Tag Archives: Company coverage
by Liz Hester
Activist investor Carl Icahn wants Apple Inc. to spend $150 billion on its own stock, returning some of its cash to holders. In a letter on his website to CEO Timothy Cook, Icahn even set the price he wants to see.
Here’s the story from the New York Times:
The investor sought to increase the pressure on Apple on Thursday, posting a letter he had sent to Timothy D. Cook, its chief executive, on his own Web site. The letter, which Mr. Cook received on Wednesday, urged Apple to immediately begin an offer to buy back $150 billion of its shares at $525 a share.
The company has not yet responded to Mr. Icahn’s public calls, which began in August when Mr. Icahn first disclosed he had a stake in the company. He has taken to Twitter and CNBC to agitate for Apple to do something with its large cash reserves.
With a net cash position of $130 billion, analysts say Apple could afford to return more money to shareholders. But the company has already undertaken a $100 billion share buyback and dividend program and may not feel it needs to do anything more for now.
Forbes reported that Icahn said the move would boost Apple’s earnings per share immediately:
According to Icahn, the move would immediately increase earnings per share by 33% (by reducing the share count) and send the stock price to $1,250 within three years. He also said he would pledge n0t to tender any of his shares in the buyback.
The billionaire also took a shot at the board’s lack of investment chops.
“In my opinion, any further delay in executing the buyback we hereby propose will reflect this lack of expertise on the board,” he writes. “My firm’s success and my expertise as an investor would be difficult for anyone to argue.”
Even with his increased stake, Icahn controls just half of one percent of Apple’s outstanding shares. But thanks to the septuagenarian’s current winning streak — including cashing in a bit more than half his Netflix stake for a 457% return this month — his voice carries considerable weight.
The Wall Street Journal pointed out that Icahn increased his stake in the company by 22% before beginning his campaign, which isn’t making everyone happy:
Bill Gross, the founder and managing director of Pacific Investment Management Co. LLC, or Pimco, tweeted that Mr. Icahn should “leave Apple alone & spend more time like Bill Gates. If Icahn’s so smart, use it to help people not yourself.”
When Mr. Icahn first began discussing the buyback, shares of Apple were below $500 a share.
Mr. Icahn said in an interview Thursday that his math still worked even if Apple was forced to buy back shares at above $525, though the recent share gains show why Apple should move quickly.
“A lot of critics just keep saying why doesn’t Icahn just leave our companies alone,” he said. “To me that is like saying: Why didn’t Teddy Roosevelt leave the monopolies alone when they were strangling our economy.”
In an interview with CNBC Thursday, Mr. Icahn said his average cost of the Apple investment was about $440 a share—which would put him in line for over $400 million in paper profits at this point.
Mr. Icahn also said that if Apple didn’t follow his plan he would at least “test the waters” on a potential proxy fight to unseat some board members. He said he himself wouldn’t join the board.
CNBC ran the text of the letter praising Apple’s management team:
In the letter, Icahn praises Cook’s leadership, but says the discussed share buyback needs to be substantial.
“We want to be very clear that we could not be more supportive of you, the existing management team, the culture at Apple and the innovative spirit it engenders. The criticism we have as shareholders has nothing to do with your management leadership or operational strategy,” the letter says. “Our criticism relates to one thing only: the size and timeframe of Apple’s buyback program. It is obvious to us that it should be much bigger and immediate.”
Others are willing to follow Icahn’s lead. The stock price closed at $531.91 Thursday, above the $525 price Icahn is seeking. One interesting point to think about is what a distraction for management this campaign will be. Instead of running the company and building new products, Apple executives will have to weigh the proposal, take time to respond and get ready for a potential proxy fight. That ultimately hurts all stockholders.
by Chris Roush
Former New York Times business journalist David Cay Johnston writes for Columbia Journalism Review about how most of the business media provided no context when reporting JP Morgan’s recent $13 billion fine.
Johnston writes, “Net pre-tax income is what I would use, and that comes to $154 billion for the years Sirota wrote about, 2005 through 2012. That makes the penalty 8.4 percent of pre-tax profits since 2005 or one dollar in 12. That does seem more than a speeding ticket, but arguably not enough to deter misconduct in the future.
