LinkedIn IPO - Did They Get it Wrong?

On the first day of trading, LinkedIn was valued at $45 a share by its lead bankers, Morgan Stanley, Merrills, BoA and JPM raising some $352m for the company. However, by the end of that first day its stock price had risen 100% netting $millions for the select clients of those lead banks and the day traders who hiked up the price.

One of the Facebook founders, Peter Thiel, basically said this was typical of Wall Street not taking Silicon Valley companies seriously, intimating that the east Coast fuddy-duddies refuse to believe in those 'fly by night' West Coasties and all their new fangled technology, internety things. Why he should complain, I don't know as he was one of LinkedIn's early investors and has already made unbelievable stacks on Facebook and PayPal. I mean, he has become even more filthy rich as a result of this tomfoolery.

He has a point in some ways as the average price hike on day 1 of an IPO is about 15% which seems a fair valuation with a bit of premium for subscribers to the underwriting banks for their share of the risk. In that, context it's a fair accusation that banks got it wrong.

However, given LinkedIn now has an earning multiple of 1,000 it would also be fair to say that those hiking the price are nuts. Surely, at some point there has to be a fall back down to the reality earth?

It seems Web 2.x is well under way and we can feel those bubbles expanding all over again. Veritable Professors are coming out and decrying this 'under valuation' as a crime that should be outlawed when perhaps simple folks in armchairs think, 'Has anyone ever told them that LinkedIn is unlikely to ever be worth 1,000 times its profits ever again?'

Beware, as there are plenty more of the babies on the way - Zynga, Twitter, Groupon and Facebook to name a few. Some would say that the Google method of auctioning stock is the fairest way of doing this as making 100% in a single day is just daft.

I harp on about it but tears will flow sometime. This kind of valuation cannot be sustained.


- Posted using BlogPress from my iPad

How Far Would You Go To Save Your Job?

In these troubled times, even though there is talk of recoveries on the way, the continuing contraction of economies means that inevitably job losses have some way to go before they peak.

British Airways workers have voted to take a 'work for free' month after CEO, Willie Walsh, led the way. The fact that he was surrendering £35k was pretty impressive but then so is his annual salary, despite presiding over the largest loss since the airline was privatised. Workers at JCB voted to go on shorter working hours in order to save some 300 job losses. I am sure there are more examples of how people have either made sacrifices or been incredibly innovative about how they persuade their employer not to shed their job.

In Spain, where many economists are predicting as high as 20% unemployment very soon, the situation is becoming desperate. To some extent, here in the UK, people are either stoic, fall back on the Welfare State or are reasonably confident they can get another job over time - even if they have to accept less money or seniority. The Spanish predicament is so acute that if someone loses their job, then the likelihood of finding another at all, let alone with a salary drop, is very remote.

There has been the case of one Spanish man who worked at the Barcelona International Convention Centre who contracted a group of six Colombians to murder his boss in the hope that it would stave off the imminent loss of his job. At least he will not go without a roof and food as he is due to spend a significant time in jail.

But it begs the question: How far would you go to save your job?

Work Hard And Be Flexible

I don't know if there are any good formulae to be really helpful in trying to save your job. I am sure many companies are just using the current situation to shed more than is necessary as for some companies you have to believe that they cannot see beyond the very short term with some of the measures they take. Many banks and financial companies have slashed back office staff, while embarking on high visibility marketing campaigns and you have to question their management capability. The Government is reducing the Armed Forces headcount yet we are fighting two major wars - strategies continually seem to be at loggerheads with market situations. Many companies are cutting very deeply just at the point when economists are predicting we are through the worst of the recession and that markets may pick up.

That doesn't help the people being made redundant. Some people can see the writing on the wall and almost invite it. There is some wisdom here. Think about it - the market is at its nadir and things may pick up soon so what better than to have a nice redundancy pay off, take advantage of a lovely hot summer or foreign holiday and wait it out until the market picks up?

The fact is that most of us are born worriers and the older you are the worse it gets. As a person not far from 50, I have mild panic attacks thinking what would happen if my business implodes and it must be far worse for those working for large employers as at least I am pretty much in charge of my own destiny. I have seen small companies cruise into the recession and hang precariously onto a single decent customer who is the difference between survival and bankruptcy and am astonished how they continue to not worry. Then I look at people like my sister, whose company is having a strong time thanks to continued Government spend on training and yet she is never satisfied that they have enough resilience.

