Tuesday, August 19, 2008

Three brief items

No real common thread here. Just three observations.

1. Cape Fear [not the movie].

Cape Fear Bank Corporation announced yesterday that it has reached agreement with a group of investors led by Maurice Koury about reconstituting its board of directors.

The two biggest advisory services rather forced their hand in this. RiskMetrics (ISS) supported two of Koury's nominees: James S. Mahan III and Mort Neblett. Glass Lewis also supported two: Mr. Mahan and David Lucht.

Under the settlement, the reconstituted board will include each of those three gentlemen, as well as another Koury nominee: Scott Sullivan.

The company likely knew a challenge was coming as soon as it reported, back in April, that it had identified material weaknesses in its internal controls over financial reporting. Glass Lewis' report said: "We believe such material weaknesses may signal weak internal accounting expertise, poor internal controls, and aggressive financial reporting practices at the company."

2. CME/Nymex

Both of the two sets of shareholders involved have now voted in favor of a deal that has CME Group acquiring the New York Mercanrtile Exchange for $7.6 billion. The two exchanges said in a statement that they expect to close on the deal by the end of this year.

The board of directors of CME will be expanded to included three directors from Nymex.

Brad Hintz, an analyst at Sanford Bernstein, is being quoted today thus: "CME wants this so badly because the futures market is ... one of the few monopolies left in the world. And it's a monopoly because they have their own clearing operation."

I beg to differ. It isn't a monopoly, although I do understand the point that the vertical link between an exchange and a clearing operation creates or enhances market power.

3. AIG returns to UK subprime.

American International Group has become the first US based party to subprime mortgage market in the United Kingdom.

Specifically, AIG has agreed to fund the launch of a non-conforming lender, Link Loans, through its subsidiary, Ocean Money.

So reports FTAdviser this morning, in a story by Joe McGrath.

To what does a nonconforming lender not conform? Is this someone who wears long hair and stays ahead of the curve on drug use? No ... that would be a nonconformist. A different matter. A nonconforming lender is a non-bank institution that offers loans to creditors who wouldn't meet the standards of a bank.

Is such activity about to pick up again, a little more than a year after the big chill began? Or is the AIG action an arrant outlier? For now, I'm guessing the latter.

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