(Bloomberg) -- America Movil SAB and Telefonos de Mexico SAB, the phone companies controlled by billionaire Carlos Slim, will face rulings within months on whether they have too much power, Mexico’s antitrust regulator said.
The Federal Competition Commission’s final decisions will come in the middle of the summer, or between June and August, Eduardo Perez Motta, the agency’s president, said in an interview. He declined to predict what the ruling will be.
A declaration of dominance by the agency would allow Mexico’s Federal Telecommunications Commission to apply harsher regulations to America Movil or Telmex than their competitors have to follow, Perez Motta said. For instance, the commission could set different amounts for the rates the companies are allowed to charge to connect calls, he said.
“The investigations of dominance that the competition commission is doing can be a factor in helping create a regulation that promotes greater efficiency in the market,” Perez Motta said. “We’re on the path to reaching a conclusion.”
America Movil, Latin America’s largest mobile-phone carrier, has 72.5 percent of Mexico’s wireless customers, with 57.5 million at the end of March. Its biggest competitor, Telefonica SA, had 15.5 million Mexican wireless subscribers.
Telmex, as Mexico’s biggest fixed-line phone company is known, had 17.5 million lines at the end of last quarter, or about 85 percent of the market.
The antitrust agency doesn’t designate a company as dominant solely because of its market share, Perez Motta said. The decision is based on factors such as the ability to influence prices in a market, he said.
Substantial Power
Concepcion Rivera, a spokeswoman for Telmex, declined to comment. Luisa Fernanda White, a spokeswoman for America Movil, said she didn’t have an immediate response.
Slim, 69, won control of Telmex in a 1990 privatization sale. The company spun off its wireless unit in 2001 to form America Movil, which now operates in 18 countries. The holdings in the phone companies have helped Slim become the world’s third-richest man, according to Forbes magazine.
America Movil gained 20 centavos to 24.81 pesos in Mexico City trading at 4 p.m. New York time. Telmex rose 5 centavos to 11.03 pesos. Both companies are based in Mexico City.
The antitrust commission issued a preliminary ruling in June 2008 that America Movil’s Mexican unit had substantial power in the market for completing calls. The commission also made a preliminary ruling in July that Telmex had substantial power in originating, carrying and completing local calls and in wholesale leasing of connections.
Read more here
Tuesday, May 19, 2009
Sunday, May 17, 2009
AIG to launch IPO for Asia crown jewel
(Reuters) - AIG said it would accelerate plans to separate its Asian subsidiary through an initial public offering as the bailed-out U.S. insurer seeks to raise cash and list the unit as soon as possible.
The offering could raise at least $4 billion based on targets set by AIG executives, making it one of the largest Hong Kong IPOs to hit the market in the last two years.
The IPO would allow AIG to raise money to pay back the U.S. government and allow the profitable Asia life insurance subsidiary, American International Assurance Co Ltd (AIA), to break from its ailing parent.
AIG said it has asked for requests for proposal to select global coordinators and bookrunners for the IPO, confirming a Reuters report last Thursday that the company was about to start the process.
The lead manager of the IPO will be The Blackstone Group (BX.N), AIG's global financial adviser for its restructuring.
Hong Kong-based AIA has more than $60 billion of assets under management. During 2008, AIA said it recruited more than 52,000 agents, bumping its representation up to about 250,000 agents, and it has about 20,000 employees across 13 Asian markets.
It's known as AIG's Asia crown jewel, providing coverage to about 20 million customers, or close to a third of AIG's total customer base.
Still, analysts say that even with bright prospects, the IPO faces plenty of obstacles. AIG itself said the offering depends on market conditions and regulatory approvals.
Read more here
The offering could raise at least $4 billion based on targets set by AIG executives, making it one of the largest Hong Kong IPOs to hit the market in the last two years.
The IPO would allow AIG to raise money to pay back the U.S. government and allow the profitable Asia life insurance subsidiary, American International Assurance Co Ltd (AIA), to break from its ailing parent.
AIG said it has asked for requests for proposal to select global coordinators and bookrunners for the IPO, confirming a Reuters report last Thursday that the company was about to start the process.
The lead manager of the IPO will be The Blackstone Group (BX.N), AIG's global financial adviser for its restructuring.
Hong Kong-based AIA has more than $60 billion of assets under management. During 2008, AIA said it recruited more than 52,000 agents, bumping its representation up to about 250,000 agents, and it has about 20,000 employees across 13 Asian markets.
It's known as AIG's Asia crown jewel, providing coverage to about 20 million customers, or close to a third of AIG's total customer base.