Different companies and different people react in different ways. For many, a job is a mark of status or duty while to others it's what pays the bills. Clearly, to the unfortunate man in Spain, it was his everything.

I used to think that if you worked hard and were flexible then your employer would value your contribution. This recession has proved that employers do not always work that way. In the heat of the banking crisis, great swathes of administration and back office jobs - none of which had contributed in any way to the idiotic decision-making that exposed the organisations to losses beyond comprehension - were lost and few of the whizz kids who caused the mess were ditched. In fact, in the craziness of the Bank of America take over of Merrill Lynch, they actually paid bonuses long after everyone vented their spleens on the subject to prevent the very people who caused it all leaving. Here in the UK, the banks proved almost suicidal as RBS shed some 9,000 jobs and then a subsidiary launched a glossy advert campaign saying how they were going to mobilise more staff to visit clients. Aviva spent millions on telling us why they were changing Norwich Unions' name yet in the same timeframe they made many people redundant and saw their share price collapse.

My point here is that this recession has exposed us to some of the worst effects of poor management and it is pretty clear that some seriously large companies are managed by fairly incompetent managers. This means that the decision-making in cutting jobs is being made from pretty limited understanding of business and therefore likely to not really focus on what is needed for the future and almost certainly neglect the general contribution of workers. Management by numbers has come to the fore and 'entrepreneurial' and 'blue sky thinking' managers who delighted in their own successes seem to have all too quickly abdicated their responsibilities and left it to the accountants.

My only advice to people under threat of redundancy is to seek good advice and to listen to what the company has to say. Inevitably there may be some consultation process and, if so, take an active part and be constructive and conspicuous. If you want to save your job in dire times, it is important to be flexible. I know there is a real danger that employers may force what appear to be short term changes in conditions on employees in order to save jobs, but make sure concessions are made with caveats relating to the future. In all of this, keep talking about the future because that's where the company is trying to get to so if you play your part in helping your employer get a future, so too must you at least get back what you sacrificed to help this being achieved.

Redundancy is an emotive topic and many take it personally. In my book, it is more a failing of the company and its management team and the stigma should fall on them. In the UK, it doesn't work like that. There is no penalty on the company for using redundancy to boost profitability, the State picks up the tab and so it becomes an easy weapon to use. In France and other Continental countries, redundancy is a hard tool to use to save money and can end up costing more. For good or bad, this focuses the minds of managers to be not so bullish in the good times and be prudent in the bad - to make them run their businesses more strategically rather than tactically even if they that's what they think they are doing (so many believe if they mention the worked 'strategic' then that is what they are doing - most have no idea what strategy is).

In preparation for potential redundancy, think positively about how you will handle it, talk to family and friends, get ideas on what you may do after being redundant, formulate a plan of action, a list of things you want to do, and how you will do them. Most of all use the experience to gain a confidence rather than the opposite. Remember, if you are not for a man like Stephen Hester of RBS, who will get a £9.6m bonus shortly, nicely in proportion with the 9,000 redundancies. You can walk away with your head held high as you were not in it for yourself alone.

Britain has a chance to get better managers in place, to force companies to think beyond the mountain of short term opportunity, to be more prudent, regulate themselves more and protect their employees against the outcome of their stupid actions. Time and again, low paid workers pay with their jobs for more well off managers' mistakes.

As we sit under a Socialist Government, you would have thought this would have been top of their agenda. Once again it will be an opportunity missed.

Business As Usual

Spital Square was always a busy place. It's where a small fleet of very smart private taxis wait for RBS staff to give them a ride to wherever they may be going - home presumably. You may think such little luxuries go by the wayside when their company has collapsed in value but not these good fellows.

Last night, the little fleet of smart cars were ferrying evening-dressed managers from RBS to a swanky City dinner so they could blow some expenses, I dare say, and congratulate themselves on another terrific year. It appears there is little scope for consideration of bail out monies or public scrutiny - the business of the City must go on, come what may. Perhaps it may have been Cava not Champers this year. I doubt it, must keep up appearances, eh?

