Evening Guests Only

Another Farcical Wedding
I just got back from a wedding up in the Yorkshire Dales, which if you've never been to I highly recommend provided the weather is good, as it was during my visit. Unfortunately the wedding was terrible and scant reward for driving 5 hours each way, spending a great deal on hotels and generally making a huge effort to be there.

Our reward was to sit through the usual church ceremony snooze fest, followed by not being invited to the actual wedding itself. Instead we were 'evening guests', which as a concept is fine - but only for people who are invited locally. So the six of us drove off and found a nice country pub for lunch and to watch a couple of horses die horrifically in the Grand National (I always enjoy winding up L about such things as she's a huge animal lover). Thereafter we checked into the wedding hotel and spent the next 5hrs in a bizarre situation as effective wedding outcasts or second class citizens: drinking (at our own expense) in an atrium within sight of the wedding doors but not actually allowed in.

It was funnier because the others also recognised the situation as being ridiculous - the bride, who was the only connection we all had with this whole event, did come across as totally selfish however (perhaps fair enough, it was her big day).  She wandered in for a token hello to us all, but clearly didn't give a shit that we were there and didn't recognise the effort - or more importantly didn't ensure WE recognised that she recognised the effort. 

I've been through a situation like this once before, so this clearly happens all the time due to poor wedding planning. If anybody is planning a wedding, for goodness sake think about the experience all of your different types of guests will have. For guests who will have to travel from distance, either invite them to the full day or don't invite them at all - penny pinching is not worth it.

Ethical Dilemma? Nope
I took some time out for CFA study as well prior to my wedding fun last week. The main achievement was not my progress in ploughing through the course, but rather displaying my already questionable morals by lifting the entire set of one of the more popular 2010 study guides (in convenient pdf format) from a torrent site. The irony of this given the huge 'ethics' section of the course was not lost on me - or that thousands of other would-be candidates have clearly done the same judging by the seed and peer numbers.

What possessed me to take the hard road of making my own notes is quite beyond me. With this innovative new approach, and having just spent the morning quietly printing out around 800 pages courtesy of the bank's printers, I am now all done with making notes and can focus on the review (which won't take long), and then properly learning all this, memorizing the formulae and crucially practicing questions and preparing for the 5th June exam.

In this internet age of designer drugs, I'm sure most of my competitor candidates will be high on modafinil and other cognitive performance enhancers while I pass out mid-afternoon from exhaustion. This little tactic however, is an admission by me that I need to abandon my noble aim of going through the course at my own pace to learn everything (and get side tracked by applying what was learned to various investment scenarios or candidates), and instead focus on passing the level 1 exam.

If I had continued on my current path, the pressures from balancing work with study would simply have meant I would still have been not finished reviewing the course much less been preparing for the exam proper by the end of May. I have another two weeks off in May in the run up to the exam, so this is going to be a really shit couple of months all in all.

The main plus upon getting back into work today was working out just how little work my colleagues have done in my absence. Both the other new guys are off today - one with man flu and the other from tripping on a pavement yesterday and getting a bruise. Never let it be said that men don't feel pain more than women, particularly on a Monday morning.

So my sole job for the day will be interviewing some candidates for hire later on - unfortunately for the candidates, any too exceptional (if there are any) will suffer as my primary criteria will be to ensure they are good but know less than me. Where the Dark Lord is concerned, I don't intend to be outshined by any other new hires, and instead shall ensure I remain amongst his favoured elite footsoldiers, not to be sacrificed during culls or temper tantrums.

That's a survival tip for those considering a long-term career in banking by the way.

Client Relationship Manager (aka Private Banker)

"In the US they just call them Customer Relationship Managers, and that's what we should be doing here too."

That was the paradigm I was faced with last week while in a discussion with the Global Head of Dealing - one of the many with a grandiose title and gargantuan ego that orbit the mothership that is my new bank.

