Swiss banks and bail collateral
CREDIT Suisse Group AG posted the biggest quarterly loss in seven years as it wrote off goodwill and set aside provisions for litigation," and there is a certain symbolism in the fact that the 3.8 billion Swiss francs of goodwill impairment are "mainly related to the acquisition of Donaldson, Lufkin & Jenrette (DLJ) in 2000." In 2000, "in a move tobetter compete against Wall Street's giants," Credit Suisse bought DLJ for $11.5 billion, giving it "a leading presence in junk bonds and merchant banking." Now it has lost interest in competing against Wall Street's giants, and "Chief Executive Officer Tidjane Thiam, 53, has pledged to focus the second-largest Swiss bank on wealth management to tap growth across Asia with the securities divisions hurt by tougher capital rules and a drop in revenues."
But the investment bank is still there, still paying people, still affected by "volatile market conditions and widening credit spreads on a number of legacy positions in fixed income business." And still, for accounting purposes, carried at more or less its 2000-era, leadingpresence-in-junk-bonds-and-merchant-banking valuation. Until now. Now Credit Suisse has, ceremoniously, in its financial statements, bid farewell to its investment banking ambitions.
Also there were 355 million francs of restructuring costs and 821 million francs of litigation items, and 4,000 jobs will be lost. Investors are not happy. I mean, they're fine with the scaled-back banking ambitions, but the losses are bad: "The numbers are terrible," said Dieter Hein, an analyst at AlphaValue based near Frankfurt who is reviewing his recommendation on the shares. "The bank has started on its new strategy and is finally moving away from investment banking. In the mid- to long-term, it's right to focus on growth in Asia, but what bad timing given the current environment."
In other European bank news, Deutsche Bank -- which recently wrote down its own goodwill for the 1999 acquisition of Bankers Trust -- has seen its contingent convertible bonds plunge this year. Poor Martin Shkreli. The assets the former drug executive pledged to make bail in a securities fraud case have fallen so far in value that he may need to put up more to stay out of jail, a prosecutor said Wednesday. Shkreli used an E*Trade Financial Corp. account, once valued at $45 million, to secure his $5 million bail. Most of that account was stock of KaloBios Pharmaceuticals Inc., Assistant U.S. Attorney Winston Paes said during a court hearing.
The drugmaker, formerly led by Shkreli, sought bankruptcy protection from creditors following his arrest in December. The shares plunged to $2.03 from a high of $45.82 in November. On the one hand, it is a little rough that you should have to go to jail just because your stocks fall. On the other hand, the story here is not quite that Shkreli put up $45 million worth of stock, and it lost value, and now it's worth less than $5 million. I mean, yes, when he put up the $45 million E*Trade account as bail on January 7, KaloBios had last traded at $23.59, making Shkreli's stake worth about $49 million. And, yes, it closed yesterday at $2.00, making his stake worth about $4.2 million. But that $23.59 last trade was in mid-December: After that, KaloBios's stock was halted, and it filed for bankruptcy on December 30. By the time Shkreli put up his E*Trade account as bail in January, it obviously was not worth $45 million, since it consisted mostly of stock in a bankrupt company whose stock price hadn't fallen only because trading had been halted. The events that reduced the value of the account happened in December, not this week; it just took a while for the prices to catch up. I pointed this out at the time. It's a bit strange that it took prosecutors this long to notice.
Also, when he put the account up as bail, the New York Times reported that it was "the first public accounting of just how much money Mr. Shkreli - who last year became the focal point of a national debate over price gouging in the drug industry - has made over his brief career on Wall Street and in the pharmaceutical business," and that it "should put to rest speculation on how Mr. Shkreli was able to come up with $2 million to buy the only known copy of a recent album by the rap group Wu-Tang Clan."