Ken Moelis offered some thought provoking commentary on the state of the private equity industry. The Prince will have more detailed comments on Moelis’ interview later. He basically focused on the excesses of the last buyout boom. Then he offered some thoughts on what the future holds for the investment baking and private equity industries.

http://ycorpblog.com/2008/05/04/ok-so-now-what/

He emphasized this by saying, “The capital required by the investment bank for future growth must be generated under its own steam. Surpluses from the wealth management business will be returned to shareholders through dividends or share buy-backs.”  He also said UBS will no longer try to be all things to all people within the investment banking business. 

Even if the above statement is true why would you ever state it publicly.  So much for the full-service investment bank marketing pitch.

The Prince does agree with one of his final comments.  “We did not question the integrated model enough. We used the strength of our balance sheet and compelling financing options for activities which should have been more expensive to finance based on their risk. We used our surplus cash flow from the wealth management business to promote organic growth in the investment bank. That was where we went wrong."  When you compete for business solely with your balance sheet this is what happens.  UBS won banking business, especially with sponsors, because they got aggressive on terms.  Now they have to pay the price.

5 April 2008 - "Jeff Mayer, a former member of Bear’s five-person executive committee and a co-head of fixed income, was named vice chairman of J.P. Morgan’s investment bank, with a focus on global risk. J.P. Morgan also named Craig Overlander, the other fixed-income co-head, as a vice chairman to focus on global clients.

Mike Nierenberg, who ran global rates and foreign exchange at Bear, was named co-head of global securitized products with Bill King, who previously held the position alone at J.P. Morgan." - WSJ "J.P. Morgan Integrates Bear Senior Managers"

The Prince: Does anyone else see the irony/stupidity of giving the co-head of Bear’s fixed income division the job of focusing on global risk at JP Morgan?  Really?  Also, why is JP Morgan moving anyone from Bear’s securitized products to their own securitized products group.  Everyone at BS working in that group should be fired.  Just another example that on Wall Street people bounce back so fast it almost defies belief.

If the news had broken on April 1, we would have written it off as a prank, but The Times of London is reporting — two days too late for April Fools’ — that Jérôme Kerviel, the futures trader whose unauthorized trades cost Société Générale SA €5 billion ($7.8 billion), is planning on suing his former employer for unfair dismissal.

According to the paper, Kerviel’s lawyers will argue that the dismissal should be cancelled because his employers never met him face-to-face to explain why he had been fired. In a Kafkaesque piece of logic, they will apparently claim that under French law he can’t be fired until the meeting takes place, effectively making a dismissal impossible as Kerviel’s bail conditions prohibit him from contacting anyone from Société Générale. Should Kerviel win his claim, the French bank, whose chairman Daniel Bouton has variously described him as a "cheat," a "fraud" and even a "terrorist," might have to pay him compensation. The Times claims that Kerviel will not seek to be reinstated. - Paul Whitfield"

He must be joking.  Oh but wait, The Prince forgot, we are talking about French labor laws, which are a, how to say it, A JOKE.

Sen. Barack Obama described the Bush administration’s sweeping changes to financial market regulation as “inadequate” on Saturday.

While noting that he had not yet seen the full proposal, which Treasury Secretary Henry Paulson will unveil on Monday, the Illinois senator said that, based upon news reports, he believed the proposed regulatory reforms didn’t go far enough, though he lauded the proposed consolidation of regulatory agencies.

Obama laid out his own proposals to boost regulation of the financial industry during a speech in lower Manhattan earlier this week. Speaking to reporters in Johnstown, Pa., on Saturday, he criticized the lack of any increased capital reserve requirements for investment banks, which can now use the discount window from the Federal Reserve.

“If I’m a commercial bank right now, I’m still not clear why it is that investment banks… are able to do things I can’t do, aren’t subject to the same capital requirements and liquidity requirements that I am and yet they’ve got the same fallback with the Fed as we do,” he said.

The Prince’s Commentary: Does Mssr. Obama wish to regulate the financial industry like the electricity industry because that has been a "huge success"?  Or would he like to just have the president be commander and chief/CEO of all U.S. based investment bank.  The truth is The Fed and the Treasury are already way outside their regulatory authority and this is going to the courts.  The Prince will guarantee it.  Take a look at the executive summary.  Even if congress grants this regulatory authority to the Fed you could still challenge this as an unlawful delegation by the President and Congress of regulatory authority.  See this Supreme Court case that was decided in emergency times of the Great Depression not unlike our own when it comes to the Mortgage Crisis/State of Economy. Home Building & Loan Association vs. Blaisdell.

The Fed also announced the creation of a new tool, called the Term Securities Lending Facility (TSLF), geared to provide primary dealers with 28-day loans of Treasury securities, rather than overnight loans.  Primary dealers could pledge other securities — including federal agency residential-mortgage-backed securities, such as those of mortgage giants Fannie Mae and Freddie Mac — as collateral for the loans of Treasury securities.  By allowing financial institutions to put up mortgage-backed securities — where there’s little appetite for them — in return for ultra-safe Treasury securities that are in high demand, the Fed hopes that will take pressure off financial companies and make them more inclined to lend.  Fed officials said that’s the first time they’ll be accepting mortgage-backed securities through this type of lending program.  Sounds like someone might of been listening to PIMCO’s Scott Simon blowing smoke yesterday.

Today at a Morgan Stanley Technology Conference, Microsoft finance chief Chris Liddell brought up, completely voluntarily, the company’s bid for Yahoo. Here is the conversation between Liddell and Morgan Stanley technology analyst Mary Meeker, from an SEC filing:
MARY MEEKER: In our remaining minute, anything that you’d like to address that we’ve missed?
CHRIS LIDDELL: Well, no one asked me about Yahoo, which is interesting. But I’m sure everyone is vaguely interested in it. You know, their…"
MARY MEEKER: What was that? What was that?
CHRIS LIDDELL: Yeah. The small company that we’re looking to acquire. There is — there?s no fundamental news. I mean, the — you know, the company has not yet formally responded to our offer. So you’ve seen the same press reports we have in terms of their view of it. You know, we continue to look at our options, and that’s something that I’m incredibly systematic about. That’s something that we look at, those alternatives, every week on the basis of what’s happening in the external market: what the opportunities for us are both in our customer business and through acquisition. So, you know, we’ll continue to look at those alternatives as we go forward, but there’s no news, per se, on Yahoo.
We like Liddell’s understatement that people might be "vaguely" interested in Microsoft?s acquisition of a "small company." But, humor aside, Liddell’s comments don’t tell us about any talks. After all, Liddell only talks about a "formal" response. And what to make of his indication that he has heard about Yahoo’s opinion of the deal only in the media.