Blogosphere

Tech Spending Gets Worse

Wall Street Journal - Business Technology Blog - Sat, 11/22/2008 - 00:24

Between layoffs and canceled Christmas parties, it’s been a bad week for tech companies. But it’s about to get worse: The number of businesses who say they’ll spend less on tech next quarter has reached a historic low, according to one survey.

Things are really about to hit this

Every quarter since 2001, ChangeWave Research has asked about 2,000 businesses about their tech-spending plans. The survey released Friday, which was conducted in early November, found that 45% of businesses say they’ll decrease tech spending—or spend nothing at all—next quarter. That’s up from 29% who said they would decrease spending last quarter. It’s also a new record for the survey, topping the 37% who said they would decrease spending in September 2001. Just 10% of businesses said that they would increase tech spending next quarter, a record low for the survey.

The cuts come at a time when there is normally a seasonal increase in spending. In fact, this is the first time the November survey hasn’t registered an uptick. Last year, for example, the number of businesses saying they’d spend more shot up seven percentage points.

More bad news: Thirty-nine percent of businesses say they’ve spent less than they originally planned so far this quarter. And 48% say they don’t think tech spending will begin to pick up again until after the third quarter of 2009.

The reason for the sudden drop is that many tech departments were caught off guard by the credit crunch, says Peter Whatnell, chief information officer at Sunoco. “Basically you’ve had to throw away any plan you’ve put together prior to the end of August and start over again,” he says.

-Ben Worthen

Categories: Blogosphere

Winners & Losers From the Week That Was

Wall Street Journal - Deal Journal Blog - Fri, 11/21/2008 - 16:19

Timothy Geithner: President-elect Barack Obama finally made his pick for Treasury Secretary and itÂ’s the New York Fed president. What was the reaction? The Dow industrials soared 494.13 points.

Citigroup: The financial system is teetering once again, and Citi is the fulcrum on which it rests. The bank’s shares are trading below $4, having fallen more than 50% this week. That slide even broke – or nearly broke — Deal Journal’s Evan Newmark.

Detroit: They arrived by private jet hat-in-hand hoping Washington would ride to their rescue. They returned to Detroit empty handed, told to come up with a more detailed plan. Now, bankruptcy seems even more likely for one of the three.

Jerry Yang and Yahoo: The Internet company’s co-founder and CEO will step down once a successor is found, leaving much unresolved. Shares are now trading below $10 and Microsoft isn’t interested in returning to buy the whole firm. (For more read this Deal Journal post)

Categories: Blogosphere

The Multimedia Backlash to “Saved By Zero”

Wall Street Journal - Business Technology Blog - Fri, 11/21/2008 - 15:51

This will be neither the first nor the last blog entry about Toyota’s ubiquitous “Saved By Zero” commercials, created by Saatchi & Saatchi’s Torrance, Calif. office. The ad, which hawks the car company’s 0% financing offer, features The Fixx’s ’80s song, and if you watch TV for more than five minutes, you’re liable to see it. More than once.

A widely read Associated Press article said the ad’s national run would be complete last week, with dealers getting the option to continue running it in local markets.

Some critics call it the most annoying thing since Freecreditreport.com, but the backlash has also tapped into a wellspring of online creativity. And it’s not the first time, as Motrin and the Chevy Tahoe have already learned.

For example, this is a partial listing of the printably named Facebook groups devoted to “Saved By Zero”:

• Stop Playing Toyota’s “Saved by Zero” Commercial (8,000+ members)
• Stop the “Saved by Zero” commercial by Toyota
• Take Toyota’s “Saved By Zero” ad off the air for America’s sanity.
• People who react viscerally to that “Saved By Zero” ad
• Get Toyota’s ‘Saved By Zero’ commercial off the air before I harm myself.

A YouTube video of The Fixx performing the original tune is attracting “Saved By Zero” haters, even though it’s been online since April 3, 2007.

“I get a headache every time i listen to this,” a commenter wrote yesterday. “Get off my TV! i hear this at least 10 times a day!” wrote another.

And last week, a mash-up of “The Ring” and “Saved By Zero” appeared, with Naomi Watts shrieking at the omnipresent jingle. Titled “Saved By Zero Kills,” its creators call themselves “an art director, an after-effects guy, and two writers who LOATHE this commercial.”

- Andrew LaVallee

Categories: Blogosphere

Breaking News: Barrack Obama's Picks for Top Government Positions

UndervaluedSecurities.com - Fri, 11/21/2008 - 14:43

President-elect Barack Obama picked Timothy Geithner, current head of the Federal Reserve Bank of New York, to be his Treasury secretary, with Lawrence Summers getting an unspecified senior White House. Senator Hillary Clinton and former Energy Secretary Bill Richardson have also all accepted posts in President-elect Barack Obama's cabinet, according to various media reports.

read more

Categories: Blogosphere

Credit Suisse: Where Art Meets Commerce

Wall Street Journal - Deal Journal Blog - Fri, 11/21/2008 - 14:04

Money isn’t easy to come by in this credit crisis. But photographer Timothy Greenfield-Sanders found enough from Credit Suisse Group that, in a merger of art and commerce, he calls the Swiss bank “the guardian angel, in a sense” of his new photo project, The Black List.

“It is remarkable at this moment to have anyone fund the arts,” Greenfield-Sanders told Deal Journal.