Still, analysts say that even with bright prospects, the IPO faces plenty of obstacles. AIG itself said the offering depends on market conditions and regulatory approvals.
Read more here
Thursday, May 14, 2009
Credit Suisse Chief Dougan Owes Interest to Ex-Wife, Court Says
(Bloomberg) -- Credit Suisse Group AG Chief Executive Officer Brady Dougan must pay a year’s worth of interest on a late $7.5 million payment he made to his ex-wife under their 2005 divorce agreement, a Connecticut appeals court ruled.
Dougan, 49, and Tomoko Hamada Dougan, 52, were divorced on June 17, 2005, under an agreement requiring him to pay $7.83 million within 30 days and another $7.5 million by June 16, 2006, according to an opinion released by the appellate panel yesterday in Hartford. Dougan made the second payment 12 days late, triggering a 10 percent interest payment provision.
The dispute was over what period the interest should cover. Dougan paid $24,999.96 in interest, covering the 12 days he was late. In a 2-1 opinion, the court said he owed interest dating to the time of the divorce agreement, covering another year. The court reversed a ruling by the trial judge, who found the interest provision was unenforceable even though the parties had negotiated and agreed to it.
Dougan “had use of $7.5 million for one year,” according to the majority opinion by Judge C. Ian McLachlan. The bank CEO “could have made that payment at the time of the judgment. Instead, the plaintiff, an investment banker, had the use of the money with the knowledge that he would lose the benefit of no interest for that year if he failed to pay the defendant on time.”
Credit Suisse
An attorney for Dougan, Gary Cohen, didn’t return calls seeking comment. A spokeswoman for Credit Suisse, Victoria Harmon, declined to comment.
Gaetano Ferro, an attorney for Tomoko Hamada Dougan, estimated in an interview that Dougan owes about $970,000 in interest based on the appeals court’s ruling, which sent the case back to the lower court to implement the findings.
Dougan became the first American to serve as sole CEO of Credit Suisse in May 2007 after heading the company’s investment bank for three years. He helped steer Credit Suisse clear of subprime mortgage investments before their collapse froze debt markets and led to $1.46 trillion in writedowns and losses at financial companies worldwide.
After graduating from business school in 1982, Dougan joined Bankers Trust Corp. He worked in the investment banking department and later for the nascent derivatives unit. He moved to London and then to Tokyo, where he built the firm’s bond underwriting division from scratch at the age of 24. He joined Zurich-based Credit Suisse in 1990.
Read more here
Dougan, 49, and Tomoko Hamada Dougan, 52, were divorced on June 17, 2005, under an agreement requiring him to pay $7.83 million within 30 days and another $7.5 million by June 16, 2006, according to an opinion released by the appellate panel yesterday in Hartford. Dougan made the second payment 12 days late, triggering a 10 percent interest payment provision.
The dispute was over what period the interest should cover. Dougan paid $24,999.96 in interest, covering the 12 days he was late. In a 2-1 opinion, the court said he owed interest dating to the time of the divorce agreement, covering another year. The court reversed a ruling by the trial judge, who found the interest provision was unenforceable even though the parties had negotiated and agreed to it.
Dougan “had use of $7.5 million for one year,” according to the majority opinion by Judge C. Ian McLachlan. The bank CEO “could have made that payment at the time of the judgment. Instead, the plaintiff, an investment banker, had the use of the money with the knowledge that he would lose the benefit of no interest for that year if he failed to pay the defendant on time.”
Credit Suisse
An attorney for Dougan, Gary Cohen, didn’t return calls seeking comment. A spokeswoman for Credit Suisse, Victoria Harmon, declined to comment.
Gaetano Ferro, an attorney for Tomoko Hamada Dougan, estimated in an interview that Dougan owes about $970,000 in interest based on the appeals court’s ruling, which sent the case back to the lower court to implement the findings.
Dougan became the first American to serve as sole CEO of Credit Suisse in May 2007 after heading the company’s investment bank for three years. He helped steer Credit Suisse clear of subprime mortgage investments before their collapse froze debt markets and led to $1.46 trillion in writedowns and losses at financial companies worldwide.
After graduating from business school in 1982, Dougan joined Bankers Trust Corp. He worked in the investment banking department and later for the nascent derivatives unit. He moved to London and then to Tokyo, where he built the firm’s bond underwriting division from scratch at the age of 24. He joined Zurich-based Credit Suisse in 1990.
