The United Kingdom's trade minister, Lord Davies, has flown to Saudi Arabia with the intent of persuading two defaulting Saudi conglomerates, the Saad Group and Ahmad Hamad Algosaibi & Bros (AHAB) to stop giving preference to local banks over British banks in terms of the restructuring of their loans.
Earlier this year, as it happens, Lord Davies faced a good deal of pressure to resign his office over a now-forgotten scandal that involved his supposed excessive coziness with the Mugabe regime in Zimbabwe. That appears to be all settled, or perhaps just forgotten, now.
Here's a link from that forgotten era of February 2009.
Such things forgotten, Davies is now expected to head off unsatisfactory results in the Gulf. Results so unsatisfactory, in fact, that the Times of London says this morning that the two defaulting Saudi firms could "do as much damage to the Gulf's bruised financial reputation as the Dubai shock of ten days ago."
The two conglomerates involved are not in a position to present a united front, so if Davies is clever he may be able to make use of the tensions between them. Specifically, AHAB has accused the chairman of Saad of a fraud that could amount to $10 billion.
Monday, December 7, 2009
Sunday, December 6, 2009
The Charges Re: Galleon Go Way Back
This week, a federal district court in California unsealed documents indicating that Raj Rajaratnam received confidential information, wrongly forwarded to him by an employee at Intel, in 1999.
That is of course a full decade before insider-trading charges were brought against Rajaratnam this October.
Roomy Khan was a products marketing manager at Intel. It appears that she faxed confidential sales and pricing information to Raj's hedge fund, Galleon, in 1998. She was charged with, and in time (in 2002) pleaded guilty to, wire fraud in this connection.
I have to wonder: how material is such information? Obviously in principle sales and pricing information could lead a trading in receipt of such a leak to the conclusion that Intel's latest sales are in excess of projections -- and that when this fact becomes public, the price will rise to reflect it. Or the other way around. Such information could then inspired buying or selling, respectively. But how big a piece would her leak have been without the over-all mosaic of information relevant to whether the price of Intel stock will rise or fall on a given day?
Imagine just for the sake of a hypothetical that Intel made the following two announcements on the same day: it is planning a new stock issuance, and it had just sold more chips than it had expected. If these two announcements are the only bits of news relevant to Intel's value that day, and if there is nothinng industry-wide or economy-wide that swamps their effect, then the relative size of the two developments will presumably determine whether the dilutive effect of the former announcements sends the over-all stock value down, or the value-enhancement of the latter sends it up. It isn't like looking at the back of the book of the teacher's edition of a textbook to cheat on your homework.
In the market, there is no teacher's edition, except for the actual passage of time, and the real movement of that stock.
That is of course a full decade before insider-trading charges were brought against Rajaratnam this October.
Roomy Khan was a products marketing manager at Intel. It appears that she faxed confidential sales and pricing information to Raj's hedge fund, Galleon, in 1998. She was charged with, and in time (in 2002) pleaded guilty to, wire fraud in this connection.
I have to wonder: how material is such information? Obviously in principle sales and pricing information could lead a trading in receipt of such a leak to the conclusion that Intel's latest sales are in excess of projections -- and that when this fact becomes public, the price will rise to reflect it. Or the other way around. Such information could then inspired buying or selling, respectively. But how big a piece would her leak have been without the over-all mosaic of information relevant to whether the price of Intel stock will rise or fall on a given day?
Imagine just for the sake of a hypothetical that Intel made the following two announcements on the same day: it is planning a new stock issuance, and it had just sold more chips than it had expected. If these two announcements are the only bits of news relevant to Intel's value that day, and if there is nothinng industry-wide or economy-wide that swamps their effect, then the relative size of the two developments will presumably determine whether the dilutive effect of the former announcements sends the over-all stock value down, or the value-enhancement of the latter sends it up. It isn't like looking at the back of the book of the teacher's edition of a textbook to cheat on your homework.
In the market, there is no teacher's edition, except for the actual passage of time, and the real movement of that stock.
Wednesday, December 2, 2009
Cisco's Offer for Tandberg
Cisco Systems has extended the offer period in its effort to acquire Tandberg, a Norway based company. It raised its bid in November to 10 billion Norwegian crowns (or $3.37 billion US dollars) -- a raise of 10%, and this latest extension likely means that the higher offer is getting some traction.
Reuters is quoting one analyst thus: "I think Cisco will succeed. They would not have extended the offer if they had a low acceptance level."
Cisco is the world's largest network equipment maker. Tandberg is the leader in videoconferencing equipment -- which sounds like a natural hook-up. Apparently, videoconference is a market segregated by "tiers," and Tandberg's great strength is in the mid-tier, in terms of price and sophistication.