The Black List, put together by Greenfield-Sanders and critic Elvis Mitchell to reclaim the strength and racial meaning of the word “black,” is a multimedia extravaganza–photo exhibit, book and a documentary on HBO–to chronicle the upward trajectory of blacks in America. It is peppered with gigantic photographs, as well as interviews with such prominent black Americans as Citigroup’s Richard Parsons and Lazard’s Vernon Jordan, Colin Powell, tennis player Serena Williams, Nobel Laureate author Toni Morrison and even former Guns N’ Roses guitarist Slash. (When Deal Journal asked Greenfield-Sanders what reaction he received most at Thursday’s opening, he said, “Everyone is saying, ‘I didn’t know Slash was black!’”)

It doesn’t hurt that the show will give Credit Suisse a marketing boost as the exhibition travels across the country, as well as the chance to invite clients for some high-culture face time. (Credit Suisse bankers often do that with the New York Philharmonic, said Paul Calello, chief executive of investment banking and one of the attendees who didn’t have to cross a bridge to get home from the Brooklyn Museum, since he lives not far away, in Brooklyn Heights.)

Although Barack Obama wasn’t among the 400 people attending Thursday night’s opening, the president-elect dominated the room. The incredible trajectory of Obama’s career, like the photographs in the gallery, showed “the immense force of will and determination it takes to succeed as an African-American,” Mitchell said. Deal Journal chatted with Calello in front of a giant picture of a stern-looking Parsons, who heads Time Warner and leads Citigroup. Calello noted that he had met Obama at an event where the then-presidential candidate was on a panel with Parsons at the Time Warner Center.

Still, Obama wasn’t part of the exhibit, which was conceived–and funded–long before his historic win this month. When we chatted with Greenfield-Sanders about how came up with the idea for the photo essay, he explained that even though he had no idea Obama would run for president, he saw an African-American moment coming. “I read the zeitgeist. I saw it there.”

His idea evolved from a coffee-table book to a video-photography-print extravaganza. Greenfield-Sanders, while an artist that approached The Black List as “epic,” is hardly ignorant of the demands of the market. He specifically designed The Black List as a multimedia effort because “it’s hard to get attention now,” and much of the popular media would show preferential treatment to “Britney and Paris and TMZ.”

To Anthony Richardson, a guest at the event and a former bond trader with Cantor Fitzgerald, the pictures were moving. “There is no black story, so to speak–there are as many stories as there are experiences,” he said.

Greenfield-Sanders would seem to agree. He said he already is planning The Black List’s Volume Two.

Categories: Blogosphere

Google: No Longer the Same Search Results

Wall Street Journal - Business Technology Blog - Fri, 11/21/2008 - 13:15

Google’s release of a new set of search personalization features means that the days of all users seeing the same search results are basically over, say some search industry professionals.

Google users can now move up results they like — making marketers uneasy

The search giant’s new so-called SearchWiki tools, rolled out Thursday, allows users logged into their Google accounts to promote, eliminate and comment on search results based on how useful they find them. The changes will be saved every time a particular user does that search while logged into their Google account. The actions won’t change the search results that other Google users see, though users can click to see a view of the search results that reflect changes made by all users at once.

While Google has already been personalizing searches for some users based on data like their search history, the new tools put unprecedented personalization power in the hands of users. Because users have to be logged in to use the SearchWiki tools, the product could draw more Google users to log in to search, triggering their searches to be further personalized by their own search histories as well.

That trend may please users who want more relevant results; but experts say it will cause companies that have poured significant time and money into appearing in a certain slot for a certain search to adjust.

“How long can you sell to your client that all users are going to see the same thing?” says Tracy Sabattis, director of search engine optimization strategy, for online publisher Bright Hub. “What are the “normal” Google results?”

In response, Sabattis predicts that search engine experts will begin advising companies to focus less on behind-the-scenes tricks to get better placement and more on providing consumers with the most relevant Web site. If they don’t, they’ll risk triggering a bad comment from a user or prompting someone to erase their entry all together.

Of course, that greater focus on the Web site experience is probably exactly what Google – keen to keep its searchers happy — wants.

“SEO practices that focus on enhancing the overall web experience for their users will yield the best results,” said Google product manager Mur Viswanathan.

-Jessica E. Vascellaro

Image: Vaikunda Raja via Wikipedia

Categories: Blogosphere

30 Minutes Version of I.O.U.S.A. Movie

UndervaluedSecurities.com - Fri, 11/21/2008 - 12:39

I.O.U.S.A. boldly examines the rapidly growing national debt and its consequences for the United States and its citizens. Burdened with an ever-expanding government and military, increased international competition, overextended entitlement programs, and debts to foreign countries that are becoming impossible to honor, America must mend its spendthrift ways or face an economic disaster of epic proportions. Here is 30 minutes version of the movie:

This movie is an eye-opener. The US as a country is theoretically broke and will need to undergo long-term fiscal diet.

read more

Categories: Blogosphere

Phone Phans Storm Verizon Stores

Wall Street Journal - Business Technology Blog - Fri, 11/21/2008 - 12:28

Those Verizon Wireless teaser ads seemed to have done the trick.

The carrier’s new Storm cellphone arrived in stores today, and as MarketWatch’s Dan Gallagher reports, several outlets have already sold out, with others seeing customers lined up for Research In Motion’s first touch-screen BlackBerry.