“Columnist Michael Hiltzik of the Los Angeles Times also provided valuable insight, noting that the size of the fine is not the most important part of the story. Hiltzik wrote that the settlement:
doesn’t resolve the ongoing federal criminal investigations of the bank’s conduct in the residential mortgage securities business during the run-up to the 2008 financial crisis. That investigation is being handled by federal prosecutors in Sacramento.
“Next time the government announces a penalty for a business, reporters should put it in context. One good measure would be penalty (after tax if it is deductible as a business expense) divided by net pre-tax income for the years in question. Here is another measure reporters could have used: Calculate the dividends paid since 2005 against the fine. A hint on how informing that would be: the $13 billion is roughly what JP Morgan paid in dividends on its nearly 3.8 billion shares in the last five quarters, while the period Sirota decided is relevant was 32 quarters long.”
Read more here.
by Chris Roush
Beth Macy is the longtime families beat reporter for The Roanoke Times in Virginia. Since 1989, her reporting has won more than a dozen national awards, including two Casey medals for her projects on immigration and elderly care giving, several Society for Features Journalism awards, diversity writing honors from Columbia University, and a 2011 Associated Press Media Editors international reporting prize for a story about cholera in Haiti. She was a 2010 Nieman Fellow in Journalism at Harvard.
Macy recently finished a year’s leave to write a book that grew out of “Picking Up the Pieces,” a 2012 Roanoke Times series examining the aftereffects of offshoring on the nearby factory town of Martinsville, Va. That series won the Society of American Business Editors and Writers’ 2012 Best in Business Print-Feature award.
Her book, “Factory Man,” is a nonfiction narrative about the globalization of the American furniture industry — told through one third-generation factory owner’s battle to keep his Galax, Va., factory going. Scheduled to publish by Little, Brown and Company in June 2014, the book traces the development of furniture-making from rural Virginia to China to its current perch in Indonesia, where many of the workers who replaced America’s 300,000 laid-off furniture-makers now live. “Factory Man” recently won the J. Anthony Lukas Book-In-Progress Award.
Macy has taught journalism at Hollins University and published numerous freelance articles and essays, including for Oprah magazine, PARADE, The Chronicle of Higher Education, The Christian Science Monitor, American Journalism Review, Poynter Online, Salon and Garden & Gun. Her work has also been featured in the “Best Newspaper Writing” series, including an essay that outlines her approach to reporting on outsiders and underdogs: Report from the ground up, establish trust, be patient, find stories that tap into universal truths. Eat the posole. To do good journalism, be a human first.
A native of Urbana, Ohio, she has a journalism degree from Bowling Green State University and a master’s in creative writing/English from Hollins University. She blogs about journalism, hiking and other passions at intrepidpapergirl.com.
Macy spoke by email with Talking Biz News about how she turned her feature story about the factory into the forthcoming book. What follows is an edited transcrip
How did the stories first come about for the Roanoke paper?
A photographer friend Jared Soares was undertaking an independent project to document the aftereffects of globalization in Martinsville, Va., which has long held records for the highest unemployment rate in the state. Jared and I were neighbors at the time, and we met for a drink to talk about a possible project. He showed me his work: gritty pictures of old textile mill conveyors-turned-food bank distribution devices, crumbling smokestacks, 50-something unemployed people biding their time in the middle of the afternoon.
He had funding lined up through a nonprofit, Equal Voice News. I talked to my editor at The Roanoke Times, Carole Tarrant, about us working together. Jared had loads of contacts among the marginalized and unemployed, and community activists. I did my own reporting, starting with some of his contacts. It was a true collaboration. A neighbor of mine who owns a furniture store mentioned that there was still one factory making furniture in Virginia and that, furthermore, the story of how he’d managed it was full of cunning, intrigue and – judging by the way he referred to his Chinese competitors (“the fucking Chi-Comms”) – some serious cowboy grit. When I heard there was a family saga involved, too, my story Spidey sense kicked into high gear. As my agent later put it, “Holy shit, Macy, you’ve found ‘Moneyball’ — with furniture!”
How much time did you spend reporting them?
The initial newspaper series took about six months, give or take. It was broken into three parts: a profile of John Bassett III, the main character in my book; a story about the racial/economic divide in Martinsville; and a hard look at Trade Adjustment Assistance, the government program that’s supposed to be the remedy for trade-displaced workers.
What was the hardest part about the reporting?
The race story, initially. Martinsville’s only an hour away from Roanoke, but it’s demographically and historically very different. The region had become an industrial powerhouse in the early 1900s, much of it propelled by the labor of sharecroppers and former slaves-turned-factory workers.
