimates.
Goldman, in a research report, said it saw “continued downside” in the stock. The firm has a sell rating on the company.
Thomas Tarrant, a spokesman for Jefferies, declined to comment.
Chief executives rarely sell large chunks of stock, especially in down markets, because shareholders often consider it a vote of nonconfidence. In recent years, some executives have sold down their positions to assist in tax planning. Last year, Steven A. Ballmer, the chief executive of Microsoft, announced the sale of a portion of his holdings in part for tax reasons.
Still, Mr. Handler’s sale had Wall Street trading floors abuzz on Thursday. Mr. Handler, 50, is one of the highest paid chief executives not only in finance, but in the country. In 2010, he was granted total compensation valued at $47.3 million, which included a bonus for 2009 and stock awards for coming years. In contrast, Lloyd C. Blankfein, Goldman Sachs’s chief executive, made $13.2 million in 2010.
The sale also surprised the staff at Jefferies, which, like many Wall Street banks, is known for a staunch stock-ownership culture where sales of the company’s shares are frowned upon inside the bank.
Mr. Handler, who has been the chief executive for the last decade, is the largest individual shareholder in Jefferies and has not sold any of his stock since 2006. After his sale of two million shares, he still owns about 12 million shares, or 6 percent of the shares outstanding. Those shares are worth $148 million based on Thursday’s closing price.
Adding to the intrigue was the news that Mr. Handler had sold his shares to the Leucadia National Corporation, the bank’s largest shareholder. Leucadia, a low-profile conglomerate, owns about 26 percent of the company. Leucadia acquired Mr. Handler’s 2 million shares at $12.58 a share, approximately the market price.
“I think they made a great buy and am gratified by their belief in and support of Jefferies,” Mr. Handler said in his memo.
Jefferies, which is based in New York and specializes in trading debt and stocks, has expanded aggressively in recent years, in part taking advantage of some of the dislocation from the financial crisis. Mr. Handler, a charismatic leader, is a former trader at the investment bank Drexel Burnham Lambert, which collapsed in 1990 in the turmoil of the junk-bond market.
“I am sharing this personally with all of you so you are aware of the exact details so rumors or noise do not distort the facts,” Mr. Handler said.
Sept. 14, 2011, 1:47 a.m. EDT
By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) — China’s real-estate market may face an escalating credit crisis, with industry data for August providing clues that big developers are running short of cash, according to Credit Suisse analysts.
The unfolding situation heralds a perfect storm for China’s home-building industry, and China’s deteriorating credit backdrop should be viewed by investors with alarm, the Credit Suisse analysts said.
MarketWatch columnist David Weidner makes a stop on Mean Street to make the case that the U.S. banking industry should be a lot more like China's.
“I advocate selling all [Chinese] property-developer stocks because a credit crunch is coming,” said Credit Suisse analyst Jinsong Du, speaking with MarketWatch about the research.
Du said worries he’s had for a while about the housing market were confirmed by the “big disconnect” in data released by China’s National Bureau of Statistics on Friday.
Among figures out late last week, investment in residential projects rose to 432.9 billion yuan ($67.75 billion) in August, up 37% on year, or 4% higher from the prior month.
Meanwhile, completed residential projects in August totaled 37,250,000 square meters, a rise of 1% from a year earlier, but down 6% from the prior month.
Credit Suisse analysts said the Statistics Bureau’s figures back its earlier research which flagged that China’s real estate developers were beginning to face major headwinds.
The report, published in May, forecast that payment disputes between developers and their contracted construction companies would become more widespread, eventually resulting in construction delays and pushed back delivery dates.
“It’s finally shown up in the numbers,” said Du.
In spite of curbing the acquisition of new land and pressing for builders to slow their work, developers appear to have exhausted options to preserve cash, Credit Suisse said in its report dated Sept. 6.
Net gearing rose slightly in the first half, even as firms scrambled to improve their balance sheets, with the result “financials [are] much worse than they appear,” said the Credit Suisse analysts.
Credit Suisse forecasts property prices will decline in the second half, as sentiment surveys show enthusiasm towards property ownership beginning to wane.
The U.S. poverty rate rose to the highest level in almost two decades and household income fell in 2010, underscoring the lingering impact of the worst economic slump in seven decades.