Read more here
Wednesday, May 13, 2009
Real Rate Shock Hits CEOs as Borrowing Costs Impede Recovery
(Bloomberg) -- The highest inflation-adjusted borrowing costs since the 1980s are hindering U.S. companies’ ability to build their businesses.
Customers of Airgas Inc. are reducing purchases of industrial gases such as nitrogen and acetylene because of rising real interest rates, said Chief Executive Officer Peter McCausland. Real rates account for inflation or deflation.
“There is no question” high real rates have aggravated Airgas’s sales decline, he said in an interview.
The climb in rates “really reflects a risk aversion,” said David Rickard, chief financial officer of Woonsocket, Rhode Island-based CVS Caremark Corp. “People are afraid to lend.”
Annualized consumer prices fell by 0.4 percent in March, the first decline in 54 years, and Treasury yields jumped to a five-month high. That pushed real investment-grade corporate borrowing costs to 8.34 percent, the highest level since 1985, according to data compiled by Bloomberg and Merrill Lynch & Co. Price declines accelerated in April to 0.6 percent, according to 28 economists surveyed by Bloomberg.
Rising real yields may deter companies from borrowing to invest in new products or factories because deflation will erode cash flow and make it harder to service debt, said John Lonski, chief economist at Moody’s Capital Markets Group in New York.
Deflation Hurts
“That’s almost guaranteed to delay an economic recovery and perhaps very much risks intensifying the current economic slump,” Lonski said in a telephone interview.
Deflation hurts businesses in two ways. First, it suppresses sales. When prices are falling, buyers have reason to delay purchases and wait for a better deal.
The second way deflation hurts is by increasing real interest rates, making borrowing more expensive. A $100,000 loan at a 5 percent rate with 2 percent deflation translates into a real yield of 7 percent. When prices are going up, the opposite happens. If inflation is 2 percent, the real rate on that loan is 3 percent.
“Deflation hurts borrowers and rewards savers,” said Drew Matus, senior economist at Banc of America Securities-Merrill Lynch in New York, in a telephone interview. “If you do borrow right now, and we go through a period of deflation, your cost of borrowing just went through the roof.”
The last time Americans experienced deflation was when former President Dwight Eisenhower resided in the White House and the Disneyland theme park first swung open its gates in Anaheim, California. The Consumer Price Index declined for 12 straight months beginning September 1954.
Great Depression
The most severe period of deflation in the 20th century happened during the Great Depression, when prices fell 27 percent from the end of 1929 to 1933, causing companies to stop investing and pushing the unemployment rate to about 25 percent. Federal Reserve Chairman Ben S. Bernanke, who studied the Great Depression extensively and published a book on the subject, has said deflation can be more damaging than too much inflation.
“In a period of sufficiently severe deflation, the real cost of borrowing becomes prohibitive,” Bernanke said in a November 2002 speech at the National Economists Club in Washington. “Capital investment, purchases of new homes, and other types of spending decline accordingly, worsening the economic downturn.”
Sticker Shock
Surging refinancing costs are forcing Energy Transfer Partners LP to cancel or avoid pipeline projects that don’t offer returns above 20 percent, Chief Financial Officer Martin Salinas said in an interview. Debt yields have been 2 to 3 percentage points higher than what the Dallas-based company has been used to, he said.
Energy Transfer, the third-largest U.S. pipeline partnership by market value, in April raised $650 million for capital expenditures and to repay bank debt by offering investors a 9 percent interest rate on 10-year bonds, Bloomberg data show. While 0.7 percentage point lower than what the company paid for similar debt in December, the coupon was 2.3 percentage points higher than an offering a year earlier.
“There is definitely some sticker shock,” said Salinas. “We can’t build the project if we can’t cover our cost and get a return on it.”
While the gap between investment-grade bond yields and rates on similarly maturing Treasuries narrowed 158 basis points in the past two months, a jump in benchmark yields and deflation erased most of the improvement, meaning real rates are still near their highest levels since 1985.
Read more here
Customers of Airgas Inc. are reducing purchases of industrial gases such as nitrogen and acetylene because of rising real interest rates, said Chief Executive Officer Peter McCausland. Real rates account for inflation or deflation.
“There is no question” high real rates have aggravated Airgas’s sales decline, he said in an interview.
The climb in rates “really reflects a risk aversion,” said David Rickard, chief financial officer of Woonsocket, Rhode Island-based CVS Caremark Corp. “People are afraid to lend.”
Annualized consumer prices fell by 0.4 percent in March, the first decline in 54 years, and Treasury yields jumped to a five-month high. That pushed real investment-grade corporate borrowing costs to 8.34 percent, the highest level since 1985, according to data compiled by Bloomberg and Merrill Lynch & Co. Price declines accelerated in April to 0.6 percent, according to 28 economists surveyed by Bloomberg.