The city’s remedy for helping the displaced workers was to create a $152 million foundation called Harvest, but many of the people running it were the same people who ran or had connections to the factory owners, and Harvest was becoming a white-hot flashpoint for two very divergent groups: With most of the displaced whites in middle management now moved away, what remained was a majority minority community of largely unemployed or underemployed people, and wealthy former factory managers who now oversee marketing/offshoring/warehousing of made-in-Asia goods. Distrust, we soon learned, was rampant.
Why was this such an important story for the Roanoke region?
Martinsville and surrounding Henry County (home to the company towns of Bassett and Stanleytown, Va.) had lost nearly half its workforce over the past 15 years. The region is a microcosm of what globalization has wrought in small towns across America in places where the economy was largely dependent on one or two industries. What we found: increased crime (drug and property), huge increases in disability rolls, a declining tax base. Here it all is laid out for the reporter – in one rich-in-history place. But you have to bother to return there — over and over — after the factory-closing stories to grasp the slow burn. You also have to connect the dots from the corporate offices in, say, Bassett, to the booming suburbs of Surabaya, Indonesia, where much of that company’s furniture is now being made. It took me a long time to get my head around it.
How did you get people to talk to you so openly?
I went back to them over and over again — to the displaced line workers, to the retired middle managers (who now held less of a stake in affairs), and especially to the leery executives. I showed them I was in it for the long haul. I sat in broken-down trailers in snaky hollows, camped out in the Bassett Historical Center for weeks on end, bought fried pies and homemade pickles at the farmer’s market and generally inserted myself into what was going on. When the corporate execs initially refused to talk, I just kept asking — by phone, e-mail, and by talking to people around them who were passing on what I was trying to do — until, finally, they relented because they understood I was writing the damn book with or without their input.
I’m grateful they did because I think it’s a much better, more nuanced book with their input. “You know an awful lot about us,” Bassett Furniture CEO Rob Spilman said, when he finally allowed me to interview him in his office — a year after I’d started the book. When he described how the company had once used water from the adjacent Smith River to power the boilers in the factories, hell, I’d not only interviewed several of the old “boiler men” but I’d already had my own baptism in the Smith (a kayaking spill, in 42-degree river water: not recommended).
When did you start to think about expanding this into a book?
Probably the day I met John Bassett III, the black-sheep family member who’d dared take on China from the mountain hamlet of Galax, Va. I was immediately jazzed about the story’s potential – it had international heft and a slow-drawling badass for a main character — that I typed up my notes in my Galax hotel and e-mailed them to my editor that night.
What more reporting and writing did you need to do?
By the time my agent sent out the book proposal, I thought my reporting was about 50 percent complete. Ended up, it was more like 5 percent. I had the scaffolding, the outline and the narrative arc nailed. But understanding how exactly JBIII had kept his factory going – by taking on China in the Court of International Trade – that was a complex nest to untangle. Who were the characters in China who could bring that side of the story alive? How had the lawyers, lobbyists and mad-as-hell furniture retailers responded when he got duties assessed on the imported furniture? What did the business experts and economists think of what he’d done, and how did that dovetail with what the dislocated workers were saying?
I’m a feature writer, not a business reporter. Sometimes that hurt me; other times, it helped. I became a subscriber of The Economist; that was new!
How was writing for a newspaper different than writing a book?
Robert Caro has said that “time equals truth.” I had time to engender trust in reluctant interviewees, time to convince them that, Lord willin’ and the Smith River didn’t rise, I was in it for the long haul with or without their cooperation. I had time to witness globalization in the rice paddies and factories of Indonesia, time to check out the family stories too. Did John Bassett really end up in Galax because he’d been kicked out of the company he’d been born to inherit by power-hungry relatives? Was his departure provoked by a fistfight with his lifelong nemesis and brother-in-law? Did he really tip the ambulance driver $100 not to tell anyone what had transpired? Well, a friend who was reading Caro at the time suggested I track the ambulance driver down. (He’s 88 and, as I discovered to my delight, still making volunteer EMT calls on Fridays.)
How much did you rewrite and re-report what you had done for the newspaper?
Aside from one or two quotes and the overarching theme, there is no overlap between the two. The newspaper series is three separate snapshots of the issue. The book is a single narrative, driven by the story of one furniture family but held together by context and connective tissue that draws upon 110 years of industrial history in America and abroad.