Data released by the Census Bureau today showed the proportion of people living in poverty climbed to 15.1 percent last year from 14.3 percent in 2009, and median household income declined 2.3 percent. The number of Americans living in poverty was the highest in the 52 years since the U.S. Census Bureau began gathering that statistic. Those figures may have worsened in recent months as the economy weakened.
“Families are struggling to put food on the table, and they don’t have the purchasing power to help the economy recover,” said Isabel Sawhill, a senior fellow at the Brookings Institution in Washington.
Stagnating incomes and rising poverty will be at the heart of the 2012 presidential campaign that’s focusing on joblessness and will give added urgency to debates in Washington and statehouses across the U.S. over budget cuts to programs designed to protect families from hardship.
The ranks of people in poverty increased to 46.2 million from 43.6 million. The last time the poverty rate reached 15.1 percent was in 1993. It climbed to 15.2 percent in 1983. Median household income in 2010 was $49,445, down from $50,599 the year before.
The number of those lacking health insurance increased to 49.9 million from 49 million, or about 16.3 percent of the population, a change the bureau said wasn’t statistically significant.
The income figures declined even as the U.S. economy expanded 3 percent in 2010. Growth has slowed this year to an annual rate of less than 1 percent, sparking concern that the financial struggles of families will continue to worsen and hamper the recovery.
U.S. households have little to cheer about as job creation stagnated last month and hourly wages retreated. The unemployment rate has hovered at or above 9 percent for more than two years. Consumer confidence fell to the second-lowest level this year for the week that ended Sept. 4.
“We would have hoped to have begun to climb out by now in terms of income and poverty rates, and that doesn’t seem to be happening,” said Sawhill, who was associate director of the White House budget office under President Bill Clinton.
It was the third consecutive annual increase in the poverty rate, a trend that won’t reverse itself without “concerted action” on the part of policy makers, said Melissa Boteach, who leads a campaign to reduce poverty at the Center for American Progress, a Washington-based research group with ties to the Obama administration.
“The numbers should be a wake-up call to our elected officials that we need to act immediately to invest in job creation and protect vulnerable families,” she said.
Since the low point in the labor market downturn in February 2010, nonfarm payrolls have increased by 1.9 million, showing that without stronger growth, it will take years to recoup about 8.7 million jobs lost as a result of the recession that began in December 2007 and ended in June 2009.
The jobless rate rose to 9.6 percent in 2010 from 9.3 percent in 2009. Long-term unemployment, the percent of those without a job for 27 weeks or longer, increased to 43 percent from 31 percent, according to the Washington-based Economic Policy Institute.
The figures “tell us how the changing economic conditions have really impacted the American family.” said Robert Groves, director of the U.S. Census Bureau, on a conference call with reporters.
President Barack Obama has proposed a $447 billion jobs bill. Yesterday he urged Congress to act on the proposal, which includes a cut in payroll taxes, spending to improve the nation’s infrastructure and aid to states to keep teachers and emergency workers employed.
The 2010 figures are part of an annual report on income, poverty and health insurance released by the Census Bureau. The data are based on a survey of about 100,000 addresses that’s used as the primary source of figures about the nation’s labor force.
The data show that in 2010, a year when corporate profits were soaring and the economy was pulling out of recession, middle-class Americans continued to see their fortunes decline. The earnings of women who worked full time were about 77 percent of those of men, about the same gap as in 2009.
“Even in good economic times, the number of Americans who were struggling to make ends meet and had declining income was going in the wrong direction,” said Boteach. “People are right to have some frustration that the economic gains of the last decade, when they were happening, weren’t shared.”
Since 2007, the year before the recession, median household income has fallen 6.4 percent, the census bureau said.
The growing poverty rate is likely to become an element of budget fights in Washington as a special committee of lawmakers looks to trim $1.5 trillion from the U.S. deficit during the next decade, and it may give momentum to calls from Democrats to raise taxes on the wealthiest Americans.
“Some in Congress have proposed cutting programs like food stamps and Medicaid, which were effective in keeping millions of people insured and above the poverty line at a time of widespread job loss,” said Arloc Sherman, a senior researcher at the Center on Budget and Policy Priorities in Washington.
“The data suggest that thoughtless budget-cutting could make problems of rising poverty and uninsurance significantly worse,” he said.