Rising real yields may deter companies from borrowing to invest in new products or factories because deflation will erode cash flow and make it harder to service debt, said John Lonski, chief economist at Moody’s Capital Markets Group in New York.
Deflation Hurts
“That’s almost guaranteed to delay an economic recovery and perhaps very much risks intensifying the current economic slump,” Lonski said in a telephone interview.
Deflation hurts businesses in two ways. First, it suppresses sales. When prices are falling, buyers have reason to delay purchases and wait for a better deal.
The second way deflation hurts is by increasing real interest rates, making borrowing more expensive. A $100,000 loan at a 5 percent rate with 2 percent deflation translates into a real yield of 7 percent. When prices are going up, the opposite happens. If inflation is 2 percent, the real rate on that loan is 3 percent.
“Deflation hurts borrowers and rewards savers,” said Drew Matus, senior economist at Banc of America Securities-Merrill Lynch in New York, in a telephone interview. “If you do borrow right now, and we go through a period of deflation, your cost of borrowing just went through the roof.”
The last time Americans experienced deflation was when former President Dwight Eisenhower resided in the White House and the Disneyland theme park first swung open its gates in Anaheim, California. The Consumer Price Index declined for 12 straight months beginning September 1954.
Great Depression
The most severe period of deflation in the 20th century happened during the Great Depression, when prices fell 27 percent from the end of 1929 to 1933, causing companies to stop investing and pushing the unemployment rate to about 25 percent. Federal Reserve Chairman Ben S. Bernanke, who studied the Great Depression extensively and published a book on the subject, has said deflation can be more damaging than too much inflation.
“In a period of sufficiently severe deflation, the real cost of borrowing becomes prohibitive,” Bernanke said in a November 2002 speech at the National Economists Club in Washington. “Capital investment, purchases of new homes, and other types of spending decline accordingly, worsening the economic downturn.”
Sticker Shock
Surging refinancing costs are forcing Energy Transfer Partners LP to cancel or avoid pipeline projects that don’t offer returns above 20 percent, Chief Financial Officer Martin Salinas said in an interview. Debt yields have been 2 to 3 percentage points higher than what the Dallas-based company has been used to, he said.
Energy Transfer, the third-largest U.S. pipeline partnership by market value, in April raised $650 million for capital expenditures and to repay bank debt by offering investors a 9 percent interest rate on 10-year bonds, Bloomberg data show. While 0.7 percentage point lower than what the company paid for similar debt in December, the coupon was 2.3 percentage points higher than an offering a year earlier.
“There is definitely some sticker shock,” said Salinas. “We can’t build the project if we can’t cover our cost and get a return on it.”
While the gap between investment-grade bond yields and rates on similarly maturing Treasuries narrowed 158 basis points in the past two months, a jump in benchmark yields and deflation erased most of the improvement, meaning real rates are still near their highest levels since 1985.
Read more here
Tuesday, May 12, 2009
FDIC, JPMorgan seek ouster of WaMu stakeholder suit
(Reuters) - U.S. bank regulators filed court papers this week seeking dismissal of a Texas lawsuit that claims JPMorgan Chase & Co (JPM.N) tried to gain an unfair advantage in its $1.9 billion purchase of Washington Mutual Inc's (WAMUQ.PK) bank last year.
In documents filed on Monday in federal court in Galveston, Texas, the Federal Deposit Insurance Corp said the WaMu stakeholders who brought the lawsuit are trying to circumvent the FDIC claims process, and that the suit should be dismissed or moved to a court in Washington D.C.
WaMu collapsed last year, in the largest U.S. bank failure in history. The bank was seized by U.S. bank regulators on September 25 and the FDIC immediately sold its deposits to JPMorgan. The surviving holding company filed for bankruptcy protection a day later.
However, the stakeholders' lawsuit filed in February claims that Washington Mutual's crown jewels were sold to JPMorgan at a fire-sale price that did not properly compensate WaMu's investors. They also claim that JPMorgan acted improperly ahead of the sale by leaking false and harmful information from WaMu's financial records, in an attempt to deflate its value and purchase WaMu's assets on the cheap, according to court papers.
Read more here
In documents filed on Monday in federal court in Galveston, Texas, the Federal Deposit Insurance Corp said the WaMu stakeholders who brought the lawsuit are trying to circumvent the FDIC claims process, and that the suit should be dismissed or moved to a court in Washington D.C.