Hopeful buyers are Twittering about the device — where to find one, whether it’s worth the hassle and of course, complaints from those who got their hands on one — as Alley Insider notes.

Reuters says that more than 200 waited outside a midtown Manhattan Verizon store, only to find it sold out in less than an hour. Police had to restore order after a “ruckus” ensued.

Vodafone, which jointly owns Verizon Wireless with Verizon Communications, hinted this might happen, according to Reuters. Its CEO, Vittorio Colao, said yesterday that “We might end up having a problem with giving enough Storms to as many customers who want it … We might be short of them, to be honest.”

Wachovia analyst Jennifer Fritzsche came to a similar conclusion after checking in with 60 Verizon Wireless retail stores. In a research note, she said that about a quarter were maintaining Storm wait lists and that some heard they wouldn’t get as many handsets as originally promised by Verizon.

“We believe the Storm will do very well for VZ Wireless,” she wrote. “While the Storm likely will not have the ‘cult’-type following of the iPhone, with the Storm (finally) in the market it allows the high-end VZ Wireless customer a more sophisticated data centric device which should help it to compete more effectively with AT&T.”

Verizon Wireless is taking photos and video of some of the lines outside its stores, including the one shown, conveniently located in Overland Park, Kan., where rival carrier Sprint is based.

It gets better. In Toledo, Ohio, one customer waited outside a store since 5:30 a.m. Thursday so he could be first in line. And no, that’s not the same Toledo man who tattooed a BlackBerry Storm on his leg, winning a contest sponsored by CrackBerry.com.

“Don’t know what that says about Toledo,” a Verizon Wireless spokeswoman said.

Readers, did any of you brave the crowds today? Did the commercials persuade you to wait for a Storm, or did you break down and buy an iPhone, G1 or other cellphone already?

- Andrew LaVallee

Categories: Blogosphere

Afternoon Reading: Web Musings on Who Could Buy Citigroup

Wall Street Journal - Deal Journal Blog - Fri, 11/21/2008 - 11:59

So what does the future hold for Citigroup?

This week alone its shares are down more than 50% and have been trading around $4 a share recently.

Ladenburg Thalmann analyst Richard Bove thinks the selling is unjustified, given, the bank’s cash flow and its capital position. And James Surowiecki over at The Balance Sheet writes that Bove’s take might make sense.

“The company currently generates, even in these bad times, somewhere between three to four dollars a share in free cash flow. Those arenÂ’t imaginary, mark-to-market dollars. TheyÂ’re real hard dollars, the kind that come in the door as a result, among other things, of the difference between the interest Citi collects on loans and what it pays on deposits. In other words, at the moment, you could buy all of Citigroup for only a little more than what it clears in free cash every year.”

Henry Blodget over at ClusterStock thinks the fall in Citi’s shares is rational. After all, Citi shareholders will be the first to be hit.

ClusterStock’s John Carney and Portfolio.com’s Felix Salmon are both thinking about possible merger partners for Citigroup and both are thinking Goldman. It might seem far-fetched, but then again in this market nothing is unthinkable and market caps of two companies are pretty close right now.

Meanwhile, Bloomberg reports that Citigroup CEO Vikram Pandit told employees he doesn’t plan to break up the company.

GM and the Economy

Yves Smith at Naked Capitalism has an interesting argument as to why General Motors can not go bankrupt.

“Like it or not, for GM to go under risks a disaster of colossal proportions. Although Lehman, the biggest bankruptcy in US history, appeared to have an orderly settlement of its credit defaults swaps, the disruption occurred before-hand, as protection writers had to post additional collateral PRIOR to settlement. That in turn was a major factor in the horrific downdrafts in October. GM is bigger, ergo bigger collateral damage, and this would take place when the financial system is even weaker than when Lehman hit the wall.”

Tidbits

• Need a laugh this afternoon? Paul Kedrosky has some headlines on TARP and Somali pirates. For example: “Somali Pirates Apply to Become Bank to Access TARP”

• From Salmon: This is a bear market, not a financial meltdown.

• Salmon also on understanding why Berkshire’s CDS are trading so very wide right now.

• Chrysler has put Cerberus and co-founder Stephen Feinberg in the one place they donÂ’t want to be—the spotlight, writes Reuters via peHUB.

Categories: Blogosphere

Citigroup: You Can’t Step Into the Same Crisis Twice, Right?

Wall Street Journal - Deal Journal Blog - Fri, 11/21/2008 - 10:21

Citigroup is under attack. The stock is being battered, and the company is blaming the shorts. As market commentators worry about how long the banking giant can hold out, Chief Executive Vikram Pandit insists that Citigroup will not change and won’t sell itself.

Associated Press

For anyone who has watched the markets with horror this year–and that’s pretty much everyone–the parallels to Lehman Brothers Brothers and Bear Stearns seem obvious. Barclays Capital banking analyst Jason Goldberg points out that other firms whose stock prices fell so steeply fell into a downward spiral that included “deposit outflows, funding difficulties, reduced business activity, counterparty concerns, wider [credit-default swap spreads], agency downgrades, and additional collateral requirements.”

The parallels may be obvious, but are they accurate?