Financial Times, 1:01am Monday September 12th, 2011
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By Tom Braithwaite in New York and Patrick Jenkins in London
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Jamie Dimon says moves to impose an additional charge on the largest global banks went too far and that Washington should consider an exit from Basel
Read the full article at: http://on.ft.com/pv4K4Z
Anthony Scaramucci fist bumps investors as he makes his way through a poolside party at the Bellagio Hotel in Las Vegas on a May evening.
“It’s the Mooch!” someone shouts. Scaramucci, a Harvard Law School graduate who flunked the New York bar exam twice and was fired from Goldman Sachs Group Inc. (GS) in 1991, is exactly where he wants to be: playing host to the hedge-fund industry as it surges past $2 trillion in global assets.
Scaramucci is the creator and ringmaster of the SkyBridge Alternatives Conference, known as SALT, the largest annual symposium and schmoozefest for hedge-fund managers and investors in the U.S. For three days in May, more than 1,750 investment professionals soaked up market insights from industry stars Steven A. Cohen, Leon Cooperman and Kenneth Griffin; geopolitical observations from Colin Powell and Gordon Brown; and sports talk from New York Jets head coach Rex Ryan, Bloomberg Markets magazine reports in its October issue.
At the poolside gala capping the opening day, young women in cocktail dresses play air hockey. Across the patio, men smoke freshly rolled Dominican cigars. Jugglers, mimes and an Italian clown riding a unicycle weave their way between revelers sipping drinks and feasting on roasted pork.
“Can you believe this?” Scaramucci, 47, says, savoring the festivities he’s organized. “You’ve got to use the skill set God has given you, and I have the ability to connect with people. I was made to do this stuff.”
Welcome to the Anthony Scaramucci show. Two years ago, he was a little-known money manager facing the failure of his New York-based funds of hedge funds, SkyBridge Capital LLC, following the worst financial crisis in decades. Scaramucci swiftly recovered and catapulted himself into the center of the hedge-fund world through unabashed self-promotion and his gift for forging relationships with influential figures.
His friends range from Michael Milken, who helped debut the first SALT conference in 2009, to movie director Oliver Stone, who gave Scaramucci a cameo as a short seller in his 2010 sequel Wall Street: Money Never Sleeps. Former President George W. Bush, the keynote speaker at this year’s conference, even nicknamed his dapper host “Gucci Scaramucci.”
“Anthony is a likable, self-promotional, street-smart kid who understands the tremendous opportunity for growth in the hedge-fund industry as the world grows more volatile,” says Cooperman, 68, the billionaire founder of Omega Advisors Inc. in New York.
For all of the attention Scaramucci is attracting, he’s pushing an investment model -- funds of hedge funds -- that has lost assets and credibility since the credit crisis. SkyBridge, which manages $2.8 billion in assets, is aiming its funds of funds at so-called mass affluent investors. They are households with a net worth of $100,000 to $1 million not counting their primary residence, according to the Spectrem Group, a Lake Forest, Illinois-based research firm that analyzes wealth trends.
Only 3 percent of the 36 million mass affluent investors in the U.S. commit money to hedge funds, Spectrem says. With volatility in equities and fixed-income markets exploding in the wake of Standard & Poor’s downgrade of the U.S. credit rating on Aug. 5, Scaramucci is betting more mass affluent will plunge into short selling securities, fixed-income arbitrage and other sophisticated trades to grow their nest eggs.
“I want to be the Peter Lynch of the hedge-fund industry,” Scaramucci says, referring to the Fidelity Investments money manager and TV spokesman who helped popularize mutual-fund investing in the 1980s and 1990s. “I want to make hedge-fund investing approachable to the average American investor.”
The funds-of-funds approach is fraught with challenges, says Deirdre Nectow, managing director for business development at Cambridge Associates LLC, a Boston-based investment consulting firm. Bernard Madoff’s $20 billion Ponzi scheme revealed that some funds of funds failed to detect how he had faked his performance for more than 20 years as they had channeled millions of dollars of their clients’ money into his firm. While Madoff is a unique case, the difficulty of researching the practices of dozens of managers that typically comprise a fund of funds has left investors wary.
“You have 30 to 35 managers in one fund, but if one is a Madoff you have a problem,” says Nectow, who advises many clients to invest directly into hedge funds.
Funds of funds disgorged $2 billion in capital in the second quarter as investors withdrew from the category, according to Chicago-based Hedge Fund Research Inc. In contrast, investors poured $29 billion directly into hedge funds, which are on course to record their highest net asset inflows since 2007.