I didn't even have to explain to him the problems in doing away with the cachet of the title 'Private Banker' to a large swathe of the most overpaid and undeserving in the backwater of finance that is private banking. He knows but is busy pursuing his own aim of turning his band of belittled dealers into something more meaningful than some trade execution monkeys at the behest of the bankers.

While the prized 'client relationship' that Private Bankers use to justify their salaries may apply for a small minority of HNW's and UHNW's, the model where Granny calls her banker for advice and reassurance is changing as old money moves down the generations. The younger generations frequently would rather trade online than talk to a time wasting middle man - I more base that on the fact I wouldn't trust these clowns with my money or for financial advice so find it hard to believe anybody else would either.

I have been having a most amusing time since I arrived at the new place. Compared to where I was, the new bank is hugely inefficient, which is a major plus as looking good is effortless compared to my peers. I like my new boss - petulant, demanding, irritable and impatient he reminds me hugely of my previous one (it's nice to feel at home from day one).

Unfortunately none of the other new joiners have come across such a personality, so are struggling with him, hence he has already been awarded the moniker 'The Dark Lord' (DL for short) due to his overbearing and demanding personality. A classic empire builder, what they need to learn is that The Dark Lord's only concern is about delivering to make himself look good.

I am finding the work quite refreshing, traveling to Singapore, Geneva, the Isle of Man, Edinburgh, Boston and New York so far for lengthy, detailed discussions with bankers and dealers - I'm afraid the exact details I can't reveal but suffice to say the ultimate aim is to finally move this ancient fossil of a business model kicking and screaming into the 21st century. The political factions and vested interests attempting to block this process along the way make it all the more interesting, not least because most of the private bankers have already worked out that it removes a key excuse for them not performing. They might actually have to do some work beyond extended lunches in the brave new world.

Meantime fitting in CFA studying has proven a huge pain in the arse, and whether I will be ready in time for June remains an open question. I'll be giving it my best shot but if the worst comes to the worst I will be pragmatic and retake in December and as many times as necessary - the content is not remotely challenging, just combining so much with a full time job.

I might as well mention just what an outstanding investment General Growth Properties has turned out to be following a couple of buy-out offers and the potential for further upward offers before the court accepts a proposal in the coming months. Hopefully a few people who read earlier entries took a closer look and decided to buy in over the last 18mths to join the party.

Either way I am sitting on around £2m in unrealised profit right now, which ain't a bad gain and I'm sure will have the government licking its lips.

On the subject of government and the election, I am certainly not remotely concerned by the various higher tax proposals to squeeze the rich (I assume of which I am classified). There are so many ways around most of the measures that the real tragedy is that the pain will mostly be felt by the aspirant and hard-working - it will generate token revenue, and goes almost none of the way to reducing the huge national debt.

To the multitude of unproductive public sector workers - the wake up call is that the country will only get out of this hole through deep spending cuts. Of course that's unfair, after all this is all the fault of the banks and people like me - certainly nothing to do with government deregulation, grotesque overspending for a decade to balloon the public sector (much of it completely unnecessary), and certainly nothing to do with people borrowing too much.

Brave New World

I do feel I ought to apologise for my tardiness in posting since I returned from California, although as I mentioned in a reply to the reader who was kind enough to take the time to ask if I was still alive, I have come across a fairly obvious downside to studying for CFA whilst working full time at the bank (and looking around for a new role) - namely I never seem to have any spare time anymore.

On that note, I have made good on my promise and have made the big jump out of investment banking! No, no, no.. I have not 'seen the light' and decided to shave my head in readiness for a life of selfless devotion to others. Instead I have sold my soul to the devil with a sideways move into private banking - which is also a useful move further towards asset management.

I cannot say that I felt much regret as I sprung the news of my resignation on the Boss, just days after my bonus reached the safety of my account. He looked surprised initially - as if I had smacked him in the face, but then quickly a look of familiarity overcame him, it is not like he has not seen it all before. As I mentioned in my last entry way back in November, despite being amongst the world's most prestigious banks, my former employers have seen an exodus in recent months.

