On Europe, the ECB and the Kazakh Diram

In progress

Investment Strategies

TB continued

Future of GPS…

IPOs – Initial Public Offering

With the coverage of the Facebook IPO, the previous LinkedIn IPO, Zynga, I wanted to write a follow-up post covering all aspects of IPOs including what they are, how they work, and how an investor can profit from them.

What are IPOs?

An IPO, or Initial Public Offering, is the first time a company sells its stock to the public on the public markets i.e. Stock Exchanges.

They can be undertaken by companies of any size small to large, and let the company raise funds for activities such as, expansion, research, development or to improve its public image.

When a company decides it wishes to float its stock, it will employ the services of a investment bank(s) to act as a bookrunner, frontrunner or underwriter. A favoured bank will be chosen to fully run the IPO process from start to finish.

The chosen bank will receive a fee for its services, either fixed, or a percentage of the proceeds raised.

Advantages/Disadvantages of an IPO

These can include:

  • Improving and diversifying equity base
  • Access to cheap capital (for the reasons mentioned earlier)
  • Prestige and public image
  • Attracting superior employees
  • Being able to make acquisitions

Some of the disadvantages are:

  • Larger accounting, legal and marketing costs
  • Requirement to publicly disclose finances and business details
  • Competitors have access to material information
The IPO was be announced usually through an S-1 filing which details the company’s plans to access the public markets. There are a number of press conferences by management and coverage by research divisions of investment banks to access the strength of the IPO, what the value of the company and the stock price should be.
If the company was previously trading on a secondary exchange such as secondmarket.com, it will no longer trade.
On the IPO day, the underwriter will usually try to make the stock price pop, rise 10-20% or even more, as that makes a good public appearance.
Employees, management, and institutional investors who have access to stock will usually be restricted from selling the stock for at least 6 months and even upto 18 months.
For more info visit investopedia.com

Daily Roundup – 14/01

JPMorgan Profit Falls 23% (WSJ)

J.P. Morgan Chase & Co. reported a 23% drop in fourth-quarter profit on a sharp drop in its investment-

banking revenue and further declines in the value of its

mortgage business. As the first major bank to report for the fourth quarter, J.P. Morgan’s results offer a glimpse into what is largely expected to again be a bleak quarter for the nation’s largest financial institutions. Revenue at the bank missed expectations, and shares slipped 2.4% to $35.95 in premarket trading. But while the Wall Street side of the business was slow, as was expected given low demand for mergers and stock offerings, the bank’s business-lending operations continued to be in high demand, a more positive sign for U.S. businesses and the economy as a whole. Total profit reported was $3.73 billion, or 90 cents a share, down from year-ago earnings of $4.83 billion, or $1.12 a share, but in line with the analyst estimate of 90 cents a share on Thomson Reuters.

S&P Cuts In Europe Said To Be Imminent (WSJ)
The Standard & Poor’s ratings agency could announce the downgrades in the credit ratings of a number of European governments as early as Friday, said two people familiar with the matter.

Pimco’s Gross Says Global Economy, Markets at Risk in 2012 (Bloomberg)
“Banks should be eight-to-one or nine-to-one in terms of leverage,” Gross said in a Bloomberg Television interview with Trish Regan. “Right now, the system is an 18-times to 20-times overleveraged system, and that’s producing the risk in terms of tipping one way or the other.”

Billionaire Paulson Persists With Properties (Bloomberg)
Paulson, who made $15 billion in 2007 betting against U.S. subprime mortgages, is sticking with bullish investments in residential and commercial mortgage securities, helping his Credit Opportunities Ltd. fund gain about 1 percent last quarter to narrow its 2011 decline to 18 percent.

BofA Ponders Retreat (WSJ)
Executives at the Charlotte, N.C., financial giant put the potential move on a list of emergency scenarios submitted to the Federal Reserve last year, these people said. While people close to Bank of America insist that no retreat is imminent, even the possibility of selling branches and losing customers it spent huge sums to lure underscores the depth of its problems.

Fred Durst Documents Juice Fast on Tumblr (RollingStone)
Limp Bizkit frontman Fred Durst is nearly two weeks into blogging a very difficult 60-day juice fast on Tumblr. Though Durst began the project with a great deal of enthusiasm – his first post on January 2nd was an image of his new juicer with the caption “My new best friend!” – he quickly became frustrated and very, very hungry. “This is going slowwwww,” Durst wrote on the third day. “Probably because I cheated last night and had some M&M’s.”

Hedge funds hunker down for Greek debt standoff (Reuters)
edge funds are positioning to profit from a plan to slash Greece’s towering debt pile as Athens enters final talks that could sway the country’s membership of the euro. York Capital, the $14 billion fund part-owned by Swiss banking giant Credit Suisse (CSGN.VX), New York-listed Och Ziff, and $10 billion-strong Marathon Asset Management are among those who collectively may have built up sufficiently large positions to scupper the bailout deal, several sources close to the debt restructuring told Reuters.

Lloyd’s CEO To Waive 2011 Bonus (WSJ)
The chief executive of Lloyds Banking Group, Antonio Horta-Osório, will waive his 2011 bonus, the bank said Friday. His decision comes shortly after he returned from a leave of absence from the 41% government-owned bank due to exhaustion and as the U.K. financial regulator warned banks that it could veto large pay packets if they are seen to be putting the bank’s broader capital strength at risk.

Fed to Weigh Further Easing Amid Doubts About Recovery (CNBC)
FYI.

Goldman Bids For Bad Bonds (WSJ)
Goldman recently approached the Federal Reserve Bank of New York and offered to buy a multibillion-dollar bundle of risky mortgage bonds that the Fed acquired in the 2008 bailout of American International Group Inc., according to people familiar with the matter. The New York Fed responded by quietly canvassing a few securities dealers for bids on the bonds Goldman wanted to purchase, seeking competing offers to determine whether Goldman’s offer represented the best value for the bonds, the people said. But the effort, intended to be discreet, rattled the market for subprime-mortgage debt on Thursday when some market participants learned the New York Fed was considering additional sales of bonds from the portfolio known as Maiden Lane II. An index that tracks prices of subprime-mortgage bonds fell 2% on Thursday afternoon to about 47 cents on the dollar. The index had risen nearly 10% earlier this month.

RBS Securities Capitulation a Blueprint for Banks in Europe (Bloomberg)
Banks running securities arms that are laggards in their industries may follow RBS in shuttering units because a decline in trading and a jump in the cost of operating under incoming regulation is rendering some businesses not viable, say analysts…“Middle-ranking banks are being squeezed as volumes have collapsed,” said Christopher Wheeler, an analyst at Mediobanca SpA in London. “The banks that are neither betwixt nor between can’t afford the cost base they’re running.”

New Jersey Weddings May Go Vegas Style (WSJ)
Get drunk and get married: New Jersey is hoping to bring a little Las Vegas razzle-dazzle to Atlantic City with a law making it easier to get married on a whim. And for those with morning regrets, the legislation now on Gov. Chris Christie’s desk would also expedite the process of getting divorced. Passed by both houses of the New Jersey Legislature on Monday, the bill would eliminate a mandatory 72-hour waiting period for a marriage or civil-union license, and increase the fee to $60 from $28. Currently, 29 states have no waiting period for a marriage license, but only two—Connecticut and Rhode Island—are in the Northeast.