Revulsion

As the banking system staggers after each explosion, it does not sound like the glamorous career it used to be with the potential of somewhat less bonuses in the future. A further advert on why such a career is pretty revolting was last night's TV documentary called 'Million Pound Traders' which was yet another show designed to satisfy our seemingly unending appetite for 'Reality TV'. This time a foreign investor gave some money to a group of would-be traders who proceeded to spend it in a series of trades designed to show how good they were in making profit. They were headed by the seemingly hard-nosed 'Anton' who said for the camera's benefit that 'It's time to press the brutality switch'. All sense of Employment Law naturally goes out the window in such environments as we saw in the excellent docu-drama last week called 'Sex, the City and Me' which acted out an amalgam of real stories set around a successful woman who became a mother and her career in a fictional trading house.

What it illustrated was that the City is so single-minded about greed as to make the people who do it at best seedy and at worst down-right revolting. Coupled with the lack of guilt displayed by people at the top like John Thain, Fred Goodwin, Dick Fuld and others it shows that it comes from the top down.

Once again, it really does not inspire confidence that Gordon Brown surrounds himself with the flannel-talking, obsequious Investment Bankers as his Advisers at this time.

Bail Out, Bail Out

'No, this is not a bail out', stressed Lord Mandelson yesterday as the newly enlightened Business Secretary outlined the basis for around £2.3bn of loans designed to save the car industry. I have blogged on this before and at stake are around 850,000 jobs associated, directly or indirectly, with the car industry as production has collapsed by 49%, sales by over 35% and acres of unsold cars litter our countryside.

He was right - according to the Tony Woodley of Union Unite, it falls short of what is required to save tens of thousands of jobs. Mandelson is hosting a summit for the industry today but there will be calls to extend the £1.3bn of loan guarantees and offer of £1bn of lending for car makers in order to safeguard their industry and attempt to stimulate demand. A whole raft of car makers have downgraded or stopped production and the immediate effect was felt by steelmakers, Corus, who announced 2,500 lay offs this week.

Once again, it seems the Government has come up with a half-baked, knee jerk solution which has been devised by unskilled Advisers and not listened to the views of the carmakers themselves.

What is the Point of The FSA?

"Highly paid bunch of layabouts," spat my source close to the FSA. "Cushy jobs for former mandarins or retired City types, combined with tons of Non-Executive Directorships - it's just a nice place to have an office, get rich and play online games all day."

Well my source had nothing to with the FSA but was making an irritated observation at the apparent lack of action by the FSA in the lead up to and since the banking collapse. No heads have rolled, no explanation as to why no one spotted that the whole system was at risk and no comment or insight as to how the future of banking will shape up. It really is time we got some people in the FSA who are actually going to do something in these key roles rather than former names who just collect the cheques and ignore the obvious.

If the FSA is to survive going forward, it needs to start dictating the rules Brown's 'New World Order' and get some sense of proportion into banking that removes the blind avarice that causes the problems we face today.

Dive, Dive, Dive

The Commercial Property market paid out record bonuses last year and whooped it up at the tail end of the property boom. Many claim they have set aside plenty of funds to ride out the downturn in their defence but I sure hope it's going to be enough.

I will lay a small wager that we will see plenty of job cuts in this sector before the year's out and not a penny of all those whacking bonuses will be repaid.

The share prices of the barometer companies in this industry have dived at an alarming rate. In the last 12 months shares in British Land have collapsed by 58%, Hammerson by 65%, Land Securities by 60% and Liberty International by 63%. The predicted fall in capital values from 2007 to 2010 will be 45% and it is now anticipated that rental values will collapse in 2009.

Bonus well-earned then.

Financial Stimulus to Defibrillation

The rather salaciously termed 'Financial Stimulus' package we know as 'bail out' is already in its second iteration. What started as silky stroking of the poorly patient, the Economy, had little effect. It now seems the patient has been rushed to A&E where a team of 'Advisers' are now administering rapid pulses of electricity to its chest. We had the second bail out and now we have the car industry bail out - pretty soon we shall be having more. That is, if the views of a body of influential MPs are to be believed.

A report from a Treasury Committee has expressed what most of the country felt that the bank recapitalisation program announced in October did diddly squat and because of the 'onerous' terms may actually be hampering them, the poor lambs. Credit, or lack of it, to consumers is seen as the biggest threat.