After all, Citigroup can benefit from government bailout programs that weren’t available to Bear Stearns, Lehman Brothers Holdings and Merrill Lynch. It also is a commercial bank, which adds an additional range of bailouts from the Federal Deposit Insurance Corp. and the Federal Reserve.

Deal Journal took a look at the ways in which Citigroup is similar to Lehman, Bear and Merrill, and the ways in which its playbook may differ from the limited options available to those banks.

Citigroup feels no urgency to do a deal and insists it will keep traveling down the same path: This is a biggest way in which Citigroup’s strategy parallels that of Lehman and Bear in their final days. Bear insisted all the way to the hospital that its business was healthy and kept protesting until regulators pushed the firm into the morgue. Lehman talked to several suitors but negotiated hard on price because it didn’t see a merger or capital infusion as an immediate requirement for survival–a point of view that irritated Treasury officials.

Citigroup can use Treasury’s Capital Purchase Program: The CPP is the Treasury program that allows the agency to buy direct equity stakes in banks, and it has already promised as much as $25 billion to Citigroup. While that would be dilutive to common shareholders, it does provide a cushion for the bank that wasn’t available to Lehman, Bear or Merrill.

TARP funds are used at the discretion of Treasury: It used to be that Hank Paulson would have to beg Congress to get a little money. But TARP still has hundreds of billions of dollars available, and if Paulson needed emergency funds, he could devote as much as he wanted to Citigroup–if he wants to. TARP also didn’t exist for Lehman, Bear or Merrill, and it wasn’t available to commercial banks like National City and Wachovia that were forced to sell.

Citigroup is a commercial bank, which gives it the best of both worlds: Lehman and Bear fell at a time when securities firms needed special dispensations to get government funds that were always available to commercial banks. Here is how Ladenburg Thalmann analyst Richard X. Bove Friday summed up Citigroup’s safety nets as a commercial bank:

The following programs backstop Citigroup’s liabilities: a) its deposits are FDIC insured; b) the company is working out a program to insure some of its debt with the FDIC; c) the Federal Reserve discount window is always open to the company; d) it can sell commercial paper to the Fed; e) it can use the primary dealer debt facility; f) its deposits, which equal $780 billion, are primarily sourced overseas (64%) giving the bank greater diversity in capturing funds; g) it has access to bank protection programs in multiple countries around the world; h) it has $393 billion in long-term debt; i) it has net free cash flows; j) it has paid down $94 billion in long-term debt this year and $42 billion in short-term debt; and k) it is reducing the size of its balance sheet faster than any other company in the banking industry (estimated $300 billion).

Regulators are chastened by the fall of Lehman: Treasury believed that “moral hazard” demanded punishment for banks took too much risk. But the agency’s decision to let Lehman fail has become a lightning rod for criticism, and in some quarters has been blamed for the subsequent two months of disastrous markets. Lehman was an object lesson in the cost incurred when government does nothing. It is unlikely the government wants to let that happen again.

Of course, with Citigroup’s $2.2 trillion balance sheet and global footprint, even all of that may not be enough. In his report Friday, Barclays’ Goldberg said, “we believe the market maybe implying some sort of regulatory intervention at C.”

That would make Citigroup exhibit No. 1 in how brutal market reversals have become: In a mere eight weeks, the company that once fancied acquiring Wachovia and was approached to discuss buying Goldman Sachs Group now may be the one that requires help.

Categories: Blogosphere

A Lobbying for Cash Q&A: The Case for Preferred Shares

Wall Street Journal - Deal Journal Blog - Fri, 11/21/2008 - 08:45

Raising capital is on almost every companyÂ’s mind these days. Banks, insurance companies, and auto makers are all trying to bolster their balance sheets. So are so-called business development companies, or BDCs, which are publicly traded buyout and mezzanine shops like American Capital Ltd. and Allied Capital Corp.

Many BDCs are facing liquidity issues that threaten their financial stability as the value of their assets has declined. They are in something of a bind as current law limits their ability to raise capital by issuing preferred stock because such securities are treated as debt, as this LBO Wire article explains.

Some larger BDCs have banded together to lobby the Securities and Exchange Commission into easing such restrictions. We caught up with Steven Boehm, a senior partner of law firm Sutherland that is spearheading the BDCsÂ’ effort, to talk about the move.

Deal Journal: Why for BDCs is preferred stock not treated as equity but as debt?
Steven Boehm: The Investment Company Act of 1940 was structured to provide protection for common shareholders. One of the ways this is reflected is to limit companiesÂ’ ability to issue securities that are senior to common stock. Both debt and preferred stock are senior for the purposes of balance sheet and who gets paid first in the event of companiesÂ’ getting dissolved or liquidated.

DJ: Why is this an issue for BDCs?
Boehm: It is an issue because in the current environment, BDCs like most other financial institutions are having trouble getting liquidity. It is almost impossible to raise capital through issuance of common stock, which was typically the way BDCs got liquidity, because common stock investors are out of the market right now. BDCs believe that there may be a substantial opportunity to issue preferred stock either in privately negotiated transactions or otherwise because preferred stock can be customized to some extent to the needs of potential investors. The 1940 act limits the ability of BDCs to issue senior securities, including preferred stock, by imposing a requirement that they maintain a ratio of assets to senior securities of 200%, or 2 to 1. Therefore, if a BDC, for example, has $10 in assets, it cannot have a total of borrowing or outstanding preferred stock of more than $5. If a BDC is already close to its asset coverage limit, it would be limited in its ability to issue preferred stock.

