Case Blog

For the first time in many years, Mary Claire and I had our family join us at our home in Blackhawk for the entire holiday season. The Bay Area at this time of year has winter, but a more temperate and rain-filled winter than one finds back on the east coast. Last evening I sat in the rain at the Emerald Bowl, hoping that my alma mater, Boston College, could find a little Christmas magic to upset the USC Trojans. But after an exciting first half that ended 14-13, the Eagles fell back to earth and were beaten 24-13. In between winter rain storms there have been a number of days in the high 50s to low 60s, which has allowed me to work on a rusty golf game with my son Jordan.  We are looking forward to celebrating New Year’s Day with friends & family.

As we reflect back on this year, I trust all of us are looking forward to better times in 2010. While no one is predicting a huge upswing in GDP, everyone does agree that the Great Recession is over and that this is a time of rebuilding for the global economy. Last January I wrote in Playbook, “The unemployment rate of 7.2% announced last week could easily climb above 10% by the end of the first quarter if the various stimulus plans fall short.”  Unfortunately, the U.S. unemployment rate climbed to over 10% — the damage that it did to the consumer and overall economy is still being assessed. We look forward to a recovery that will start to bring down the unemployment rate to match those of earlier recoveries. Treasury Secretary Geithner has tried to reassure us that the Obama team will be vigilant against excess risk in the financial system to protect us from another financial crisis. I personally hope that we all benefit from at least a 5-7 year recovery cycle.

Early last January we had just completed our acquisition of Asset International. While the first year, particularly the first two quarters, were challenging, we are pleased with the progress we have made on transitioning the business to an increasingly digital world and one where community remains at the center of its universe. We added The Trade in July and Strategic Insight in August. Our focus during the close of ‘09 was on creating one company, with a common corporate culture of excellence, focused on the institutional financial markets around the globe.  As we turn to 2010, we plan on continuing to grow both organically and through strategic acquisitions that will add value to our existing brands.  Today approximately 50% of our revenue comes from data and analytics; online revenue, research and events contribute another 30%; and print contributes approximately 20%.  Our brands have retained their leadership position and our clients are once again turning to them to rebuild their market positions and to find new customers in New York, London and elsewhere around the globe.

Happy New Year & a Warm Welcome to 2010!

I wrote several weeks ago regarding Kip McDaniel’s foresight in his initial ai5000 cover story on the problems brewing in Dubai. Now we know that there were deep-seated debt problems that could only be abated by Abu Dhabi extending a $10B lifeline, with lots of strings attached. This month in the Winter Issue of ai5000, Asset International’s founder Charles Ruffel  opens with an editorial on the suit that California Attorney General Jerry Brown has initiated against State Street Bank. He writes:

Litigation, like castor oil, is a necessary evil–it should be taken out of the cupboard only when reason fails. This is particularly true when attorneys general, generally amid much clamor, brandish the power of their writ in the institutional financial services industry.

The leverage that the threat that such suits can deliver–a threat that can, and sometimes should result in settlement–can be utterly undermined when attorneys general tilt at windmills. The present effort by California Attorney General Jerry Brown to go after State Street for ‘unconscionable fraud’ is purely quixotic. It is based on a farcical misinterpretation of the law.

Charlie delivers a strong left to Jerry Brown’s next run for the state house to succeed the Terminator!

Kip delivers this issue’s knockout cover story, “America’s Pension Hell is in a Little Slice of Heaven: The Puerto Rico Employees Retirement System, America’s worst-funded public pension plan, reeks of competency and a willingness to do what it takes to raise its 15% funding status. Can the rest of the world learn best-in-class practices by looking into this tropical pension abyss?”

You can also read Sara Nelson’s insightful book reviews, “Curse of the Mogul,” by Knee, Greenwald and Seave and “Wired,” by Stibel.

Finally, meet the talented Richard Schwartz, who is usually found in our sister publication in London, The Trade, who contributed “The True Cost of Trading” to this outstanding issue.

In the holiday spirit, we are asking you to recommend a colleague or colleagues that you would like to receive a free subscription to ai5000, with your compliments.

Happy Holidays!

The recent news in New York has been positive for the institutional financial services sector. Two weeks ago Bank of America (BAC) surprised most analysts by announcing that they had worked out an agreement to pay back the $45B of TARP funds they needed to carry them through the Great Recession. Greg Curl, one of the internal candidates to take over from Ken Lewis as CEO, negotiated the arrangements with the government. Shortly after the announcement Bank of America sold new shares, which gave them the capital base they needed to pay back the Treasury. It is becoming clear that the government will get their desired return on the TARP funds, as they predicted. The Merrill Lynch acquisition by Bank of America is starting to look better each quarter as trading profits improve dramatically. Citigroup (C) and Wells Fargo (WFC) remain the two money center banks that have not yet repaid the TARP funds, but they are inching closer to an agreement each week.

I flew to London on Wednesday to spend time with our two U.K. subsidiaries, Global Custodian and The Trade. I found the overall mood to be positive and The City looking very festive for the holiday season. I was greeted, though, by headlines in the Financial Times that Chancellor Darling was imposing a new 50% tax on bankers’ bonuses to be paid by the institutions. Prime Minister Gordon Brown was able to quickly get the support of the French President Sarkozy, while the Germans demurred. It seems like we will have to live for a while with the idea of taxing an industry in recovery from the worst downturn since the Great Depression.

Finally, on the media side of the equation, Springer Science & Business Media was sold, not to a strategic buyer like Informa, who had been evaluating a deal, but to EQT, a Swedish private equity firm controlled by the Wallenberg family and GIC, Singapore’s sovereign wealth fund. (Telegraph, 12/11/09) The sale was driven by Candover’s and Cinven’s need to exit this investment, with loans coming due next year. Derk Haank, a former colleague at Reed Elsevier and a very able publisher, will continue as CEO. This deal is another sign that the private equity media market is starting to emerge from a very slow ‘09, with leverage returning to the market.