WaMu collapsed last year, in the largest U.S. bank failure in history. The bank was seized by U.S. bank regulators on September 25 and the FDIC immediately sold its deposits to JPMorgan. The surviving holding company filed for bankruptcy protection a day later.
However, the stakeholders' lawsuit filed in February claims that Washington Mutual's crown jewels were sold to JPMorgan at a fire-sale price that did not properly compensate WaMu's investors. They also claim that JPMorgan acted improperly ahead of the sale by leaking false and harmful information from WaMu's financial records, in an attempt to deflate its value and purchase WaMu's assets on the cheap, according to court papers.
Read more here
Monday, May 11, 2009
Zombie Loans Give Life to Blockbuster Amid Defaults
(Bloomberg) -- Blockbuster Inc., whose shares have plummeted 95 percent since 2004, has made money just once since 1997, and auditors doubt it can pay its bills. Still, JPMorgan Chase & Co. isn’t giving up on the movie-rental chain.
The second-largest U.S. bank by assets extended the Dallas- based company’s line of credit, due to expire in August, while cutting it 29 percent and raising the interest rate.
Citigroup Inc. and Bank of America Corp. are also amending revolving loans to zombie borrowers on the brink of default and others with debt ratings that are among the worst. Lenders are betting the economy will improve enough to keep companies from adding to the $1.4 trillion of writedowns and losses by the world’s largest financial institutions since the start of 2007.
“Banks are still very restricted on capital,” said Neal Schweitzer, senior vice president of corporate finance at Moody’s Investors Service in New York. “This is a way to address the maturity and the upcoming refinancing crunch.”
The Federal Reserve’s stress test showed on May 7 that 10 of the 19 largest U.S. lenders need to raise $74.6 billion in capital to withstand a prolonged recession.
About $100 billion of publicly rated high-yield, high-risk or leveraged loans are due to expire by 2011, with $3.58 billion set to mature by the end of this year, according to Moody’s. This type of credit is rated below investment grade, or less than Baa3 by Moody’s and BBB- by Standard & Poor’s.
“You will see a trend toward extending those revolvers for a year or two to buy time until the market stabilizes,” said Douglas Antonacci, head of new issue loan sales at JPMorgan in New York. The bank was among the nine deemed by the government assessment not to need additional funds.
‘Amend and Extend’
At least 12 non-investment grade U.S. companies have revised their lines of credit in the past two weeks, Moody’s estimated. In a revolving line, money can be borrowed again once it’s repaid.
Eastman Kodak Co., the photography company in Rochester, New York, and Nebraska Book Co., the Lincoln, Nebraska-based owner of 270 college bookstores, are among those that have made modifications this year. Kodak and Nebraska Book’s parent, NBC Acquisition Corp., are both on Moody’s B3Negative list, formerly called the Bottom Rung report, which records the lowest-rated non-financial speculative-grade U.S. companies.
“We are doing a lot of amend and extend,” said Glenn Stewart, head of Americas loan syndication and sales at Bank of America, the biggest U.S. bank by assets. The Charlotte, North Carolina-based lender needs $33.9 billion in capital, according to the government evaluation of how it would fare under “more adverse” conditions than most economists anticipate.
Fleeing Investors
Leveraged loans were one of the hottest parts of the debt market, with about $689 billion issued in 2007, up from about $200 billion in 1996, according to Moody’s. The market peaked as hedge funds and collateralized loan obligation firms began buying the debt from banks and trading it amongst themselves. A CLO is a portfolio of loans sliced into varying degrees of risk.
The money helped finance major purchases during the leveraged buyout boom, including the acquisition of Nashville, Tennessee-based hospital operator HCA Inc. for $33 billion.
After the subprime mortgage market collapsed in the second half of 2007, most investors fled to safer assets. Prices that averaged about 100 cents on the dollar fell to a record low of 59.20 cents in December 2008, according to the S&P/LSTA U.S. Leveraged Loan 100 Index.
The speculative-grade default rate reached 7 percent at the end of the first quarter, up from 4.1 percent at the end of 2008 and 1.5 percent in March of last year, Moody’s said.
Read more here
The second-largest U.S. bank by assets extended the Dallas- based company’s line of credit, due to expire in August, while cutting it 29 percent and raising the interest rate.
Citigroup Inc. and Bank of America Corp. are also amending revolving loans to zombie borrowers on the brink of default and others with debt ratings that are among the worst. Lenders are betting the economy will improve enough to keep companies from adding to the $1.4 trillion of writedowns and losses by the world’s largest financial institutions since the start of 2007.