The irony is that having turned down a role for £50,000 more per annum back in March last year, I ended up snaring almost twice that with this move. Bonuses seem to have gone out of fashion, and it's all about the base.

Anyway going back to the lack of time, I wonder if that is why 99% of blogs do dry up after a year or two. Actually I suspect it is more running out of things to discuss. Of course, I've always got more than enough opinions to foist upon the unwilling world, but thought that I would devote this entry to a review of a fascinating couple of months for General Growth Properties, some comparative analysis into its current valuation, and a quick look at the recent report into the unwinding of the TARP programme and its impact upon the markets in 2010.

GGP - Into Double Digits (Briefly)
With the share price catapulting up by another 100% at its peak since my previous mail back in late November, it is worth reflecting on the underlying reasons. After all, continual reassessment is critical for the effective management of any portfolio.

Is the market being rational to value a company in bankruptcy at over $3 billion?

Key to the rises was the positive news regarding loan refinancing negotiations with secured creditors. That included the November 19 release that GGP had secured agreements in principle, followed by the filing of a Plan of Reorganization for some $9.7 billion of secured mortgage loans.

Adam Metz ensured that the propaganda machine was running at full capacity, with misrepresentative lines about GGP exiting Chapter 11 protection by the year end grabbing the headlines. It was always an unrealistic time frame, not to mention only a partial restructuring with a great deal of the important work still to do.

Having said that, a major part of General Growth Properties problems were a loss of confidence, and so instilling that in the markets once again is important - not least in the continuing creditor negotiations. By the time that aspect of the refinancing was approved by the court in mid-December, investors were partying, with myself no exception as my unrealised profits on the trade topped £1 million for the first time.

So it was with some amusement that I read through Hovde Capital's publication of a thesis that GGP shares were in fact horribly overvalued and that common stock would soon be worthless. The fact that the fund was short GGP, and the word on the street is that they are still sitting on some major losses, made it an enormous comedy. Obviously I bought into the plummet in the share price the day after it was published - but the damage to less sophisticated investors through such cynical market manipulation makes this more serious.

To say that Hovde's flawed analysis pissed off long investors more familiar than most with valuing the company might be an understatement. It is certainly rare to see two hedge funds like Pershing Square and Hovde Capital slugging it out in a war of presentations over the next fortnight, with other noteable commentators such as Whitney Tilson adding their voices to those denouncing Hovde's analysis for its fundamental flaws.

There is no point me summarising that whole saga now, as it was reported in so much detail elsewhere. This Marketfolly page is useful for giving the whole timeline and debate that raged during this period.

Ultimately though the markets are the real judge of these things, and while down from recent peaks, General Growth quickly recovered up to around $11/share. It has since of course fallen back to lows under $9/share, although remains firmly on the upward trend since filing for Chapter 11. I expect 52 week highs to be tested as additional court proceedings progress, and further unsecured creditors agree to the mass 5 year extension template that has been proposed.

GGP Valuation
As a mark of how long it has taken me to get around to completing this entry, I finished this comparative analysis of GGP versus its peer group several weeks ago, based upon an extract of sector FFO estimates using data from 21 Jan 2010.

As you can see, the all important price / FFO multiple estimates for General Growth Properties when its share price was $1.50 more than current are still the lowest in the entire sector. That is one of the key indicators of value, quid pro quo. Of course there are a multitude of other factors to take into account, but without going back over old ground and remaining on pure, technical analysis I am confident that General Growth remains the best hold in the sector at this time.

Unwinding TARP - Challenges & TALF
A key factor that will impact the markets in 2010 and beyond is the withdrawal of the quantitative easing policies that have buoyed the markets. I recommend taking a look at this report by the Congressional Oversight Panel as the section on TALF (page 106) conclusion is interesting - in summary that unwinding will have a minimal impact upon the commercial real estate market, and should provide comparatively few issues.

That's all for now campers, I'll do my best to get another entry together soon. Meantime I will be busy in Knightsbridge with my new colleagues, around the international travel that will apparently be making up a significant part of my role going forwards.