Did you leave the newspaper to focus on the book?
I took 15 months away from the newspaper to focus solely on the book. Initially, I took a year, but the Lukas Prize allowed me to take a few more months away for reporting and revision. It also paid for my Asia trip, which I was about to have to charge to my home equity line.
What do you hope to accomplish with the book?
I hope the reader will come away from “Factory Man” with a deep understanding of why their furniture and other Asia-manufactured products cost a little bit less than they once did — and what that means for the 5 million Americans who used to make those products. I hope they’re entertained and inspired by my main character, an iconoclast multimillionaire who cares enough for the generations of workers who made his family rich that when others in his his industry were closing their factories, he dug in his heels and said, Oh hell no.
I hope the families impacted by all the job losses take some small comfort in seeing the full story of globalization told: That work meant something to them. I hope policy makers and business leaders reading it are inspired to compete in the global economy based on more than just the quick-hit bottom line.
by Liz Hester
Recently, one of the more interesting initial public offerings filed was for a share in the future earnings of Houston Texans running back Arian Foster. The company would allow investors to buy stakes in professional athletes and other notable names. But it may have hit a snag this week.
Here is the story from the New York Times last week describing the deal:
On Thursday, a start-up company announced a new trading exchange for investors to buy and sell interests in professional athletes. Backed by executives from Silicon Valley, Wall Street and the sports world, the company plans to create stocks tied to an athlete’s financial performance.
After considering a number of possibilities for its inaugural initial public offering, the company found a charismatic candidate in Arian Foster, the Pro Bowl running back of the Houston Texans. Investors in the deal will receive stock linked to Mr. Foster’s future earnings, which includes the value of his playing contracts, corporate endorsements and appearance fees.
The company, Fantex Holdings, has grand ambitions beyond a Foster I.P.O. — it hopes to sign up more football players and other athletes, as well as celebrities like pop singers and Hollywood actors.
But if such an investment sounds speculative, that is because it is. In a filing for the Foster deal with securities regulators, Fantex laid out 37 pages of risk factors, including a possible career-ending injury or a performance slump.
Seems like those risk factors are already coming to bear after Sunday’s game when Foster had a disappointing performance and pulled his hamstring. Here’s the Monday story from the New York Times:
Three days later, on Sunday, Mr. Foster had one of the worst outings in his five years in the National Football League. He carried the ball just four times for 11 yards before leaving the Texans game in the first half with a pulled hamstring.
The chance of injury was one of the many risks Fantex disclosed in the Foster I.P.O. Fantex is selling about $10 million worth of stock to pay Mr. Foster for a 20 percent interest in his future income, which includes the value of his playing contracts, corporate endorsements and appearance fees. Shareholders will own interests in a tracking stock whose performance is intended to be linked to Mr. Foster’s future economic success.
Investors have the next couple of weeks to place orders. Unlike a traditional I.P.O., this offering has no road show where the company and its bankers meet with potential investors to promote the deal. Instead, marketing materials are limited to the Fantex Web site and a lengthy prospectus with 37 pages of risk factors detailing what might go wrong with the investment.
Fantex, based in San Francisco, has registered the I.P.O. with the Securities and Exchange Commission, and shares are going to trade on a trading platform operated by Fantex. The Foster offering is the company’s first, but it hopes to issue more for additional football players as well as for other professional athletes and entertainers.
The company is focusing on small investors, with an investment minimum of just $10.
Making its debut with Mr. Foster, especially given the timing of the deal, had some people scratching their heads. Mr. Foster has led all running backs in touchdowns in two of the last three seasons, while racking up well over 1,000 yards each year – stats that placed him firmly in the game’s top tier of players, and made him a favorite in fans’ N.F.L. fantasy leagues.
But coming into this year, there was some uncertainty surrounding Mr. Foster, who had sustained a heavy workload and was showing signs of wear and tear with both calf and back ailments. Running backs historically have a high risk of injury.
The Financial Times pointed out that so-called tracking stocks aren’t new, but have fallen out of favor:
During the go-go days of the nineties, the appetite for technology and telecom stocks was so strong that Wall Street came up with a novel way to give investors exposure to a company’s subsidiary without having to spin it off.
They were called tracking stocks and the fad largely faded away, with rare exceptions today at companies such as John Malone’s Liberty Interactive. At the time, those often came in the form of offerings in ecommerce or wireless units, giving the parent company tax advantages and greater control over its subsidiary.