DJ: If any relief were to be granted, shouldnÂ’t that apply to bank-holding companies as well, many of which are raising capital by issuing preferred stock to the government under the Troubled Assets Relief Program?
Boehm: The SEC does not regulate the capital structure of banks. Rather, SECÂ’s regulatory impact on banks is limited to the disclosure requirement to the extent that a bank is part of an organization thatÂ’s a public company. The issue under the 1940 act is unique to investment companies regulated by that act, of which BDCs are part. Any relief that might be granted by the SEC in this area would not apply to bank-holding companies.

Categories: Blogosphere

Mean Street: Giving Up on the Market?

Wall Street Journal - Deal Journal Blog - Fri, 11/21/2008 - 07:50

I stand before you a broken man. Well, not totally broken, but broken enough.

Thursday, I swallowed my pride and sold two-thirds of my position in XLF, the financial-sector exchange-traded fund, or ETF, I discussed buying in a column on Oct. 6.

I sold at about $9.50 and took a loss of about $9 a share–not a pretty outcome. Then again, little in today’s stock market is pretty.

Was I right to sell as the stock market plumbed new 11 year lows? Who knows?

I hate selling, but I had vowed to sell part of my XLF holding if the price dropped below $10–and so I did.

It is painful. And selling went totally against my rule to not sell on a down day. But there havenÂ’t been too many up days lately.

I would be lying if I didn’t admit that two other things put me in the selling mood.

The first is the Citigroup share price death spiral. The premise behind buying the XLF was that the severe shakeout of 2008 would produce “winners” who would reap the profits of a strong national banking oligopoly. Buy the XLF and you buy a basket of 80 financial stocks–and spread the risk of picking the winners. That’s the theory.

In reality, Citigroup’s plunge over the past month has been largely mirrored by Bank of America and Goldman Sachs Group. J.P. Morgan Chase is down 30% in the past four days.

The verdict of the market? All the banks are losers. Massive write-offs and heavily dilutive equity investments are just a matter of time.

Of course, the market could be wrong. But it hasnÂ’t been so far. And in a way, it can’t be.

The shorts and panicked sellers drive the share prices of the banks down so low, so quickly that it forces the banks to raise more money whether or not they want to. It is a bearÂ’s dream–and this bull’s nightmare.

The second thing that gave me pause for thought was Thursday’s Harry Reid-Nancy Pelosi impromptu press conference on their decision to push off a Detroit bailout debate until early December.

It wasnÂ’t the substance of the press conference that bothered me. At this weekÂ’s hearings, the Big Three Detroit auto makers made a lousy case for a handout–and there is nothing wrong with demanding accountability for the taxpayer’s money.

But watching Democratic leaders Reid, Pelosi, Steny Hoyer, Chris Dodd and Barney Frank pontificating en masse on “helping workers” and “ensuring the viability” of the U.S. auto industry scared the daylights out of me.

How can it be good if our nation’s Congressmen are the ones evaluating the Big Three’s business plans?

Government hearings. Interventionist industrial policy. Financial trauma. It was the 1970s all over again. Not a great decade for me, personally. Or the nation. Or the stock market.

Of course, when the stock market is having just a terrible run–make that, an unbelievably terrible run–it is hard to keep faith in anything.

But keep it, I will. I have hung on to a third of the XLF shares. And I remain a long-term investor. In fact, I still have the vast majority of my net worth tied up in the stock market.

I believe America will come out of these dark times stronger than ever. And I am convinced the stock market is great value at these levels.

But Lord knows, I’ve said that before.

Categories: Blogosphere

Deals of the Day: Citi Can’t Sleep

Wall Street Journal - Deal Journal Blog - Fri, 11/21/2008 - 07:02

By Heidi N. Moore and Stephen Grocer

Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. You can also bookmark Deal Journal for easy visiting throughout the day at http://blogs.wsj.com/deals.

Financial Institutions

Citigroup: Citigroup began weighing the possibility of auctioning off pieces of the company or even selling itself outright. Shares fell a further 26%. [WSJ]
Related: What happens next for Citigroup will have ramifications for the global financial system. [WSJ]
Related: Saudi investor Prince Alwaleed bin Talal’s decision to increase his Citigroup stake to 5% failed to lift Citi. [WSJ]
Related: Citigroup is lobbying lawmakers and the SEC to reinstate the agency’s expired ban on short selling of financial stocks. [WSJ]
Related:“In the financial services menagerie, banks are the ultimate protected species. They cannot be allowed to expire. It’s unthinkable.” [Times of London]

The gold standard? It’s a lost decade for Goldman Sachs. [WSJ]

Today in Bailouts

Heading home empty handed: Congressional efforts to rescue auto makers collapsed, with lawmakers saying the industry lacked plans to return to profitability. [WSJ]

Related: It’s becoming clearer that the companies and the union will need to make sacrifices in order to win federal aid. [WSJ]

RBS: Royal Bank of Scotland shareholders voted to accept the Government’s bailout as the chairman apologized profoundly. [Times of London]

Related: McKillop may be apologetic over RBS woes, but he remains in denial. [Daily Telegraph]

Germany: Berlin said that it would refuse to implement an EU Commission proposal for member states to reduce income tax and VAT. [Times of London]

Capital Journal: As the economic signs grow ever more grim, the opportunities for the Obama administration to drive through its agenda actually are getting better. [WSJ]

Mergers & Acquisitions

General Electric: GE is in early talks with the Government of Singapore Investment Corp. for possible joint investments. [WSJ]

Woolworths: The company’s biggest shareholder has been in meetings over how best to fight Hilco’s £1 offer for the company’s retail arm. [Times of London]

Categories: Blogosphere

Goodmail raises $20 Million

Wall Street Journal - Business Technology Blog - Thu, 11/20/2008 - 22:23

Secure e-mail provider Goodmail Systems Inc. just raised $20 million in new venture funding.