“Banks are still very restricted on capital,” said Neal Schweitzer, senior vice president of corporate finance at Moody’s Investors Service in New York. “This is a way to address the maturity and the upcoming refinancing crunch.”
The Federal Reserve’s stress test showed on May 7 that 10 of the 19 largest U.S. lenders need to raise $74.6 billion in capital to withstand a prolonged recession.
About $100 billion of publicly rated high-yield, high-risk or leveraged loans are due to expire by 2011, with $3.58 billion set to mature by the end of this year, according to Moody’s. This type of credit is rated below investment grade, or less than Baa3 by Moody’s and BBB- by Standard & Poor’s.
“You will see a trend toward extending those revolvers for a year or two to buy time until the market stabilizes,” said Douglas Antonacci, head of new issue loan sales at JPMorgan in New York. The bank was among the nine deemed by the government assessment not to need additional funds.
‘Amend and Extend’
At least 12 non-investment grade U.S. companies have revised their lines of credit in the past two weeks, Moody’s estimated. In a revolving line, money can be borrowed again once it’s repaid.
Eastman Kodak Co., the photography company in Rochester, New York, and Nebraska Book Co., the Lincoln, Nebraska-based owner of 270 college bookstores, are among those that have made modifications this year. Kodak and Nebraska Book’s parent, NBC Acquisition Corp., are both on Moody’s B3Negative list, formerly called the Bottom Rung report, which records the lowest-rated non-financial speculative-grade U.S. companies.
“We are doing a lot of amend and extend,” said Glenn Stewart, head of Americas loan syndication and sales at Bank of America, the biggest U.S. bank by assets. The Charlotte, North Carolina-based lender needs $33.9 billion in capital, according to the government evaluation of how it would fare under “more adverse” conditions than most economists anticipate.
Fleeing Investors
Leveraged loans were one of the hottest parts of the debt market, with about $689 billion issued in 2007, up from about $200 billion in 1996, according to Moody’s. The market peaked as hedge funds and collateralized loan obligation firms began buying the debt from banks and trading it amongst themselves. A CLO is a portfolio of loans sliced into varying degrees of risk.
The money helped finance major purchases during the leveraged buyout boom, including the acquisition of Nashville, Tennessee-based hospital operator HCA Inc. for $33 billion.
After the subprime mortgage market collapsed in the second half of 2007, most investors fled to safer assets. Prices that averaged about 100 cents on the dollar fell to a record low of 59.20 cents in December 2008, according to the S&P/LSTA U.S. Leveraged Loan 100 Index.
The speculative-grade default rate reached 7 percent at the end of the first quarter, up from 4.1 percent at the end of 2008 and 1.5 percent in March of last year, Moody’s said.
Read more here
Sunday, May 10, 2009
Rothschild Difference With Madoff Becomes Geneva’s Obsession
(Bloomberg) -- There’s more than 250 years separating Baron Benjamin de Rothschild from Bernard L. Madoff.
This isn’t an insignificant issue in Geneva where at least eight banks had about 10 billion Swiss francs ($8.8 billion) with Madoff, who pleaded guilty in March to masterminding a $65 billion Ponzi scheme. Investors are preparing lawsuits against firms that gave their cash to the New York con man. Five Aurelia Finance SA fund managers, who invested with Madoff, were charged last month by a Geneva magistrate for mismanaging client assets.
“Madoff has become a filter for everyone’s perception of whether banks were doing their job,” said Leslie Gaines-Ross, chief reputation strategist at the Weber Shandwick consulting firm in New York and author of “Corporate Reputation: 12 Steps to Safeguarding and Recovering Reputation,” (John Wiley & Sons Inc., 2008). “Rothschild is one of the few that is still admired and holds true to its reputation.”
Baron Benjamin, head of the Geneva arm of the Rothschild family that financed the Suez Canal and Wellington’s victory at Waterloo, is betting that heritage will help his firm grow. Rothschild had no investments with Madoff.
Rothschild and Madoff are “poles apart,” said Cedric Tille, a professor at the Graduate Institute in Geneva and a former economist for the Federal Reserve Bank of New York. “Many private banks in Geneva have enough tradition to sell themselves as cool heads who don’t fall for the latest fad.”
‘Look for Safety’
Banque Privee Edmond de Rothschild Group received 1.7 billion francs of new assets in the first quarter. Pictet & Cie. and Mirabaud & Cie., two Geneva-based banks that trace their roots back to the 19th century, also attracted clients after avoiding Madoff, who’s in a Manhattan jail awaiting sentencing on charges that carry a maximum prison term of 150 years.