Even before the increase, Cisco's initial offer was a 38.3% premium on the closing share price of Tandberg as of July 15. That is how it is characterized on Cisco's corporate blog in a entry by senior vice president Ned Hooper.
But is July 15th a relevant day? Hooper calls it "one day prior to major media reports of a possible transaction."
But as you'll see if you go to that blog entry and look at the comments beneath it, some doubt the significance of July 15th as a measuring point. The Norwegian stock market as a whole apparently rose significantly in the weeks subsequent to that "major media report," so some at least of the change in Tandberg's stock value reflects that broader rise, and is unrelated to the possibiliuty of this transaction. Since the investors in Tandberg would have participated in that rise anyway (so runs the reasoning) estimate of the true size of the "premium" have to be adjusted.
Reuters is quoting one analyst thus: "I think Cisco will succeed. They would not have extended the offer if they had a low acceptance level."
Cisco is the world's largest network equipment maker. Tandberg is the leader in videoconferencing equipment -- which sounds like a natural hook-up. Apparently, videoconference is a market segregated by "tiers," and Tandberg's great strength is in the mid-tier, in terms of price and sophistication.
Even before the increase, Cisco's initial offer was a 38.3% premium on the closing share price of Tandberg as of July 15. That is how it is characterized on Cisco's corporate blog in a entry by senior vice president Ned Hooper.
But is July 15th a relevant day? Hooper calls it "one day prior to major media reports of a possible transaction."
But as you'll see if you go to that blog entry and look at the comments beneath it, some doubt the significance of July 15th as a measuring point. The Norwegian stock market as a whole apparently rose significantly in the weeks subsequent to that "major media report," so some at least of the change in Tandberg's stock value reflects that broader rise, and is unrelated to the possibiliuty of this transaction. Since the investors in Tandberg would have participated in that rise anyway (so runs the reasoning) estimate of the true size of the "premium" have to be adjusted.
Tuesday, December 1, 2009
Asian Citrus
It appears that Hong Kong securities authority, the SFC, should amend its listing rules.
Why? An orange-plantation firm called "Asian Citrus": that's why. Asian Citrus has traded on the Alternative Investment Market of the London Stock Exchange since August 2005. The group's first orange plantation (which was acquired from a precursor entity) is 30.9 sq. kilometers in Hep County, Guangxi province. The second, which the group established, is 37.1 sq kil in Xinfeng county, Ganzhou, Jiangxi province. A third is under development, in Dao country, Human province.
But the recent excitement has nothing to do with the LSE and little to do with the actual business of growing and selling oranges. No ... Asian Citrus was listed on the Hong Kong Exchange last week, and promptly more than 85% of its initial value.
This happened because even before its listing, AC had split its shares 10-for-1. But in the summary section of its listing document, not only did it neglect to mention this fact, but it based its earnings-per-share figure on the number of shares outstanding before the stock split. So the ersatz earnings-per-share figure was ten times the one that an accurate document would have shown. The same shenanigans apply to the company's disclosure of its net tangible asset value.
Monday, November 30, 2009
Mark Pittman RIP
Mark Pittman died this week (on Wednesday).
Pittman was with Bloomberg News. He was part of a team that won the Loeb Award last year for a five-part series in the financial crisis.
He also did pathbreaking work on Goldman Sachs' interest in the AIG bailout, Hank Paulson's role in creating the subprime mess, and the irresponsibility of the ratings agencies increating the conditions for its spread. In June 2007 he wrote a very detailed and incisive piece about the credit agencies that holds up well even with the benefit of 2 and 1/2 years of hindsight.
Felix Salmon, usually a quite astute guy, criticized Pittman for that story, and now regrets that.
Pittman was an old-school reporter, a native of Kansas City, whose first job was covering police for the Coffeyville Journal in southern Kansas in the early 1980s. Later he was at the Times Herald-Record in Middletown, NY, for twelve years, joining Bloomberg in 1997.
The obits I've seen are not very forthcoming about the cause of death, except that it was heart-related. Regardless: it is a loss.
For more, go here.
Pittman was with Bloomberg News. He was part of a team that won the Loeb Award last year for a five-part series in the financial crisis.
He also did pathbreaking work on Goldman Sachs' interest in the AIG bailout, Hank Paulson's role in creating the subprime mess, and the irresponsibility of the ratings agencies increating the conditions for its spread. In June 2007 he wrote a very detailed and incisive piece about the credit agencies that holds up well even with the benefit of 2 and 1/2 years of hindsight.