The Series C funding was led by Bessemer Venture Partners, with participation from existing investors DCM, Emergence Capital Partners and Softbank Capital.

Goodmail is emerging in a crowded field of companies all looking to take the security risks - like “phishing” scams, malware and viruses - out of email communication. Mountain View, Calif.-based Goodmail authenticates and certifies sensitive emails from businesses, with the aim of making consumers comfortable that billing statements and other email they receive are real.

“We have custody of the email from the time it’s sent to the time it is put in your inbox,” said Peter Horan, chief executive of the company.

Once a company registers with Goodmail it goes through an accreditation process that verifies the identity of the sender and confirms that the would-be Goodmail sender meets certain standards for mail-sending behavior. Then the sender’s mail is routed through Goodmail’s service and given a cryptographically generated token. That token then is scanned by the mailbox provider’s system and sent on to an inbox with a blue-ribbon icon that indicates the mail has been certified. Finally Goodmail measures the message volume of senders on the service and monitors consumer feedback, so that system abusers can be blocked from using Goodmail’s service.

Goodmail, which handles about 3 billion messages per month, charges clients an average of $2.50 per one thousand emails sent. Goodmail has about 600 customers, including large brands such as Wal-Mart Stores Inc., Target Corp., Expedia Inc., and government agencies such as the Federal Bureau of Investigation.

In order for a consumer to see the certification icon, the consumer must have an email provider that uses Goodmail’s service. Goodmail has partnerships with most of the major Internet service providers or email providers, including AOL LLC, AT&T Inc., Comcast Corp. and Yahoo Inc. Goodmail provides a revenue share to these e-mail providers for using the service.

The high costs of printing and sending physical mail are driving Goodmail’s business, according to David Cowan, managing partner at Bessemer. For some banks to print and mail out monthly paper statements costs up to $1.50 per piece of mail, according to David Cowan, managing partner at Bessemer. Goodmail allows these companies to securely send out statements electronically, which can cost just pennies per statement.

“In an adverse economic climate it’s all the more important to find cost-effective ways to communicate with customers… I expect that as a result of the shift from paper to email communication, this will only accelerate,” Cowan said.

Goodmail has convinced email providers by offering more security for their customers and by offering a new revenue stream. Goodmail is focusing on consumer email providers and has not been integrated with business email providers such as Microsoft Corp.’s Outlook.

Goodmail expects to be profitable by mid-2009, Horan said, declining to discuss the company’s valuation.

The company, which previously raised $20 million over two rounds from DCM, Emergence Capital Partners and Softbank Capital, will use the funding to increase sales and marketing and, later, to increase its international presence.

Competitors include Return Path Inc., which has raised at least $13 million from Flatiron Partners, Mobius Venture Capital, Sutter Hill Ventures and Union Square Ventures.

In the current economic environment, Bessemer is being more cautious, but still looking for companies with strong technology, Cowan said. “We invest in companies that have very high intellectual property content and innovative companies where you’re competing based on defensible technology that doesn’t take an enormous amount of money to build the business,” Cowan said.

Cowan also recently invested in OpenCandy Inc., which monetizes the distribution of software downloads, and he recently incubated SonicMule Inc., a just-launched mobile company that allows people to virtually play the flute on Apple Inc.’s iPhone.

-Tomio Geron

Categories: Blogosphere

How Morris Chang Changed the World of Chips

Wall Street Journal - Business Technology Blog - Thu, 11/20/2008 - 19:38

It’s easy to be cynical when business people get together and give each other awards. But every once in a while such events provide a history lesson.

Morris Chang

So it was this week when the Semiconductor Industry Association bestowed its highest honor on Morris Chang, who founded Taiwan Semiconductor Manufacturing Co. in 1987. Mr. Chang, 74, is the 22nd recipient of the Robert N. Noyce Award–named after Intel’s co-founder–and the first from a non-U.S. company.

TSMC, of course, popularized the idea of manufacturing chips that are designed by others. Such companies, called foundries, became essential partners to design specialists that save money by outsourcing production.

What people tend to overlook is how the Chinese-born engineer, who spent 25 years at Texas Instruments, helped propel a big American comeback. In the 1980s, Japanese chip makers used manufacturing muscle to hammer companies like Intel and TI. The U.S. manufacturers gradually rebounded, but newcomers such as Qualcomm, Broadcom and Nvidia–which might not exist without foundries–were an equally important factor.

Chang, at an annual dinner held by the SIA Wednesday night, recalled hearing Japanese semiconductor executives bewail how they gave back market share–partly because Americans exploited foundries and they didn’t. “I believe we have helped to make the industry more competitive,” Chang said.