Tracking stocks have long been criticised for their lack of investor protections, with the shares carrying even fewer rights accorded to most shareholders. For instance, buyers of the Arian Foster shares technically own stakes in Fantex Inc, a subsidiary company of Fantex Holdings, but they have no voting power. In addition to the risk of injury to Mr Foster, as illustrated in Sunday’s game, the offering document also lists 37 pages of risk factors.
While an IPO would likely increase Foster’s brand as investors bet on his ability to pull in more endorsement contracts, it’s still tied to his performance on the field. He’ll need to continue to boost his stats in order to attract investors. This latest outing was just one game, but the timing couldn’t have been worse for those betting on his continued success. But much like fantasy football, losing $10 may be worth the fun of saying you invested on the ground floor.
by Liz Hester
The biggest business story of the weekend was JPMorgan Chase’s agreement to pay $13 billion fine to settle civil investigations into the bank’s mortgage practices.
The New York Times had these details:
JPMorgan Chase and the Justice Department have reached a tentative $13 billion settlement over the bank’s questionable mortgage practices leading up to the financial crisis, people briefed on the talks said on Saturday. It would be a record penalty that would cap weeks of heated negotiating and underscore the extent of the bank’s legal woes.
The deal, which the Justice Department took the lead in negotiating and which came together after a Friday night call involving Attorney General Eric H. Holder Jr. and JPMorgan’s chief executive, Jamie Dimon, would resolve an array of state and federal investigations into the bank’s sale of troubled mortgage investments. That type of investment, securities typically backed by subprime home loans, was at the heart of the financial crisis.
While the deal would put those civil cases to rest, it would not save JPMorgan from a parallel criminal inquiry from federal prosecutors in California, the people briefed on the talks said. Under the terms of the preliminary deal, the people said, the bank would also have to assist prosecutors with an investigation into former employees who helped create the mortgage investments.
Bloomberg added these details about where the money would go and how much of the firm’s profit it would take to pay the fine:
The payouts would cover a $4 billion accord with the Federal Housing Finance Agency over the bank’s sale of mortgage-backed securities, that person said. The deal, which may be announced in the coming week, also resolves pending inquiries by New York Attorney General Eric Schneiderman, the people said.
The settlement would amount to more than half of JPMorgan’s record $21.3 billion profit last year, or 1.5 times what the firm’s corporate and investment bank set aside to pay employees during this year’s first nine months. Only seven companies in the Dow Jones Industrial Average earned more than $13 billion in 2012, according to data compiled by Bloomberg. Some portions of the deal, such as relief to homeowners, would probably be tax deductible for JPMorgan.
The outline of the tentative accord was reached during a telephone call between Holder, Dimon, JPMorgan General Counsel Stephen Cutler and Associate U.S. Attorney General Tony West, said the person. The settlement’s statement of facts is still being negotiated.
The Wall Street Journal wrote an interesting sidebar about Jamie Dimon’s relationship with regulators and his reputation in Washington:
To win back Washington’s trust, Mr. Dimon is holding frequent meetings with the bank’s lead examiners at the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, and is striking a much more conciliatory tone than he has in the past, according to government and bank officials. In May, Mr. Dimon began hosting “town halls” for Fed, OCC and FDIC examiners—many of whom rarely interact with the CEO—so they could ask questions and raise concerns. The bank has sent letters reminding employees to provide timely and accurate information to regulators.
“Building and maintaining an open and transparent culture with our regulators, and ensuring that we are responsive and that the information we provide them is complete and accurate at all times is critical,” Mr. Dimon and other top executives on the bank’s operating committee wrote in an internal email sent to employees on June 20 and reviewed by The Wall Street Journal.
The bank has been quick to announce plans to jettison or scale back businesses that have raised regulatory concerns, including its physical commodities trading business and its dealings with overseas banks. In July, Mr. Dimon agreed to step down as chairman of the company’s main banking subsidiary after the OCC said it preferred that he no longer hold those duties, according to people familiar with the matter. He still holds the CEO and Chairman titles for the parent company.
J.P. Morgan also has continued to spend heavily on Washington lobbying, hitting $8 million in 2012, a record for the bank, according to the Center for Responsive Politics. That was up from $7.6 million in 2011 and well ahead of its closest peer, Wells Fargo & Co., which spent $6.8 million in 2012. So far this year, J.P. Morgan has the third highest lobbying tab of $2.5 million, behind Wells Fargo’s $2.9 million and Citigroup Inc.’s $2.7 million.