Then there are the costs. Investors have to pay funds of funds a management fee on top of the typical 2 percent on assets and 20 percent of profits hedge funds charge. SkyBridge asks 1.5 percent annually and no performance fees, and its clients may have to pay brokers a one-time placement fee of up to 3 percent. Funds of funds mostly haven’t delivered on those higher costs: The S&P 500 Index (SPX)’s 2.4 percent average annual gain in the five years ended on July 31 beat the HFRI Funds of Funds index’s 1.7 percent performance.
“When you layer on the fees, you’re just guaranteeing a lower return,” says Janet Tavakoli, founder of Tavakoli Structured Finance Inc., a Chicago investment advisory firm.
Scaramucci has had some success attracting well-off investors who aren’t super-rich. About two-thirds of the 13,000 investors in SkyBridge’s funds of funds are mass affluent households and high-net-worth individuals, says Ray Nolte, a SkyBridge managing partner.
Investors in the firm’s $1.7 billion flagship, the SkyBridge Multi-Adviser Hedge Fund Portfolios LLC, have to qualify as accredited investors with a net worth of $1 million under Securities and Exchange Commission rules. The fund of funds has a minimum threshold investment of only $25,000, and SkyBridge sells it through Morgan Stanley Smith Barney, Bank of America Corp.’s Merrill Lynch unit and other retail brokerages.
“We see mass affluent households starting to loosen up and become more aggressive with their risk tolerance,” says Thomas Wynn, a director at Spectrem.
SkyBridge offers investors entrée to top-shelf managers they may not have the influence or wealth to reach on their own. Led by Portfolio Manager Troy Gayeski, the firm’s flagship fund commits 8.5 percent of its investments to Don Brownstein’s Structured Servicing Holdings LP. It bets on the spreads between mortgage-backed securities and was the top-performing hedge fund in Bloomberg Markets’ annual ranking this year, with a 49.5 percent return.
SkyBridge puts 8.1 percent of its flagship fund’s assets in Daniel Loeb’s Third Point Ultra, which exploits price swings in securities linked to mergers and acquisitions, and another 5.9 percent in John Paulson’s Recovery portfolio, which hedges dollar-linked risk by being denominated in gold. SkyBridge also invests in Passport Capital LLC’s Global Strategy fund, which focuses on commodities producers. SkyBridge’s flagship fund is up 6.3 percent this year through June 30 compared with a 6 percent rise for the S&P 500 in that period.
SkyBridge’s Multi-Adviser fund is far more complex and risky than the typical actively managed mutual fund, Tavakoli says. SkyBridge concentrates about a third of its assets in five funds that invest in mortgage-backed securities, including tranches of subprime home loans originated during the housing boom.
While SkyBridge doesn’t use leverage itself, some of its fund managers do to bolster returns. And SkyBridge says in its quarterly reports that its flagship fund is “highly illiquid” because, like many hedge funds, the firm reserves the right not to redeem its clients’ money upon request.
Tavakoli says such a fund is too perilous for investors who can’t afford to lose $25,000. “They should run far away from this kind of strategy,” she says.
Scaramucci and Nolte counter that by spreading bets among 41 managers, some of whom pursue strategies designed to go up when U.S. equities markets drop, they’re delivering a hedge many investors want.
“Even if one or two managers lose their way, we are still well protected,” Scaramucci says. Nolte says the firm’s clients want SkyBridge to make big bets on their favorite trades, such as mortgages, and not simply match market performance. “When we have a strong conviction on an idea, we will put more risk on,” Nolte says.
Scaramucci uses his SALT conference -- and its A-list lineup of speakers -- to burnish the SkyBridge brand. At the 2011 event, Scaramucci threw a private dinner for Bush, who pocketed $175,000 for his off-the-record talk earlier in the evening.
Milken, Cohen and other friends of Scaramucci’s joined the former president for a four-course meal featuring filet mignon and Yorkshire pudding slathered in black truffle gravy. Asked if he took the seat at Bush’s right hand, Scaramucci guffawed.
“What, are you kidding me? I’m a sales guy: I put my best client next to the president, and he was in heaven,” he says in the staccato rhythm of his native Long Island, New York.