The symbolism was hard to miss when the award was handed to Chang by Hector Ruiz, a longtime friend and the chairman of Advanced Micro Devices. AMD just became the latest U.S. company to make plans to divest its factories–to a new foundry venture that will compete with TSMC.

“I never look at any competition lightly,” Chang said, but predicts problems for the new foundry because suppliers and customers will be far from its main locations. “If I were to build new factories, I certainly wouldn’t build them in Germany or New York state.”

-Don Clark

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Mixed News Send Dell, Salesforce Up

Wall Street Journal - Business Technology Blog - Thu, 11/20/2008 - 18:58

Not-so-bad news is good news in a downturn.

Mixed news is good news this week

Exhibit A is Dell. The computer maker’s revenue and net income were down compared to the year ago quarter and revenue was about $1 billion short of analysts’ expectations. But earnings-per-share beat expectations and so that counts as good news.

Dell’s CFO Brian Gladden said on a call with analysts that the company is seeing “slowing in almost all of the businesses we are in.” Still, the company was able to cut its costs enough to satisfy investors. Dell’s stock was up about 5% after hours.

Exhibit B is Salesforce.com. The company’s revenue and earnings-per-share beat analysts’ expectations, as did deferred revenue—an important metric for companies like Salesforce.com that collect revenue before they recognize it on their balance sheets. Salesforce.com’s forecast for the current quarter came in slightly below expectations, however.

Mark Murphy, an analyst at Piper Jaffray, called the results a mixed bag. “There’s something for the bears and something for the bulls,” he said.

Salesforce.coms CEO Marc Benioff, who compared his company’s rivals to car salesmen during a call with analysts, struck a more reserved tone in a subsequent interview. “Most of our business remains very much the same as it has been,” he said. Salesforce.com’s stock, which had fallen more than 60% since the company’s last earnings announcement, also gained 5% after hours.

Not all tech companies were able to send mixed messages Thursday. Autodesk, which makes industrial-design software, said its sales have slowed considerably as a result of the downturn. The company forecast revenue and earnings-per-share for the current quarter significantly below expectations, sending shares down more than 15% in after-hours trading.

-Ben Worthen

Image: Donovan Govan via Wikipedia

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Bailout Arbitrage: The Sale of National City

Wall Street Journal - Deal Journal Blog - Thu, 11/20/2008 - 14:58

Potential acquirers expect targets to shop for a better offer. But lately, some potential acquirers found themselves competing against the U.S. government.

National City’s sale to PNC Financial provides an illuminating example.

NatCity failed to find a buyer this spring, but took an investment from Corsair Capital and survived through the summer.

But after the fall of Lehman Brothers Holdings and nationalization of American International Group, NatCity was in dire straits. In the last two days of September, the bank was practically a penny stock, trading at $1.36 a share, and its trading counterparties were demanding that the bank post collateral. Meantime, ratings providers were downgrading the bank, customers were moving deposits out the doors, and Regulators from the Office of the Comptroller of the Currency and the Federal Reserve were calling hourly.

NatCity’s first preference was to sell some of its troubled assets to the government through the Troubled Asset Relief Program, or, as PNC phrased it in an SEC filing Thursday, NatCity “contemplated the direct purchase by the Federal government of National CityÂ’s liquidating loan portfolio at a significant loss.” On Oct. 3, “The board of directors determined that management should pursue both the TARP alternative and, in light of the uncertainty of the TARP, strategic alternatives,” PNC said in its filing.

While its TARP request was pending, NatCity reached out to buyers including PNC and several other institutions, nearly all of which had vetted NatCity’s financial statements earlier in the year. On Oct. 5, PNC declined to do a deal with NatCity. Another, unnamed potential bidder bowed out the following week. “The board of directors instructed management to continue to pursue discussions with the Federal government about National CityÂ’s potential participation in the TARP and to explore the possibility of private asset sales,” PNC wrote in the filing.

Another government bailout proposal came on Oct. 14, when Treasury offered to take direct equity stakes in several banks. That offered NatCity yet another alternative to a buyer, and the bank quickly contacted its regulators. But they crushed NatCity’s hopes, telling the bank it probably would be ineligible to sell its troubled loans to the government or receive a direct equity injection from the government.

Only then did NatCity intensely pursue a sale. On Oct. 19, the bank’s management “concluded that, taking into account the views of the Federal Reserve and OCC on National CityÂ’s financial condition and other factors [and that there would be no bailout funds] that it must find a merger partner quickly in order to avoid further regulatory action against National City Bank.”

And so, “management contacted three of the potential partners it had contacted previously, including PNC, to reassess the possibility of a transaction in light of the [refusal of a direct equity stake] and also contacted a fourth institution to gauge initial interest in a transaction.”

Meantime, PNC was doing some bailout arbitrage of its own: On Oct. 23, it asked bank regulators whether it could receive a capital injection from the government even after it bought NatCity. When regulators responded in the affirmative, PNC went ahead with its offer.

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Citigroup: If You Can’t Save the Stock, Blame the Shorts

Wall Street Journal - Deal Journal Blog - Thu, 11/20/2008 - 14:09

Citigroup once earned a lot of money by helping hedge funds sell shares short. Now the banking giant wants the government to impose some limits on the practice.