Whether such moves will speed the bank past its current troubles is unclear. While Mr. Dimon is described as “much more humble” by regulators who have met with him recently, the bank and its representatives have continued to haggle over rules related to the 2010 Dodd-Frank law and the exact conduct for which it is willing to acknowledge regulatory wrongdoing, according to people familiar with the discussions. Negotiations with the Justice Department failed to produce a deal to resolve potential criminal charges against the bank or its employees after J.P. Morgan refused to an admission of wrongdoing that would end the criminal probe, people familiar with the matter said.
It will be interesting to see how these fines will affect the rest of the industry and if regulators will levy proportional penalties at other firms. After getting through the financial crisis with its reputation in-tack, it must be difficult to see the headlines chipping away.
(Disclosure: I worked at JPMC for two years and continue to do contract work for the firm.)
by Chris Roush
The Wall Street Journal’s Corporate Reporting Bureau seeks a thoughtful, experienced reporter to cover General Electric, Honeywell and United Technologies, three of the country’s biggest, most diverse and most important manufacturers. For an enterprising journalist, these companies offer a ready opening to a range of newsy fields including health care, defense, politics, finance and China, and we’d expect the successful candidate to make hay in all of them.
The ideal candidate will have the ability to dig in and break news on big companies, as well as to step back and find fresh, intelligent stories about the broader issues affecting U.S. corporations and their role in the economy. The job is based in New York.
Please attach a resume, cover letter and three to five published clips to your online application.
At Dow Jones our Managers work to meet our equal opportunity and affirmative action objectives and our Employees help to foster a professional, welcoming and encouraging environment. EOE/AA/M/F/D/V
To apply, go here.
by Liz Hester
Goldman Sachs posted a 20 percent decline in third quarter revenues, signaling that the economic recovery may still have a ways to go and that banking still has some hurdles to overcome. But, of course, the more entertaining part of the stories were about banker pay.
First, here’s the Wall Street Journal with the basic earnings story:
Goldman Sachs Group Inc. posted a 20% decline in quarterly revenue, raising doubts that the securities industry will pull out of its trading slump—and putting a damper on expectations for Wall Street bonuses.
Goldman shares fell 2.4% Thursday, after the New York-based firm delivered disappointing third-quarter results. Per-share earnings exceeded analysts’ estimates, but revenue came in $1 billion short of expectations.
Goldman’s steepest drop came from one of its most-reliable profit engines—its fixed-income, currencies and commodities trading arm. Revenue for the business tumbled 44% from a year ago, to $1.25 billion, a worse performance than rivals.
“Just not a great quarter,” Harvey Schwartz, Goldman’s finance chief, said Thursday during a conference call with analysts.
The results were a surprise to Wall Street, where Goldman’s bond-trading dominance has become something of a staple. Now, the onetime king of fixed-income is suffering disproportionately, as larger banks thought to be more plodding and bureaucratic surpass it.
The firm’s fixed-income revenue fell 49% from the second quarter— at least double the drop of rivals including J.P. Morgan Chase & Co. and Citigroup Inc. The overall revenue in Goldman’s fixed income, currency and commodity trading division was more than $1 billion short of the comparable number at Citigroup and about $470 million shy of the result at Bank of America Corp.
The New York Times took a different approach, saying bankers were disappointed that 2013 bonuses likely wouldn’t return to previous highs:
Among Goldman Sachs employees, the chatter started months ago that 2013 was going to be a good bonus year. The Wall Street bank began the year strong, and despite concerns about the economy, its profit doubled over year-ago levels in the second quarter.
These hopes were all but dashed Thursday when the firm announced that revenue in its fixed-income, currency and commodities division, a powerful unit inside the bank that in better years has produced more than 35 percent of Goldman’s entire revenue, dropped 44 percent from year-ago levels. It was the worst quarterly result in fixed income since the fourth quarter of 2008, when the financial crisis was raging.
Analysts apparently had many questions for the firm, the Times said:
Analysts pushed, without much success, for more details on the reasons behind the drop in revenue for the unit. They also pressed executives about their expectations for the firm’s return on equity, which effectively measures the profit a bank is able to generate on its capital. That return is hovering around 8 percent on an annualized basis, significantly lower than it has been in previous years, and well below the company’s previously stated goal of 20 percent over time.