Erm, haven't we got around £1 trillion of it unsecured on our credit cards already?

While the report talks of the £12.4bn VAT giveaway having about as much effect as attacking a tiger with a bottled fart, it warns of a 'self-reinforcing deflationary cycle' occurring if we aren't careful. I dare say they have either looked in Gordon Brown's Terminology Booklet for Gobbledygook or this is a new type of carbon-friendly bike as yet not available at Halfords.

I still think it's cuckoo land expecting consumers to go and clock up more debt to get Britain out of this mess. We are going to have to take a lot on the chin before things get bright enough to start loaning again.

The Mortgage Scam

I need to be careful here. Why is it that it is extremely hard to get a tracker mortgage that is not some way above Bank Base Rate now?

My current one, taken out around 2 years ago is 0.49% above base rate. Most UK banks now have access to money from the Bank of England at base rates and are no longer worrying about having to borrow at the inter-bank lending rate which went sky high in the Credit Crunch as no-one wanted to lend to one another.

Well here's a thought. If all these banks can borrow at 1.5% and have their borrowing guaranteed under the generous schemes by the Government, then they can lend this out at the LIBOR rates to foreign banks who are struggling to get credit and also make an absolute mint on lending for mortgages. Trackers have absolutely no reason to be so high in particular as they are directly linked to base rates - if it goes up, so do they offering a consistent margin to the lenders. It should be the fixed rates which should be the premium products when you think about it as base rates must rise again some time in the future and so decreasing the margins.

I bet there are an awful lot of lenders rubbing their hands at the very, very easy money they are making, completely underwritten by the very people they are lending to - us! Nice one, Gordon - as usual make sure the banking boys get their bonuses next year at taxpayers' expense.

Lordy, Lordy

I couldn't let the day go by without taking a poke at the scandal in the House of Lords. Again, there is widespread surprise that some Lords are claiming massive expenses, as much as £400,000 per annum in some cases. That's nothing - now Lord Mandelson is on the scene, we should see some real growth here. Further, the Evening Standard reports that Ministers like Jack Straw have received donations from companies associated with Lord Taylor.

I am so glad that Brown and his cronies got turned over on MP Expenses transparency. It really is time that whole political expenses, donations and backhander gravy train got really looked into by real people who care about how the money is being spent rather than by Government-appointed stooges who themselves are on the train.

Exterminate!

Ah, I thought it said Davros, not Davos - apologies but the word springs to mind.

I am delighted such luminaries as the well-paid Bob Diamond, CEO of Barclays Capital which recently bought part of Lehmans Bros and then caringly laid off a load of their staff to part-pay for it which I am sure they were all suitably grateful for, will not be attending to the Davos Summit this year. I believe he has more pressing matters like the bank's earnings announcement after it was feared Barclays could fall into the clutches of the Middle Eastern investors who bailed it out in preference to the Government's largesse.

Things must be tough for bank executives to miss a freebie like this and hobnob with the likes of Jet Li, whose insight on world matters is legendary, I'm sure.

The World's Favourite Debt - Not!

Fresh-footed back from India having secured new routes there, BA CEO Willie Walsh might be choking at the headline in the Telegraph which warns that Standard & Poor could rate the airline's debt as junk. Willie must have been delighted that in a year which saw the Terminal 5 fiasco show his skills at its best that his company announced a £150m loss for the year. S&P have now put BA's rating as BBB which does not stand for 'Bad, Bad, Bad' but isn't far off. In a comment of blinding decisiveness, S&P analyst, Andreas Kindahl, said "There is a 50:50 chance the next move could be down."

Poor Willie - he did so want 65% of the merged new airline between BA and Iberian but at current market prices, Iberian is actually worth more than BA. If that's the case, maybe the Armada did not die in vain.

From Jet Li to No Jet

As Jet Li prepares to take his place at the Davos summit, spare a thought for the executives at Citigroup who have had to cancel their order for a private jet. As they were not prepared to cancel the order themselves, new US Treasury Secretary, Tim Giethner, stepped in and did it for them.

Let's get things into perspective, Tim, it was only $50m. Compared to the bonuses paid out by these fellows to themselves last year, this was just a snip.