Felix Salmon, usually a quite astute guy, criticized Pittman for that story, and now regrets that.
Pittman was an old-school reporter, a native of Kansas City, whose first job was covering police for the Coffeyville Journal in southern Kansas in the early 1980s. Later he was at the Times Herald-Record in Middletown, NY, for twelve years, joining Bloomberg in 1997.
The obits I've seen are not very forthcoming about the cause of death, except that it was heart-related. Regardless: it is a loss.
For more, go here.
Sunday, November 29, 2009
Dubai World
The talk this weekend is of Dubai World, the investment company that manages a portfolio of business for the government of Dubai.
Within its portfolio there is Dubai Ports World, the third-largest port operator on the globe, and Nakheel, a real estate developer associated with the Palm Islands.
A timeline:
Within its portfolio there is Dubai Ports World, the third-largest port operator on the globe, and Nakheel, a real estate developer associated with the Palm Islands.
A timeline:
- Wednesday, November 25, the government announced that the company "intends to ask all providers of financing to Dubai World and Nakheel to 'standstill' and extend maturities until at least 30 May 2010". Thus "standstill" includes payments due for next month.
- Thursday, November 26, the US markets were closed for Thanksgiving. Asian markets took a hit on the news, though, in the wake of reports that some of Japan's bigest banks were heavily exposed to Dubai World.
- Friday, November 27, Markets in the US started down big, but seemed to discount the significance of thre news as the day went on.
- Saturday, November 28, The National, an English language paper based in the United Arab Emirates, reported that Dubai World "could still meet the December 14 deadline on the US$4 billion ... payment of a sukuk from Nakheel under one option being considered by advisors to the conglomerate." It is also considering an 80% redemption offer.
Today, the UAE's central banks is making reassuring noises about "standing behind" that country's banks.
One intriguing feature of the situation involves the sukuk bonds involved. Any default, or lesser "credit event" here will compound some of the uncertainties I discussed on May 19 in this blog.
Wednesday, November 25, 2009
From Overstock's Former Auditor
Quote Nietzsche on us, will they??? We'll show them who's the Ubermench!
As you'll remember, and we chronicled here, on November 16, Overstock filed with the Securities and Exchange Commission an "unreviewed" Form 10-Q for its results in the quarter that ended September 30. It claimed that it had had to dismiss its auditor, Grant Thornton, because of a sudden change of heart on the part of Grant Thornton as to how a certain matter should be treated.
Specifically, it seems that the key to the dispute was the account of a particular "fulfillment partner." Often, when you order a product through Overstock's website, you are not buying it from Overstock, but from a third party, a business looking to unload its own inventory, and using Overstock as the cyberspace go-between for this purpose. Overstock has said that it accidentally overpaid one of these partners approximately $700,000 in 2008, and the partner informed it of this in February of this year. So ... doesn't that mean that the partner is acknowledging a debt, and that this debt is an asset (an account payable) that should be reflected as such on Overstock's books?
If so, then since the overpayment occurred in 2008, the account payable was an asset as of December 31, 2008. Overstock decided not to treat it as such, but to treat the later payment of $785,000 from that partner (principal and interest?) as part of its acknowledgement of the receipt of one-time non-recurring income of $1.9 million. That involved lumping the $785,000 in with certain other matters we won't trifle with here.
According to paragraph 7 of this press release, which is worth quoting in full because it has now become the crux of the controversy: As our auditors, Grant Thornton reviewed our financial statements in Q1 and Q2 2009 before we filed Form 10-Q's for those quarters. Throughout 2009, our Audit Committee has repeatedly asked Grant Thornton if there was any accounting that it would do differently, and repeatedly received the answer, "No." In fact, as recently as late-October 2009, Grant Thornton confirmed to us that it supported our accounting method for recognizing the $785,000.
Then, somehow, in November Grant Thornton changed its collective mind and decided that the account at issue should have been recorded as an asset in 2008 after all. Grant Thornton then reportedly gave Overstock an ultimatum: restate your 2008 results accordingly or we won't sign off on your third quarter filing. That's why Overstock fired them and, insteads of simply letting the clock continue to run while it searched for a new auditor -- filed the now notorious unreviewed 10Q. Of course, that clock is still running anyway, because they are out of compliance until they come up with an audited one. This filing remains bizaare.
But the new twist to the tale is that on November 20, (Friday, around the time Overstock was revealing that Nasdaq might de-list them), Grant Thornton LLP sent a letter to the Securities and Exchange Commission giving its own account of the story behind Overstock's recent 8K.