“It is a quarter,” Mr. Schwartz reiterated several times on the call.
By slashing what it sets aside for compensation, Goldman was able to post a decent third-quarter profit, despite the revenue weakness. Quarterly earnings came in at $1.52 billion on Thursday, largely flat compared with the period a year earlier.
Reuters also led with the cut in compensation:
Goldman Sachs Group Inc (GS.N) slashed employee compensation costs by 35 percent in the third quarter as bond-trading revenue plunged, an unusual step that signals the investment bank’s concern about performance for the rest of the year.
Goldman responded to the weaker revenue by setting aside less money to pay employees during the quarter – $2.38 billion, compared with $3.68 billion in the same quarter last year. The 35 percent decline is high compared with competitors. JPMorgan Chase & Co (JPM.N) cut its third quarter compensation expense by 15 percent.
Goldman’s compensation costs amounted to 35 percent of its revenue in the quarter. The bank’s target is usually closer to 43 percent.
The bank sometimes cuts the money it sets aside for pay in a quarter, but it usually does so in the fourth quarter, when there is no hope of earning extra revenue for the year. Doing so in the third quarter signals that it does not expect a big rebound in the fourth quarter, a point Schwartz conceded on the conference call.
One bright spot– Goldman set aside a fair amount for pay in the first half of the year, when net income was up about 35 percent over the year-earlier period. Even with the third quarter drop, total compensation costs for the first three quarters are only down 5 percent from the same period last year.
While the bank may always change the amount of money it sets aside later in the year, the third-quarter reduction will likely translate to lower bonuses for employees.
Pay consultant Alan Johnson estimates that across Wall Street, fixed-income, currency, and commodities trading bonuses could fall 10 to 15 percent this year, with many employees getting $0 bonus checks.
Bloomberg added comments that Goldman wasn’t shifting its policy, just the amount it plans to pay this year:
The bank hasn’t changed its principles on compensation, Chief Financial Officer Harvey M. Schwartz said on a conference call with analysts. It reduced the year-to-date compensation ratio based on current revenue and “better visibility” into year-end pay, he said.
Roger Freeman, an analyst at Barclays Plc, predicts the ratio for the full year will be 39 percent. While a lower figure than that “would likely be welcome news for investors,” he wrote in a note to clients today that “we suspect that the third-quarter represents more of a true-up than anything else.”
The interesting point in many of these stories is that the compensation cut signals the firm isn’t expecting the fourth quarter to be any better. That’s a sign that Goldman is losing clients and trading business to rivals, or that the state of the global economy continues to rattle markets – either way, not good news.
by Chris Roush
Elder writes, “It would appear one of the headline editors in Bloomberg’s New Jersey outpost had Citi’s results on embargo and pressed the ‘publish’ button accidentally. That forced Citi to pull forward a statement scheduled for 8am EST.
“Still. No harm done, right? It’s not as if Citi shares were trading at the time.
“Except they were, on Tradegate and Chi-X. And on the local markets in Frankfurt, Munich and Stuttgart. And in Berlin, Dusseldorf, Hamburg and Hannover.
“Bloomberg has been trying to regain Wall Street’s trust that it can handle sensitive data (or at least deter its reporters from mining its customers’ information for potential stories). Unilaterally pre-releasing earnings on behalf of America’s third-biggest bank can’t really help that cause.”
Read more here.
by Liz Hester
Google Inc. is trying something new with their advertising – having it feature you. Users of Google+, the social media site, may now have their photos pop up next to advertisements in an attempt to make them even more personal.
Here’s the story from ABC News:
Google+ users may now see their pictures plastered next to advertisements for a range of products, without compensation.
The company announced on Friday that users’ names, profile photos and endorsements may appear on “reviews, advertising and other commercial contexts” by default, under the new terms of its service that kick in on Nov. 11.
The policy changes mean that every time a user over 18 reviews an album or bakery online for example, they may become brand ambassadors for their recommendations, which are then broadcast to others within their Google+ network.
Google explained that “shared endorsements” help people “save time” and improve results.
“We want to give you — and your friends and connections — the most useful information. Recommendations from people you know can really help,” the company said on its website.