Citigroup has started lobbying Washington politicians to reinstate the “uptick rule”–preferably before this week’s 46% slide in its shares gets any worse. In a short sale, an investor borrows shares to sell them, hoping to repay with shares bought at a lower price and keeping the difference. The uptick rule prevents investors from selling shares short while the shares are falling. It requires investors to wait for the uptick, or until a companyÂ’s stock rises, before selling short.

Citigroup commented: “Citi has a very strong capital and liquidity position and a unique global franchise. We are focused on executing our strategy, including our targeted expense and legacy asset reductions, and we believe the benefits will be seen over time.”

Citigroup wouldn’t be the first to blame short-sellers for the decline in its stock. Bear Stearns did it when it was alive, so did Lehman Brothers Holding. It is practically page one of the PR playbook for financial companies with falling stock prices.

But previous attempts at putting limits on short-selling aren’t encouraging. The Securities and Exchange Commission’s short-selling ban for some financial stocks this year “may have reduced liquidity and increased spreads in the restricted names,” according to Credit Suisse research on Sept. 30. Today, Credit Suisse analysts wrote this about the short-selling ban:

Average bid-ask spreads in the 950 restricted names are substantially wider now than they were prior to the restriction, even despite the prior turmoil.
Typically, with more participants vying for a trade, they will keep bettering the
quote in order to get their fill. By pulling bids up and asks down, the spread
compresses. However, as weÂ’ve seen that volumes are lower, there are
fewer bids and offers in the market which means less quote competition.
It seems that the temporary restriction on short selling has made it more
costly, on average, to trade these names.

The uptick rule is far more benign–and has more support on Wall Street–than did the summer’s all-out ban on short-selling. Still, Citigroup has recorded losses of nearly $14 billion this year and said this week it would be chopping 53,000 jobs. Does the banking giant really want to leave investors thinking that the bank considers its stock problem a regulatory one and not an operational one? History shows, as in the cases of Lehman and Bear, that when firms blame the shorts they can lose their credibility in the markets.

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Tech Giants Eyeing Start-Ups Despite Downturn

Wall Street Journal - Business Technology Blog - Thu, 11/20/2008 - 10:47

Though the stagnating economy is causing businesses of all kinds to rein in their spending, top-name tech companies are still looking to fund, partner with or acquire compelling start-ups — especially if those smaller companies add to their bottom line.

That’s according to a panel discussion with executives from Google, Adobe and others at the VentureWire Technology Showcase 2008 in Silicon Valley on Wednesday. And it’s good news for Silicon Valley venture capitalists, who can’t take their companies public right now because of the frozen IPO market and so have to turn to company sales to make a return.

“We’re investing to facilitate transactions. We’re doing deals to make money,” David Lawee, vice president of business development at Google, said at the event. Lawee also confirmed that Google will launch its own venture fund to back promising start-up companies.

Executives from Cisco, Sony BMG and others were similarly optimistic, saying that an economic downturn can be a good time to make bold moves. The companies are all looking to fund or partner with start-ups working on video, virtualization or collaboration programs — all deemed to be red-hot areas.

“If you step back and look at it, it’s a favorable time,” said Didier Moretti, vice president of emerging technologies and business incubation at Cisco, which has made 125 acquisitions of smaller companies over the years.

But valuations of start-up companies are bloated, panelists said, and don’t reflect the realities of the world economy. This has slowed the acquisition of smaller companies, and led the tech giants to seek out more strategic investments and partnerships with them instead, panelists said. Bargain hunting time now, anyone?

-Timothy Hay

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Neel Kashkari, Sexiest Money Man Alive?

Wall Street Journal - Deal Journal Blog - Thu, 11/20/2008 - 09:50

There are publications in which it is natural to find a picture of the assistant secretary of the Treasury: This newspaper. The Economist. BusinessWeek.

But People’s Sexiest Men Alive issue?

Getty Images

Strange. And yet, beyond the shirtless pictures of Hugh Jackman and an adoring photo montage of ’80s boy band New Kids on the Block, there is Neel Kashkari, Treasury’s $700 billion man. Washington is, as a rule, low on glamor, and for People’s audience on Main Street, Kashkari’s picture may provide a welcome, frivolous respite from the dismal credit crisis.

Kashkari is featured in a photo spread titled “Sexy A-Z,” under–of course–”B is for Bailout Guru.” He keeps eclectic company in the feature, sharing pages with celebrity chef Gordon Ramsay and Alaska’s First Dude, Todd Palin, as well as tennis player Rafael Nadal. Kashkari is shown fully clothed–a rarity for this skin-revealing issue–in a stern closeup giving the eagle-eyed glare so familiar to Congress.

In one way, it is disheartening to see an emblem of capitalism objectified for his looks; you would expect it for celebrities who court attention, not policymakers who largely keep their sleeves rolled up and heads down.

There have been precedents. In 2000, People singled out John Stark, the “Eliot Ness” of the Securities and Exchange Commission, as one of the year’s most eligible bachelors.

On the bright side, it does indicate an opportunity. Kashkari, the overseer of the U.S. government’s TARP funds, will be out of a job soon as Treasury Secretary Paulson steps down and mostly likely takes his 35-year-old protege with him. It’s hard to tell what the young Kashkari’s next career step is. But he should be encouraged to know that “pinup” is still an open career choice.

Categories: Blogosphere