Scaramucci promotes SkyBridge in the media too. He makes regular appearances as a stock picker on CNBC, and spent more than $100,000 to place the SkyBridge logo in a scene in Stone’s second Wall Street drama featuring Gordon Gekko, the insider- trading felon played by Michael Douglas.
At a nationally televised town hall meeting in Manhattan on Sept. 20, 2010, Scaramucci challenged President Barack Obama to lay off of Wall Street.
“We have felt like a pinata,” he complained to the president. The following evening, Jon Stewart, the host of the news satire program The Daily Show, lampooned Scaramucci as a “Jersey Shore breakout star” who’s oblivious to the country’s outrage at bailing out big banks. Scaramucci was so giddy to be the target of Stewart’s wit that he sent the clip of the comedian to his friends and clients.
“Hedge funds have long kept their heads down and let their performance and reputations do the talking for them, but this guy seems to be operating outside of the model entirely,” says Charles Geisst, a financial historian and author of Wall Street: A History (Oxford University Press, 1997).
A youthful man with wavy brown hair and matinee idol looks, Scaramucci does have a salesman’s smooth touch. He peppers his conversation with offers to perform favors -- “What do you need?” -- and is fond of slipping his arm around your shoulder and giving it a squeeze to make a point.
On the first day of the SALT conference, Scaramucci is decked out in a gray, custom-made Loro Piana suit, a pink shirt and pink striped necktie. He’s walking down a crowded hall in the Bellagio’s convention center greeting attendees when a money manager approaches and offers his hand.
“This is off the charts, Anthony, off the charts,” he says. Scaramucci grins and wraps his arm around his new friend without breaking stride. “Look, why don’t you try and raise some money for yourself while you’re here?” Scaramucci says. “I know a guy last year who raised a lot of assets from new clients at SALT.”
Scaramucci possesses the trader’s love of profanity and off-color jokes. He regaled a group of money managers at SALT with a story of how he spoke with a roomful of wealthy Jewish investors in Palm Beach, Florida, in early 2009 after many of them had lost their fortunes to Madoff.
“So I told them: Always invest with an Italian. They like cash businesses, and an Italian will only steal as much as he can fit in the trunk of his car in cash,” he said. The money managers crack up as their host flashes a wide smile.
Scaramucci is equally at home talking about complex trading strategies. At a dinner he hosted at the Four Seasons during SALT, Scaramucci led a discussion with economist Nouriel Roubini on how Federal Reserve policy and Europe’s debt woes were impacting capital markets.
“He comes across as Vinnie Barbarino, but it masks how smart and thoughtful he really is,” says Brett Messing, a Harvard Law friend, referring to a wisecracking TV character played by John Travolta in the 1970s.
Scaramucci grew up in Port Washington, a middle-class town on the north shore of Long Island. His parents are second- generation Italians, and his father Alexander labored in the construction industry for 42 years. As a teenager, Scaramucci spent afternoons helping out at his uncle Sal’s Harley-Davidson shop. He wasn’t allowed to ride motorcycles.
“My father said, ‘We’re going to put $100,000 of education into your brain, so I don’t want it on the pavement,’” says Scaramucci, who drove a 1979 Chevrolet Camaro Berlinetta instead.
Scaramucci graduated summa cum laude from Tufts University in Medford, Massachusetts, in 1986, with a bachelor’s degree in economics. Three years later, he earned his Harvard Law degree. He found legal work to be mind numbing and failed to put in the study needed to pass the New York bar exam until his third try. He never did practice law.
Drawn to the action and riches of Wall Street, he was ecstatic when he landed a perch in Goldman’s real-estate investment-banking unit in August 1989.
“Your goal here is to not get fired,” Robert Rubin, a Goldman partner who would serve as U.S. Treasury secretary from 1995 to 1999, told Scaramucci’s training class, Scaramucci recalls. By the end of his first year, Scaramucci knew he didn’t have the analytical skills or patience to unpack complex property deals.
“I sucked at it,” he says.
When the property market contracted in 1991, real-estate head Michael Fascitelli fired Scaramucci as part of a cost- cutting move. It was a humbling moment for the would-be Wall Street player.
Fascitelli liked Scaramucci and helped him get a job in Goldman’s equities group. In 1994, he transferred to the private wealth management unit, where he was responsible for building a book of rich investing clients.
“He was very hungry, and I thought he could shine in an area where he could use his people skills,” says Fascitelli, who’s now chief executive officer of Vornado Realty Trust (VNO) in New York.