Thain Update

Poor JT - the billions of dollars paid in bonuses to executives at Merrills just days before the merger with BoA and the recent announcement of a mere $15.3bn loss in the quarter are beginning to get blown out of proportion as he has now been called before the real beaks as part of a legal investigation into the matter.

Aw, how dare they harass the poor chap.

Maybe they should look more closely at Dick Fuld, the glassy-eyed ex-CEO of Lehman Bros who got hauled up before a Senate committee to explain how, after paying handsome bonuses to himself and his executives, that he managed to bust the company.

Poor Dick had to sell his house at a knock down price, you know. The $13m Florida mansion had to be sold for just $100 which shows the terrible extent of the property market.

The new owner of the 3.3 acre site on Jupiter Island, where Tiger Woods and Celine Dion live, is a certain Kathleen Fuld who by happy coincidence is his wife.

At least they won't be needing their $21m Manhattan apartment right now as Dick is out of work and having to defend his good name - and his $20m art collection.

Bad News For Kids

Everyone gets hit by the recession, even kids. The news is that Hornby will be raising the prices of its train sets and scaletrix products pretty soon despite the recent success at Christmas thanks to their brands like Corgi and Airfix but they also own franchises for Batman, The Simpsons, Harry Potter and The Italian Job.

See, now look what your 'Deleveraging and deglobalisation' has done, Gordon? You've made the kids cry.

Wild Thain

It is with a heavy heart that I bring you the news that John Thain, the superb CEO who saved Merrill Lynch from going bankrupt, has sadly resigned his new position as Head of Bank of America's Global Banking arm after just 3 weeks.

A Lousy $10m Bucks!

"Goddam it," cried one of Thain's former senior staff at Merrills, Buck Paasser. "He was a good CEO. No, scrub that - he was a great CEO. The best of the best. He saved our company from bankruptcy by palming us off to Bank of America within seconds of the bank going belly up. That takes guts, acumen and sleight of hand, I tell you."

Paasser wept openly. "All he wanted was a lousy $10m bucks of bonus," he whimpered. "What has the world come to when you take over a bank for $19bn and you can't find enough spare change to give the guy who saved the company a little pocket money? Hell, the man is practically desitute - he gave everything to that company and he made what it is today."

Unexpected Losses

I pointed out that there was the minor issue of some large losses at Merrills that might have been 'played down' at the time of the buy out by Bank of America.

"What?" screamed Paasser. "Are you trying to tell me John Thain was dishonest? Get out of here. The man was practically a saint. You can't tell me that someone that has the kind of attention to detail that redecorates his office for $1.22m would cover up excessive losses - no, sir. He should not be blamed for the price of wood, paint and fine art."

"Look, yeah so we had trouble with the calculator and Excel was playing up," continued Paasser. "We couldn't seem to make the numbers work and we kept coming up with a spare minus $15.3bn which we couldn't account for last quarter. So we just rounded the numbers up. Hey, it's not our fault BoA have to go to the Fed and ask for an extra $20bn maybe if they paid the bonus we might have wondered more where that $15bn had gone. Anyways, BoA had already used up $25bn in October so what's another $20bn here and there - as if that's going to really save the bank."

Spare A Thought

I asked Paasser if he thought of John Thain asking his Board for $10m bonus in the light of $15.3bn losses last quarter was a particularly wise or good thing to do and perhaps it had some contribution to his departure.

"Are you joshing me, buddy," screamed Paasser. "Just because the whole Finance system failed a great man does not mean he should be able to go home and feed his family, buy a new car, dig a new pool or buy a small island in the Caribbean. Jeez, where is your humanity? The guy was only asking for $10m - you make him sound like he didn't care. He did - and that was the poor guy's failing. He cared a lot about how the heck he was going to get rich again, particularly now that guy Madoff has got all us Finance guys a bad name."

In the murky world of banking, John Thain was some guy. After selling Merrills to BoA just before breaking point for $19.4bn, the last quarter figures surprised everyone but him at a walloping $15.3bn loss. And he was the man who had the chin to ask for a $10m bonus from his Board for saving Merrills.

Still, I'll lay a bet he'll be back and at it again somewhere soon. Racking up losses seems to be a marque of credibility in the World of Finance.