Citadel Founder Personality Piece

Fun, content-free, personality piece on Citadel's founder in Dealbook From Dealbook

IN 1988, a very young-looking 19-year-old Harvard student sneaked past the receptionist at the Boston office of Merrill Lynch, found the manager in charge of convertible bonds and struck up a conversation about the technical aspects of valuing those bonds.

A few weeks and some discussions later, the student, Kenneth C. Griffin, asked Terrence J. O'Connor, the convertibles expert, to open an institutional trading account with $100,000 he had collected from his grandmother and his dentist, among others. At the time, the size of the average institutional account was $100 million.

"My boss thought I was crazy," recalled Mr. O'Connor, who nevertheless persuaded his boss to let him open the account.

That gamble doesn't look so crazy today.

Mr. Griffin is the chief executive of Citadel Investment Group, one of the most powerful and fastest-growing companies in the hedge fund business, with more than $13.5 billion of capital.

KKR Investing At A Torrid Pace

Hmm...

Without question KKR has clocked into warp speed with deal-making. Since January, it has offered $45bn for energy company TXU in the largest buyout ever and spent $7.3bn to buy discount store Dollar General. It's at the centre of a high-profile battle to take over supermarket chain J. Sainsbury in the UK and just bid £11.4bn for retailer Alliance Boots. Yet its Monday overture to buy First Data just may trump all these others. It is making the $29bn bid for the company all on its own.

But it's not just this deal-doing velocity that may propel KKR back into the industry's record books. With about $1.9bn of ebitda, KKR is paying a lofty multiple of 15 times for First Data. That's about 40% more than where First Data's competitors trade on the public market. What's more, KKR will be financing the deal with about $21bn of debt - a racy 11 times its operating cash flow. On average, last year's buyouts were financed at 5.5 times, according to S&P/LCD. True, the company's profits are tied to consumer spending, and have proven stable. And the banks may give First Data credit for some of the cash it receives from joint ventures. But even with the cash from alliances, the deal is still financed at well over 10 times ebitda.

Full article from Breaking Views (probably will disappear behind a firewall soon).

Denouement of Subprime Story Yet to Be Written

WSJ starting, after about a month, to get a clearer view of the general contours of the issues in subprime and Alt-A. Good overview article here.

There were two worries. The first was that steep losses in securities backed by subprime mortgages would prompt investors to pull away from risky assets, everything from emerging-market stocks to high-yield corporate debt. For the moment, that concern has receded. Financial markets regained their footing and recovered some of their lost ground in the second half of last month.

The second worry was that subprime woes would exacerbate the housing downturn to the point where the U.S. economy is in serious trouble. Even after all the jargon-filled research reports and talk about second-lien loans and delinquency rates and the like, Wall Street is still trying to figure out whether that's likely.

...

Some lenders didn't seem to recognize that borrowers who don't put any money down may behave differently from those who put down 20% or so when they buy a home. Nor did they foresee problems these loans might encounter if home prices declined to the point where the amount owed exceeded the value of the property. Sometimes, borrowers defaulted without making a single payment.

...

It isn't clear whether the problem is just with subprime mortgages or if there is a more general problem with mortgages that first manifested itself in the subprime market. Loans that fall between subprime and prime, known as Alt-A mortgages, are a particular concern. Alt-A borrowers have higher credit ratings than subprime borrowers, but Alt-A loans often fall into the low-doc and no-doc category, and they can require little or no money down

... If risky borrowing helped propel the housing market during the boom times, lenders cutting back on the number of risky loans they make could cause some of the demand for housing to evaporate, and home prices could get pushed lower. That, in turn, would put more homeowners underwater on their mortgages -- which is a big part of how the subprime fiasco got started in the first place.

34% of Mortgage Holders Don't Know What They Have

From Bankrate.com, a poll of homeowners shows that 1/3 of them have no idea what type of mortgage they have.

In the survey of 1,004 adults conducted by Gfk Roper, homeowners with mortgages were asked what type of mortgage they had. A stunning 34 percent of the homeowners had no idea.

This should give serious pause to those who believe that better disclosure will solve silly homeowner decisions re: mortgages.

The full results are here but the eye-catching headline is the best part of the poll.