But the move has raised a host of concerns about privacy and the use of unlicensed advertisements, The Wall Street Journal reported:
Many of Silicon Valley’s most popular sites say that such social-context ads are more useful—and maybe even less annoying—than traditional types of online advertising. But they have raised the hackles of privacy advocates, and advertisers have yet to fully buy into their effectiveness.
Even before Google’s latest privacy change, when users clicked the “+1″ button—Google’s equivalent of Facebook Inc.’s “like” button—their endorsement might have appeared in an ad.
Now it is expanding the type of content that may appear in ads—for example, ratings of songs in the Google Play store, or restaurant reviews posted to its Google+ social network.
Moreover, users who sign into third-party applications using their Google account may also see their activity used in Google ads. The company hasn’t specified which apps, what actions or where such ads might appear.
“We think it’s a problem,” says Marc Rotenberg, executive director of the Electronic Privacy Information Center. “It’s a commercial endorsement without consent and that is not permissible in most states in the U.S.”
In response, Google said in a statement: “The privacy and security of our users is one of our top priorities. We believe our Terms of Service updates are a positive step forward in clarifying important privacy and security details for our users, and are in full compliance with the law.”
The Washington Post pointed out that the Federal Trade Commission would look at the use of sponsored stories — once the government re-opens:
Last month, the Federal Trade Commission said it would review whether Facebook’s push into sponsored stories violated the company’s 2011 privacy settlement with the federal government. That agreement required Facebook to give adequate notice of changes in privacy policies and to make sure users aren’t misled about how their data is being used.
Due to the government shutdown, the FTC said it could not respond to a question on whether its investigators would also examine Google’s new advertising practice.
Google said its new advertising policy would apply only to the 390 million people who have signed up for Google Plus, the company’s social network. The company can also draw on endorsements made with Google’s +1 button, which is similar to Facebook’s “like” button and appears on sites across the Web.
A user who wants to limit the reach of his or her advertising endorsements could adjust settings so that a positive review for, say, a car is shared only with a small circle of friends on Google Plus, the company said.
Some privacy experts commended the way Google is rolling out the feature by giving users a month’s notice of the changes and options to decline.
CNN also makes an interesting point that only positive reviews and endorsements show up in the advertisements, since obviously companies won’t pay for negative press:
Other social media companies have toyed with featuring their users’ photos in ads. If you Like a company on Facebook or post a positive review on its page, that can be used in that company’s Facebook ads.
You may have noticed a sponsored post in your News Feed that shows which of your friends have liked a particular brand. As with Google+ reviews, the key to not appearing in these types of ads is not endorsing brands. (Unlike Google, there’s no opt-out option for sponsored stories on Facebook.)
The idea of promoting a brand and sharing positive opinions could appeal to many Google+ users who are already actively leaving reviews. Some people just really love brands, whether they’re sports drinks, smartphone makers, movies or video games. They want to broadcast that love to the world, sharing their positive opinions wide and far.
Negative opinions can be equally useful information for their friends and families, but those bad reviews are not usable by advertisers. And for now, there’s no -1 button on Google+ or Dislike button for Facebook.
At least Google is giving users some time to think about how they’d like their information shared and the ability to opt-out. It’s another way for companies to make money off the vast troves of personal information they collect and store via social media tools. Who needs a secret anyway?
by Chris Roush
Chicago Tribune next week will launch new coverage of corporate innovation in Chicago’s business community, whether at start-ups or larger established companies, according to sources familiar with the plans, reports Lynn Marek of Crain’s Chicago Business.
Marek writes, “The content will appear in print and online with the more extensive treatment on the paper’s website, as part of its business section. The effort, developed by Editor Gerould Kern, will have its own dedicated resources and reporters to produce content and host related events, a source said.
“The move comes as the newspaper’s parent company, Chicago-based Tribune Co., is planning to spin off its publishing group, which includes eight major dailies, to separate it from the more profitable broadcast division. The newspaper group had been put up for sale earlier this year, but those plans were put on hold.
“The papers, which also include the Los Angeles Times and Baltimore Sun, also have been bracing for cost reductions, including possibly job cuts, that Tribune CEO Peter Liguori has said the company is contemplating.
“The new business coverage is slated to begin on Oct. 15 and will be exclusively sponsored, at least initially, by Chicago-based United Airlines, which telegraphed its sponsorship in a half-page ad in the paper on Oct. 11 that declared: Chicago Tribune Blue Sky Innovation — coming soon.”
Read more here.