By 1995, Scaramucci, then 31, had more than 300 clients and was producing $4.5 million in gross commissions and pocketing more than $1 million a year in compensation. The next year, he quit to co-found a hedge fund called Oscar Capital Management LLC with fellow Goldman alum Andrew Boszhardt.
They built Oscar up to $800 million in assets and brought in billionaire PC maker Michael Dell as a minority stakeholder in the firm. After the dot-com crash hurt Oscar’s performance in 2000 and 2001, they sold the firm to Neuberger Berman Group Inc., a New York asset management firm and brokerage, which was in turn acquired by Lehman Brothers Holdings Inc. in 2003.
Two years later, Scaramucci struck out on his own again. He set up SkyBridge as a “seeding” firm that invested in startup hedge funds similar to the way venture capitalists back tech entrepreneurs. He raised $300 million and invested in nine fledgling hedge funds.
When the recession struck in 2008, SkyBridge rapidly lost a fifth of its value and Scaramucci criss-crossed the country trying to persuade clients not to withdraw from his fund.
By May 2009, Scaramucci says, SkyBridge’s future was in doubt. At the time, financial firms were canceling conferences in Las Vegas out of concern it would look bad to party in Sin City as taxpayers bailed out Wall Street.
Scaramucci had no such qualms. He decided to host his first hedge-fund extravaganza at Encore at Wynn, one of the priciest hotels on the Strip. “I wanted to let people know we were still alive,” he says.
Scaramucci needed more than a three-day party in Vegas to save his ailing firm. He recognized that the U.S. Treasury, which injected $45 billion into Citigroup Inc. (C) after it almost collapsed, was pressing CEO Vikram Pandit to unload peripheral businesses.
Scaramucci arranged in late 2009 to meet Nolte, then CEO of the hedge-fund management group in Citi’s alternative-investing unit, which included funds of funds. Nolte, a buttoned-down money manager with the demeanor of a college professor, told Scaramucci that he was growing anxious as Citi pondered whether to shed his division.
“We were going to wither and die until Citi decided what to do with us,” Nolte says.
In April 2010, Citi agreed to sell the business to SkyBridge and Nolte, and his 23-member investment team joined forces with Scaramucci. SkyBridge made a nominal upfront payment and agreed to share a portion of its asset management fees with Citi for three years, according to a person familiar with the transaction.
In return, Scaramucci got $1.6 billion in assets, four institutional investors and more than 7,000 mass affluent and high-net-worth clients. “Anthony pulled off something that was totally against the odds,” Fascitelli says.
On the second day of this year’s SALT gathering, Scaramucci is chatting with one of his old bosses, Jon Corzine, Goldman’s co-chairman from 1994 to 1999. Scaramucci says he’s still mortified by the time in 1996 when he ran into Corzine and his first wife, Joanne, at Henry Cipriani, a Midtown Manhattan restaurant, and accidentally knocked a bottle of water off their table and onto their laps.
Corzine, who lost his bid for re-election as New Jersey’s governor in 2009, laughs and tells him to forget about it. “Anthony, you’re one of the only guys to leave Goldman Sachs and do well,” says Corzine, now CEO of New York futures broker MF Global Holdings Ltd. (MF) “I lose elections!”
Scaramucci has become the Wall Street player he aspired to be when he first landed at Goldman some 22 years ago. He entertains clients in his luxury suite at Citi Field, home of his beloved New York Mets. And he’s a top fundraiser for Mitt Romney, the former governor of Massachusetts who’s seeking the Republican nomination for president.
He’s hit his stride not through his record as a money manager, which even he admits is lackluster. Rather, it’s his networking chops and friendships with Wall Street’s elite that have won him the spotlight.
“I would make him the trustee for my estate not because he’s a brilliant investor but because he would do the right thing for my family, says Robert Matza, a former president of Neuberger Berman and now president of GoldenTree Asset Management LP, a New York hedge fund. “I trust him.”
SkyBridge has attracted $1 billion in new inflows since it absorbed Citi’s funds-of-funds unit on July 1, 2010.
“Performance isn’t what beats a path to your door,” says Robert Nichols, founder of Windward Capital Management Co., a Los Angeles-based firm with $250 million in assets. “It’s sales and marketing.”
Peddling high-risk funds of funds to the upper-middle class will be a major struggle -- and just the kind of sales job that Scaramucci relishes.