Officials at Pictet and Mirabaud declined to disclose first-quarter inflows. Pictet, founded a decade before Napoleon’s final defeat in 1815, attracted 17 billion francs of assets last year, three times more than Rothschild.
Geneva’s 140 banks and 700 independent wealth managers employ more than 34,000 people and have about 10 percent of the world’s private assets held outside investors’ home countries.
Rothschild depends on its record of preserving customers’ savings to set itself apart, said Werner Rutsch, co-author of “Swiss Banking -- Where Next?” (Neue Zuercher Zeitung, 2008).
“In difficult times, people look for safety and personalities,” Rutsch said.
Relative Returns
Unlike Geneva-based Union Bancaire Privee and Notz, Stucki & Cie., Rothschild avoided Madoff because “we couldn’t get the visibility we wanted,” said Claude Messulam, who has led the unit on a day-to-day basis since 1994, referring to the lack of information that was available on Madoff’s investment process.
Madoff reported annual returns of 8.5 percent to 11.7 percent during the past five years, according to Notz Stucki. Rothschild’s $746 million Prifund Alpha Uncorrelated dollar fund rose at an annual rate of 5.9 percent in the same period. Funds that invest in other firms’ hedge funds gained 3.47 percent, data compiled by Chicago-based Hedge Fund Research Inc. show.
Rothschild’s conservative approach means the firm has a “window of opportunity” that may last another 12 to 18 months before markets pick up, said Teodoro Cocca, professor of wealth management at Johannes Kepler University in Linz, Austria.
“There are times, like now, when Rothschild and wealth preservation will be more trendy,” Cocca said. “But there will come a time when investors swing back to the greater risk- taking” of Zurich-based banks such as UBS AG and Credit Suisse Group AG, he said.
Hiring in Latin America
Investors pulled 226 billion francs from UBS last year as it posted a record net loss of almost 21 billion francs. UBS oversaw 1.6 trillion francs for clients at the end of the first quarter, 19 times more than Rothschild’s assets, and Credit Suisse managed 667 billion francs, company reports show.
The Rothschild private bank in Geneva, founded in 1953 and controlled by the sixth generation since Mayer Amschel Rothschild and his five sons bankrolled European governments in the 19th century, is optimistic about further inflows.
“I see no reason why that shouldn’t continue,” Messulam said at offices hung with 19th-century oil paintings in the heart of Geneva’s private banking quarter. The company has “benefited from the fears of certain clients at the big banks.”
Rothschild is hiring wealth managers in Geneva, Latin America and Asia to sustain the gains, Messulam said.
Most Expensive Stock
Rothschild, 83 percent-owned by Baron Benjamin and his family, has Europe’s most expensive stock.
The shares have climbed 38 percent to 26,300 francs in Zurich trading since falling to a four-year low on March 9, giving the firm a market value of 2.37 billion francs. The 29- member Swiss Financial Services Index advanced 51 percent in the same period. UBS is valued at 47 billion francs.
Baron Benjamin, 45, is France’s 19th-richest citizen with a net worth of 2.9 billion euros ($3.9 billion), according to Challenges magazine. He’s also the wealthiest living Rothschild.
“In the same way as the Rockefellers or J.P. Morgan, these are well-known people who stood for something which is still valid today,” said Rutsch, the co-author of “Swiss Banking.”
Rothschild’s assets under management fell 18 percent last year to 82.3 billion francs, compared with an average 23 percent decline for the 10 biggest private banks with headquarters in Geneva, data compiled by Bloomberg show. By comparison, Zurich- based EFG International AG’s assets dropped 22 percent to 77.2 billion francs and those of Basel-based Bank Sarasin & Cie. declined 16 percent to 69.7 billion francs.
Read more here
This isn’t an insignificant issue in Geneva where at least eight banks had about 10 billion Swiss francs ($8.8 billion) with Madoff, who pleaded guilty in March to masterminding a $65 billion Ponzi scheme. Investors are preparing lawsuits against firms that gave their cash to the New York con man. Five Aurelia Finance SA fund managers, who invested with Madoff, were charged last month by a Geneva magistrate for mismanaging client assets.
“Madoff has become a filter for everyone’s perception of whether banks were doing their job,” said Leslie Gaines-Ross, chief reputation strategist at the Weber Shandwick consulting firm in New York and author of “Corporate Reputation: 12 Steps to Safeguarding and Recovering Reputation,” (John Wiley & Sons Inc., 2008). “Rothschild is one of the few that is still admired and holds true to its reputation.”
