Corker Takes On Trump, Hedge Funds Lose on Puerto Rico: DealBook Briefing

Corker Takes On Trump, Hedge Funds Lose on Puerto Rico: DealBook Briefing

For Jim Reid, a credit strategist at Deutsche Bank, the overriding worry is that investors and policy makers won’t be prepared for what will happen when global central banks put a halt to their easy-money policies.

“Brexit” corner

Britain, deadlocked with European negotiators over Brexit, is expected to tell other European Union countries that the “ball is in their court.”

George Parker and Robert Wright, FT:

In addition to mounting pressure from anxious businesses, the U.K.’s position has been further complicated by Mrs. May’s disastrous party conference speech last week. Some European diplomats wonder whether she will last long enough to deliver on any agreements struck in Brussels.

Gambling on Puerto Rico

Many prominent Wall Street firms that did so are losing.

Among them, according to NYT’s Matthew Goldstein, are:

• John A. Paulson, the hedge fund manager, and his firm, Paulson & Company, which have invested billions of dollars.

• Samuel Kirschner, the chief operating offer for CPG Real Estate, which has invested in Puerto Rico for nearly 18 years. He has struggled to get into his properties because of damage from the storm.

• Blackstone Group;

• D. E. Shaw;

• Goldman Sachs;

• Lone Star Funds.

It may be hard to shed tears for such investors. But their interests might be aligned with Puerto Rico’s economy as a whole.

More from NYT:

Tourism supports more than 60,000 jobs in Puerto Rico. Luring deep-pocketed investors from the mainland has the potential to hasten the island’s recovery.

At the moment, though, those investors are staring at hard-to-quantify red ink.

Weinstein Company’s Future in Question

Harvey Weinstein has been fired from the movie studio he co-founded, after the NYT’s investigation last week unearthed decades of sexual harassment accusations and settlements.

So far, half of its board has resigned, including:

• Dirk Ziff, the billionaire investor;

• Mark Lasry, the co-founder of the Avenue Capital Management hedge fund;

• Paul Tudor Jones, the hedge fund mogul;

• Tim Sarnoff, the deputy chief executive of Technicolor.

What happens next?

Variety’s Cynthia Littleton notes that the Weinstein Company has been looking to sell all or part of its television unit — which has been outperforming the studio’s movie operations — for years.

• In 2015, NYT’s Michael Cieply documented the near-death experience of the Weinstein Company. That experience ruled out an I.P.O. of the studio, raising questions of how else investors could recoup their money.

• Worth noting: Disney bought Miramax from the Weinstein brothers in 1993 and employed them for 12 years afterward, until they left to form their own studio.

The big question

Is there a Weinstein Company without Harvey Weinstein?

Brooks Barnes, NYT:

“Without Harvey actively managing, the Weinstein Company will become even more capital constrained — tougher to find funding,” Harold L. Vogel, a media analyst and the author of the book “Entertainment Industry Economics,” wrote in an email on Friday.

Procter & Gamble Battle Comes to a Head

P. & G.’s battle with Nelson Peltz is already the most expensive in history, with each side having spent at least $60 million in their campaigns. The fight will come down to a shareholder vote on directors that is scheduled for Tuesday — unless there is a last-minute settlement.

What’s at stake

P. & G.’s stock price has languished for the last decade, especially compared to that of its rivals.

The election is also the biggest test yet of the power of activist investors like Mr. Peltz who have increasingly influenced major institutional investors.

The math behind Tuesday’s vote

Rob Cox, Breakingviews:

To beat back Mr. Peltz, P. & G. needs to make up the difference between the active and retail investors, of some 255 million shares. P. & G. can make that happen only by bringing all three to its side. Vanguard, with 181 million shares, is the largest. State Street owns 115 million and BlackRock 156 million, according to ISS. To put it another way, Mr. Peltz has to win just one of the three. Though that sounds like a tall order for P. & G., past voting records give it a chance.

One financial adviser who represents some smaller P. & G. investors suggested that the company may be in for a rough day.

Julie Creswell, NYT:

“The restructuring at P. & G. has been going on for 20 years. That’s a long time without much to show for it,” said Mr. Lame, who estimates that the company’s underperformance relative to its category has cost his clients $200 million over the last 10 years. “Maybe you need to have one person on the board who has a different point of view.”

Is Deutsche Bank’s Chief Avoiding His Biggest Shareholder?

The German lender’s C.E.O., John Cryan, hasn’t yet met with the embattled Chinese conglomerate HNA.

That has rattled Mr. Cryan’s chairman, Paul Achleitner, who was an architect of HNA’s purchase of a 9.9 percent stake in Deutsche Bank in March.

Steven Arnos, Bloomberg:

Two attempts to arrange a meeting between Cryan, 56, and HNA have failed, according to a person familiar with the matter who asked not to be identified because the discussion is private. The strategic overhaul announced in March was underpinned by a rights offer that hauled in 8 billion euros ($9.4 billions) for Deutsche Bank.

A Deutsche Bank spokesman said of Mr. Cryan, “Yes, he hasn’t met him, but of course he will.”

Why you should care

Jenny Strasburg, WSJ:

German and European regulators are reviewing the company, its funding and its Deutsche Bank holding, including what influence HNA might have over the bank as its largest shareholder. The closely held company had faced mounting questions about its ownership and potential ties to the Chinese government as it has ramped up overseas investment.

Today’s Chatter

Investors around Wall Street are talking about a research paper from Hendrik Bessembinder of Arizona State University.

Its findings:

The entire net gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed stocks, as the other ninety six percent collectively matched one-month Treasury bills.

The key takeaway

The results help to explain why active strategies, which tend to be poorly diversified, most often underperform.

This Just In …

The 2017 Nobel Prize in Economic Sciences was awarded to Richard Thaler, who appeared in “The Big Short” and whose day job is as an economist at the University of Chicago.

The Big Short (2015) – Mark Baum (Steve Eisman) Meets a CDO Manager [HD 1080p] Video by Extractor

From the citation:

His empirical findings and theoretical insights have been instrumental in creating the new and rapidly expanding field of behavioral economics, which has had a profound impact on many areas of economic research and policy.

The NYT spoke to Mr. Thaler:

Asked how he would spend the prize money, he replied: “This is quite a funny question.” He added: “I will try to spend it as irrationally as possible.”

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