To contact the reporter on this story: Edward Robinson in San Francisco at edrobinson@bloomberg.net
To contact the editor responsible for this story: Laura Colby in New York at lcolby@bloomberg.net
Switzerland's central bank has dramatically intervened in an attempt to stem the appreciation of the Swiss franc, imposing a ceiling of Swfr1.20:€1. The move, which prompted a sharp fall in the franc on September 6th, is broadly in line with recent Economist Intelligence Unit analyses suggesting that more unconventional measures would be needed to offset upward pressure on the currency. However, there is a substantial chance that rising global risk aversion will sustain the franc's safe-haven appeal, making it harder to prevent appreciation. The new policy also exposes the Swiss National Bank (SNB) to potentially heavy losses on its foreign-exchange holdings.
SNB acts
The SNB, Switzerland's central bank, stunned markets on September 6th by announcing that it would enforce a minimum franc/euro exchange rate of Swfr1.20:€1, and that it was prepared to buy "unlimited quantities" of foreign currency in order to do so. The new policy comes in response to what the SNB described as the "massive overvaluation" of the franc, and follows the failure of previous measures to counter the franc's rise.
The strength of the franc has created problems for Swiss exporters. It is also tantamount to monetary tightening, threatening domestic growth and contributing to fears of deflation. As a result of these factors, the SNB has been under increasing political pressure to take stronger action to weaken the franc. This has culminated in its extraordinary imposition of an exchange rate ceiling vis-à-vis the euro, which could be considered a step towards a currency peg.
Costs and benefits
The biggest concern over the policy's effectiveness is simply the fact that investors' preference for safe-haven assets such as the Swiss franc looks likely to persist. The global economy is weakening, and the debt crisis in the euro zone remains severe. Moreover, the scale of intervention that will be needed, day after day, is formidable.
Some snippets from the article:
- American money market funds, long a reliable financing source for capital starved European banks, have sharply cut back on their exposure — starting in Spain and Italy but now also France — making it harder for European banks to loan dollars.
- The 10 biggest money market funds in the United States cut their exposure to European banks by a further 9 percent in July, or $30 billion, after a reduction of 20 percent in June, the Institute of International Finance said in a report issued Monday.
- Nevertheless, American institutions remain vulnerable to problems their French counterparts might encounter. At the end of the second quarter, JPMorgan Chase reported total cross-border exposure of $49 billion to France, while Citigroup had $44 billion and Bank of America had $20 billion.
- Meanwhile, problems in Spain were highlighted on Tuesday when one of Spain's largest savings banks, Caja de Ahorros del Mediterráneo, reported a startling increase in bad loans to 19 percent of overall lending from 9 percent at the end of last year.
Market Extra
Sept. 6, 2011, 6:09 a.m. EDT
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The Swiss franc plunged dramatically versus the euro and other major rivals Tuesday after the Swiss National Bank took the extraordinary step of setting a floor for the euro/Swiss franc exchange rate at 1.20 francs and vowed to buy “unlimited quantities” of euros to defend it.
In a breakneck swing, the euro (ICAPC:EURCHF) traded at 1.2033 francs, up from around 1.12 francs ahead of the announcement, a rise of 8.9%, as traders stampeded out of short euro/Swiss franc bets. Other currencies also rose versus the franc, with the U.S. dollar (ICAPC:USDCHF) jumping 8% to trade at 84.85 centimes. There are 100 centimes in a franc.
Swiss equities, which have been hurt by fears a strong franc undercutting Swiss exports, also jumped. The Swiss Market Index (SWX:CH:SMI) rallied 4.7% to 5,387.30, with offshore drilling firm Transocean Ltd. (NYSE:RIG) (SWL:CH:RIGN) up 8.9% and staffing firm Adecco SA (SWL:CH:ADEN) up 6%.
“With immediate effect, [the SNB] will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities,” the SNB said.
But analysts said the SNB’s toughest battle lies ahead, particularly if ongoing tensions in the euro zone continue to stoke investor appetite for safe havens.
“This is an endurance contest whereby the SNB needs to fight hard against a market that could soon test its resolve,” said Paul Mackel, currency strategist at HSBC in Hong Kong. “Putting EUR-CHF at 1.20 today is the easy part. Keeping it there or significantly above will be difficult if the world still looks like a gloomy place.”
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