The short summary would be: "They are lying about why we left, and we left because they were lying before that." They say that (contrary to paragraph 7 as quoted above) they were not "repeatedly asked" throughout 2009 whether the treatment of this money was proper, and they never signed off on it.
"We disagree with the Company’s statement in paragraph 7 'that upon further consultation and review within the firm, Grant Thornton revised its earlier position' regarding the previously filed 2009 interim financial statements. This statement is not accurate. The Company brought the overpayment to a fulfillment partner to Grant Thornton’s attention in October. After additional discussions with the Company, the predecessor auditor and receipt of additional documentation from the Company we determined that the Company’s position as to the accounting treatment for the overpayment to a fulfillment partner was in error."
Sam Antar makes the case, not for the first time, that what is going on here is the maintenance of a cookie-jar reserve. Antar knows fraud, having committed more than his share of it. On his account, he's now trying to stay out of hell. Theology aside, I think the case he makes is worthy of the the SEC's full attention.
The whole affair continues to have the odor of Refco's hide-the-loan scheme, which unwound four years and one month ago. It looks so far like a low-rent variant of that, but it does not look good.
As you'll remember, and we chronicled here, on November 16, Overstock filed with the Securities and Exchange Commission an "unreviewed" Form 10-Q for its results in the quarter that ended September 30. It claimed that it had had to dismiss its auditor, Grant Thornton, because of a sudden change of heart on the part of Grant Thornton as to how a certain matter should be treated.
Specifically, it seems that the key to the dispute was the account of a particular "fulfillment partner." Often, when you order a product through Overstock's website, you are not buying it from Overstock, but from a third party, a business looking to unload its own inventory, and using Overstock as the cyberspace go-between for this purpose. Overstock has said that it accidentally overpaid one of these partners approximately $700,000 in 2008, and the partner informed it of this in February of this year. So ... doesn't that mean that the partner is acknowledging a debt, and that this debt is an asset (an account payable) that should be reflected as such on Overstock's books?
If so, then since the overpayment occurred in 2008, the account payable was an asset as of December 31, 2008. Overstock decided not to treat it as such, but to treat the later payment of $785,000 from that partner (principal and interest?) as part of its acknowledgement of the receipt of one-time non-recurring income of $1.9 million. That involved lumping the $785,000 in with certain other matters we won't trifle with here.
According to paragraph 7 of this press release, which is worth quoting in full because it has now become the crux of the controversy: As our auditors, Grant Thornton reviewed our financial statements in Q1 and Q2 2009 before we filed Form 10-Q's for those quarters. Throughout 2009, our Audit Committee has repeatedly asked Grant Thornton if there was any accounting that it would do differently, and repeatedly received the answer, "No." In fact, as recently as late-October 2009, Grant Thornton confirmed to us that it supported our accounting method for recognizing the $785,000.
Then, somehow, in November Grant Thornton changed its collective mind and decided that the account at issue should have been recorded as an asset in 2008 after all. Grant Thornton then reportedly gave Overstock an ultimatum: restate your 2008 results accordingly or we won't sign off on your third quarter filing. That's why Overstock fired them and, insteads of simply letting the clock continue to run while it searched for a new auditor -- filed the now notorious unreviewed 10Q. Of course, that clock is still running anyway, because they are out of compliance until they come up with an audited one. This filing remains bizaare.
But the new twist to the tale is that on November 20, (Friday, around the time Overstock was revealing that Nasdaq might de-list them), Grant Thornton LLP sent a letter to the Securities and Exchange Commission giving its own account of the story behind Overstock's recent 8K.
The short summary would be: "They are lying about why we left, and we left because they were lying before that." They say that (contrary to paragraph 7 as quoted above) they were not "repeatedly asked" throughout 2009 whether the treatment of this money was proper, and they never signed off on it.
"We disagree with the Company’s statement in paragraph 7 'that upon further consultation and review within the firm, Grant Thornton revised its earlier position' regarding the previously filed 2009 interim financial statements. This statement is not accurate. The Company brought the overpayment to a fulfillment partner to Grant Thornton’s attention in October. After additional discussions with the Company, the predecessor auditor and receipt of additional documentation from the Company we determined that the Company’s position as to the accounting treatment for the overpayment to a fulfillment partner was in error."
Sam Antar makes the case, not for the first time, that what is going on here is the maintenance of a cookie-jar reserve. Antar knows fraud, having committed more than his share of it. On his account, he's now trying to stay out of hell. Theology aside, I think the case he makes is worthy of the the SEC's full attention.
The whole affair continues to have the odor of Refco's hide-the-loan scheme, which unwound four years and one month ago. It looks so far like a low-rent variant of that, but it does not look good.
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