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Posts Tagged ‘Lehman Brothers’

Hedge fund hot-shot David Einhorn, the founder Greenlight Capital, is finally on the Forbes’ “The World’s Billionaires List.” 

Einhorn, who known for publicly shorting Lehman Brothers’ stock before the bank’s demise and most recently shorting Green Mountain Coffee Roasters, has an estimated net-worth of $1.1 billion. 

The 43 year-old ranks No. 1075 on the list.

Welcome, David!

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• Bloomberg Has A New Billionaire Rankings List That Should Kill Every Other Billionaire Rankings Lists Out There
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It’s been a long road for former Cisco exec Raj De Datta to get his third startup off the ground.

He once even had a painful change-of-heart where he handed seed money back to the VC and walked away.

His third startup, BloomReach came out of stealth mode yesterday with a healthy list of customers and a boatload of talent from Cisco, Google, Facebook and others. It was founded three years ago with partner, Ashutosh Garg, a scientist from Google and IBM and is on the road to prosperity.

Back in 2001, he sold his first company, Firstmark Communications, to PSInet, a big ISP. It was too much after the dot-com boom peaked to make him rich, but it gave him the startup bug.

“Had I sold the business a year earlier, it would have been materially life changing. A year later, it would have been a complete disaster … so it was right in the middle,” he said. But “the experience convinced me to do entrepreneur things rest of my life.”

A couple years later, in 2003, he had barely launched his second startup when Cisco came along and offered him a deal. It would invest in his startup and the product he built would belong to Cisco. Taking Cisco’s deal “took the risk out” and “gave me the opportunity to build a product I wanted to build.”

He didn’t want to work for others, but he learned a lot from the years he did. “I had never worked in a great, well-run company before,” and Cisco was such a place, he says, adding that he still thinks it is.

In 2008, he had the startup itch again, with no idea of what product or service to build. So, he did a six month stint as a entrepreneur in residence with Mohr Davidow Ventures (MDV) where he decided to build a cloud.

MDV handed him a seed check. Then Lehman Brothers, and the whole economy, collapsed.

His new venture would require a lot of capital investment, much like Firstmark. He had no job, a wife, a kid and a second on the way. But he didn’t trust that he could make it work.

So he gave the money back and walked away.

All told he says he spent two years “in the wilderness” unemployed and directionless. All he knew was that he wanted to start a new company.

He would soon meet Garg and the two of them would hit it off so well, they would agree to launch BloomReach over a mere three meetings. They would land $5 million in seed money from Bain Capital Ventures with nothing more than the two of them and a PowerPoint presentation, he laughs.

BloomReach is now three years old, has 60 employees and about 70 customers with $16 million in funding.

From all his experience, he was able to create the culture he wants to lead. BloomReach has several founding principles, he says.

• The “no drama” principle. “We don’t hire dramatic people,” he explains.

• It’s leaders promise to share bad news transparently.

• The company has a “no policy” culture, so there’s a policy that forbids policies.

• There are no titles within the company.

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Total eurozone GDP showed less than expected contraction at -0.3% q/q versus expectations for -0.4%. This is the first contraction since 2009, but remember, it takes quarters of negative growth in a row to constitute a recession.

The Stoxx Europe 600 index is up 0.5%.

European markets were also boosted by talk of additional support from China and strong earnings from BNP Paribas, Heineken and Peugot.

Dutch preliminary fourth quarter GDP missed bigtime with a -0.7% q/q decline versus expectations for +0.3% q/q growth.

Italy showed -0.7% q/q contraction, worse than already ugly expectations for -0.6% contraction.

France on the other hand smashed expectations with  +0.2% q/q growth versus expectations of a -0.2% q/q contraction.

German GDP showed a -0.2% q/q contraction, beating expectations of a -0.3% q/q contraction.

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See Also:

• Neel Kashkari On Europe: We Had Time To Prepare For Lehman Brothers, But That Still Ended In A Massive Shock
• European Markets Get Crushed On A Chaotic Day For Greece
• UBS Answers: Who Are The Fittest Countries In Europe?

NEW YORK (AP) — Remember Greece?

It’s been two years since a financial crisis erupted in the birthplace of drama, and the final act is still unfinished. A second week of talks in Athens ended Friday with no deal between the country, the European Union and private holders of Greek bonds.

Remarkably, even after the crisis became such an international worry last year that the leaders of France and Germany were actually referred to as “Merkozy,” the European debt bomb could still explode, with Greece as the fuse.

Economists and investors see a Greek default as the biggest test of the world financial system since the crisis that followed the collapse of Lehman Brothers investment house in 2008.

It is also the biggest threat to what has been a successful start to the year in the U.S. stock market. The Standard & Poor’s 500 index has gained 4.7 percent, roughly half its average for a full year, in just four weeks.

“If talks break down next week and it looks like they can’t reach a deal, it raises all sorts of risks,” says Jeffrey Kleintop, chief market strategist at LPL Financial. “The stock market could probably lose half its gains for the year.”