Baron Benjamin, head of the Geneva arm of the Rothschild family that financed the Suez Canal and Wellington’s victory at Waterloo, is betting that heritage will help his firm grow. Rothschild had no investments with Madoff.
Rothschild and Madoff are “poles apart,” said Cedric Tille, a professor at the Graduate Institute in Geneva and a former economist for the Federal Reserve Bank of New York. “Many private banks in Geneva have enough tradition to sell themselves as cool heads who don’t fall for the latest fad.”
‘Look for Safety’
Banque Privee Edmond de Rothschild Group received 1.7 billion francs of new assets in the first quarter. Pictet & Cie. and Mirabaud & Cie., two Geneva-based banks that trace their roots back to the 19th century, also attracted clients after avoiding Madoff, who’s in a Manhattan jail awaiting sentencing on charges that carry a maximum prison term of 150 years.
Officials at Pictet and Mirabaud declined to disclose first-quarter inflows. Pictet, founded a decade before Napoleon’s final defeat in 1815, attracted 17 billion francs of assets last year, three times more than Rothschild.
Geneva’s 140 banks and 700 independent wealth managers employ more than 34,000 people and have about 10 percent of the world’s private assets held outside investors’ home countries.
Rothschild depends on its record of preserving customers’ savings to set itself apart, said Werner Rutsch, co-author of “Swiss Banking -- Where Next?” (Neue Zuercher Zeitung, 2008).
“In difficult times, people look for safety and personalities,” Rutsch said.
Relative Returns
Unlike Geneva-based Union Bancaire Privee and Notz, Stucki & Cie., Rothschild avoided Madoff because “we couldn’t get the visibility we wanted,” said Claude Messulam, who has led the unit on a day-to-day basis since 1994, referring to the lack of information that was available on Madoff’s investment process.
Madoff reported annual returns of 8.5 percent to 11.7 percent during the past five years, according to Notz Stucki. Rothschild’s $746 million Prifund Alpha Uncorrelated dollar fund rose at an annual rate of 5.9 percent in the same period. Funds that invest in other firms’ hedge funds gained 3.47 percent, data compiled by Chicago-based Hedge Fund Research Inc. show.
Rothschild’s conservative approach means the firm has a “window of opportunity” that may last another 12 to 18 months before markets pick up, said Teodoro Cocca, professor of wealth management at Johannes Kepler University in Linz, Austria.
“There are times, like now, when Rothschild and wealth preservation will be more trendy,” Cocca said. “But there will come a time when investors swing back to the greater risk- taking” of Zurich-based banks such as UBS AG and Credit Suisse Group AG, he said.
Hiring in Latin America
Investors pulled 226 billion francs from UBS last year as it posted a record net loss of almost 21 billion francs. UBS oversaw 1.6 trillion francs for clients at the end of the first quarter, 19 times more than Rothschild’s assets, and Credit Suisse managed 667 billion francs, company reports show.
The Rothschild private bank in Geneva, founded in 1953 and controlled by the sixth generation since Mayer Amschel Rothschild and his five sons bankrolled European governments in the 19th century, is optimistic about further inflows.
“I see no reason why that shouldn’t continue,” Messulam said at offices hung with 19th-century oil paintings in the heart of Geneva’s private banking quarter. The company has “benefited from the fears of certain clients at the big banks.”
Rothschild is hiring wealth managers in Geneva, Latin America and Asia to sustain the gains, Messulam said.
Most Expensive Stock
Rothschild, 83 percent-owned by Baron Benjamin and his family, has Europe’s most expensive stock.
The shares have climbed 38 percent to 26,300 francs in Zurich trading since falling to a four-year low on March 9, giving the firm a market value of 2.37 billion francs. The 29- member Swiss Financial Services Index advanced 51 percent in the same period. UBS is valued at 47 billion francs.
Baron Benjamin, 45, is France’s 19th-richest citizen with a net worth of 2.9 billion euros ($3.9 billion), according to Challenges magazine. He’s also the wealthiest living Rothschild.
“In the same way as the Rockefellers or J.P. Morgan, these are well-known people who stood for something which is still valid today,” said Rutsch, the co-author of “Swiss Banking.”
Rothschild’s assets under management fell 18 percent last year to 82.3 billion francs, compared with an average 23 percent decline for the 10 biggest private banks with headquarters in Geneva, data compiled by Bloomberg show. By comparison, Zurich- based EFG International AG’s assets dropped 22 percent to 77.2 billion francs and those of Basel-based Bank Sarasin & Cie. declined 16 percent to 69.7 billion francs.
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