On paper, it’s hard to see how Greece could take down financial markets in the U.S., the world’s biggest economy, with $15.2 trillion in goods and services churned out every year.

Consider:

— Greece’s economy weighs in at euro220 billion, according to the International Monetary Fund’s estimates. That translates to $285 billion, which puts Greece’s economy on par with Maryland’s. The U.S. sells about $1.6 billion in weapons, medicine and other products to Greece each year, a minuscule 0.07 percent of exports.

— U.S. banks say Greece on its own poses no danger to them. Unlike European banks, they’re not major lenders to Greek businesses and aren’t saddled with Greek government debt. In its most recent report, JPMorgan Chase, the largest bank in the U.S., said it had just $4.5 billion at risk in Greece, Ireland and Portugal combined. That’s about what the bank makes in revenue in two and a half weeks.

— Many worry that U.S. banks would struggle to cover the insurance contracts they sold on Greece’s euro350 billion, or about $460 billion, in government debt. But the amount of insurance taken out on that debt totals $68 billion, according to the clearinghouse for the contracts. That’s hardly enough to pull down the banking system. And the banks have offset all but $3.2 billion of those contracts with other contracts. In other words, pocket change.

“The direct impact of a Greek default is almost zero,” Jamie Dimon, CEO of JPMorgan Chase, told CNBC on Thursday.

So what’s everybody — well, everybody but Jamie Dimon — worried about?

A breakdown in talks could trigger steep losses in stock markets in Europe and the U.S. Just as in 2008, banks could stop lending to each other, and the credit freeze could cause a market panic.

More importantly overseas, it could cause borrowing rates for Portugal and Italy to jump, pushing those much larger countries closer to defaults of their own.

That’s only the beginning. A Greek default could unleash a host of larger problems. Some are already anticipated while others are likely to blindside even the closest observers, says Nick Colas, chief market strategist at ConvergEx Group. “In any complex system, you’re going to have unintended consequences,” he says.

He compares it to the collapse of Lehman Brothers: Analysts saw it coming, but the fallout in still caught them by surprise. A money market mutual fund found that it couldn’t redeem its customers’ money. Money market funds, which many considered as safe as savings accounts, suddenly looked suspect until the Federal Reserve backed them up.

At a conference on sovereign debt this week in New York, Steve Hanke, professor of economics at Johns Hopkins University, predicted that even commodity prices would plunge in response to a messy Greek default.

If Greece goes under, traders seeking safety would immediately sell euros and buy dollars, Hanke said. The dollar would soar and prices for commodities like oil and wheat, which are bought and sold in dollars around the world, would collapse. A single dollar would buy much more oil or wheat.

“If the bomb is set off by Greece, commodity prices will collapse,” Hanke said.

Hanke, who has advised governments around the world on managing their currencies, argued that Greece appears bound to collapse under its debts as its economy shrinks. “Greece is doomed,” he said.

So investors will be watching what happens this week in Athens. At the sovereign debt conference, Hans Humes, president of Greylock Capital Management, said this week could bring “the precedent-setting moment.” He warned that if the banks and investment funds that hold Greek bonds take steep losses, then Portugal, Italy and other countries shouldering heavy debt burdens can be expected to follow Greece’s lead.

It’s comparable to a messy default. Traders will respond by immediately selling government bonds from those countries, Humes said. Borrowing costs will rise, and Europe’s debt crisis will turn much worse.

Humes has been involved in the negotiations on the side of creditors holding Greek bonds so he has a stake in the game. But it’s a scenario other money managers often cite.

“There’s a fear that other countries won’t negotiate at all. They’ll just say, ‘We’ll pay you back at 50 percent or maybe less,” Kleintop says.

To Colas, the deepest concern isn’t how the S&P 500 reacts or whether the dollar rises if Greece drops the European currency. It’s the possibility for panic, especially a run on European banks.

What if people across France and Germany crowd into banks to pull their deposits? Banks, after all, are some of the largest buyers of government debt.

“Human emotions can drive things off the rails,” Colas says.

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See Also:

• Ken Rogoff: It’s Not Just Greece
• The ECB Is Despairing About How To Deal With The Greek Debt Debacle
• THE ADVENTURES OF NIKOS KASSIMATIS: The Man Who Owes $1.23 Billion To The Greek Government

Hedge fund manager David Einhorn and his fund Greenlight Capital were fined 7.2 million pounds ($11.2 million) by the U.K.’s Financial Services Authority, Bloomberg TV’s Dominic Chu reported.

The FSA said that Einhorn’s fund traded stock in Punch Taverns PLC on inside information back in 2009.

According to Sky News’ Mark Kleinman, Greenlight sold shares of the pub and bar operator just three days before Punch Taverns revealed plans to raise £350m from investors. 

Kleinman added that Greenlight had pared back its stake in the company several times before the announcement was made.

Einhorn is known for seeing problems at Lehman Brothers and publicly shorting the stock before the bank folded.

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