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

You Lose, We Win

Well it didn't take long, did it? As you mull over your breakfast and worry about your finances and future, be comforted by the fact that life is getting back to normal.

A report by the New York State Attorney General has published the list of bonuses paid to bank executives last year. That's right, I said last year - the year when the taxpayers around the world paid the rather large bill for the bunch of voracious gamblers in the sophisticated world of Hi-Tech Finance which we seem to think we need to help our world be the way it is. So much so that we are willing to continue paying off the debt until 2032.

Put down your cereal spoon for fear of choking on the next mouthful as it gets better.

First up - Citigroup, who were until a year ago the most 'profitable' bank in the world but was the US version of RBS in the scale of their stupidity and greed requiring hundreds of $billions to bail them out by the US Treasury in terms of loans and guarantees. Well, their darling top earners pocketed a meagre $609m last year - and that was shared out amongst just 124 people. Three of the gamblers earned over $10m, 13 of them grabbed $8m or more while 44 people made off with $5m or more.

Merrill Lynch was at it too - the company that performed so badly that it had to be bought by Bank of America and even then had been less than honest about its liabilities and even as it finalised the deal, still paid out bonuses to its gambling executives. They clocked up a near $28bn loss last year but still managed to pay a total of around $860m in bonuses and that was only to the top 149 earners, of which the top 4 were paid a combined $121m, the next 4 around $62m.

There is plenty more - every state aided bank paid out huge bonuses again last year just as if nothing had really happened. The estimated global cost in terms of bail outs is far in excess of $5 trillion and the banking world goes on as if nothing has happened.

In the UK, savers have been compensated to the tune of £21bn after the collapse of the banking system and then there is the enormous bill we have been landed with by the world of finance far beyond that in rescuing the banks who failed so massively.

It's a real world that lacks any kind of similarity to real life.

A career in banking was once seen as the realm of the fuddy-duddy, striped-suited Oxbridge chaps who stalked the City effectively lunching to get inside tracks. Today, modern banking is just a sophisticated and complex system of gambling. The supply of endless money into the system means that comparatively unintelligent people can drive screens that just does the banking version of whirling weighted fruit machines - they cannot seem to lose and the rewards are fabulous. What we have done, in all the far-fetched sums we have collectively stumped all over the world, is to keep the whole thing going in exactly the same way.

There is not a hint of contrition. There has been no real cull of the people who caused this. There has been little or no action by Governments and scant real understanding of the extent of our dependence on the system to sustain our way of life other than the fact they 'had no choice' in bailing the system out to make sure it did not collapse and the world becomes some kind of wilderness of fighting tribesmen haggling for food with beads and goats.

The fact remains that the finance world had created a make-believe game that generated profits from thin air just as part of the solution is to create more money from thin air in 'Quantitative Easing'. The threatened implosion of that system did not trigger a clamour to change it but to merely save it and we came so very close, they would have us know, to a world foreseen by 'visionaries' like David Icke. It now seems that lunatics like Icke were actually the clever ones.

The problem revolves around us. We are now so 'well off' that we must have 42"+ tellies, more pods that you can listen to, phones that send video, the latest gadget, new furniture, holidays, kitchens - the list is endless - and we are all very prepared to spend far beyond our means in order to get it and forfeit anything to do with provision for our retirement. Our jobs are now in far greater jeopardy than they were two years ago, more of us have lost our jobs since 1997 and our average take home income has actually dropped in real terms over the same period.

The fact was that we afforded this 'Utopia' by drawing down on our asset values - we created our own banks to conjure up money out of nothing.

Many will tell you that there is a concept of 'zero sum finance' which means that all the money in the world flows in credits and debits and always adds up to zero. So in that farcical view of the world, some may get richer at the cost of others but the amount of money has not changed and so the world is no worse off. But it is worse off. Just as the Bank of England literally conjured up £175bn out of nothing in order to increase the money supply, each of us created our own cash out of the supposed value in our assets. And then we gave it all away by spending it. We did not buy any really tradable assets as what we bought were effectively disposables or services - we did not invest in fine art, stamps or precious metals. We effectively increased the amount of money in the world and gave it away.

The bill for all that came right back to us because it was not real. As the value of our assets dropped the whole system shredded itself and we had to dip into our pockets for the actual cashflow to pay for our own mortgages again - this time in incremental tax over the long term.

What the whole collapse has taught us is that you can get nothing for nothing. You can create as much money as you like but there is a price to pay for it. And boy has the real person found out.

Up the there in 'Bank World' that hasn't happened. Reality was a close call for them but thankfully a bunch of mugs known as taxpayers and real people worldwide saved their pathetic necks. And now they are playing the whole game again. In the zenith, or nadir, of the crisis, I saw excerpts of the African Nations Congress or similar. Speaker after speaker expressed how incredulous they were at the enormity of something they simply could not understand. They also were at pains to point out that they had not caused this Credit Crunch and so the developed world should not forget them - but we did. There are always losers in the world of 'zero sum finance' and it is those who are unable to play the game. As in any lottery, you have to be able to afford ticket to play - the Third World just watched wide-eyed as the sophisticates of the developed world simply gave away money they did not have to a small number of incredibly wealthy people and then paid for it again. Meanwhile people were dying in front of our eyes and the planet is getting a less healthy place to live.

We must be mad.

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.

A Cold Day In Hell

I never thought I would read this but the recession has finally hit the greatest bastion of Britishness - beer sales are down. This hot on the back of the announcement last month that Britain is the biggest importer of wine in the world.

Hard To Believe Facts

It really is a day for shocks.

Beer sales are over 8% down compared to the same quarter last year, 5.5% for the whole year, and much of it is blamed on the 18% increase in duty announced in the budget; pubs are closing at the rate of 6 per day. Nope, nothing to do with the fact loads of people are losing their jobs and watching the pennies at all. Have lily-livered British people gone all limp-wristed and started quaffing wine rather our national brew? What has happened to the odd pint of Brain's SA 'Skull Attack', the legendary Felinfoel or 'Feeling Foul', Stella Artois 'Wife Beater', Speckled Hen and Scruttock's 'Old Scrotum'? (OK, I made the last one up).

Are we really swapping en masse to sipping wines and iced ciders while discussing the merits of Martin Corry's alleged eye-gouging or watching Mickey Skinner's 'Greatest Hits' or the 'Beautiful Game'? What is the matter with us? Have we actually swapped over to the much dreamed of Continental Cafe Culture that President Blair thought up? Now we are open all hours to drink ourselves stupid, it's apparent we are becoming a nation of wine-sipping, cider quaffing nancies.

Hey, Buddy - Don't Blame Me!

It's John Thain again - the now ex-CEO of Merrill Lynch who recently left his post at the new parent Bank of America is back in the news and fighting back. Flatly accused of lying in relation to the 'surprise' $15.3bn fourth quarter losses everyone forgot about at Merrills at the time of the BoA takeover, it is apparent that Mr. Thain and the Merrills Board signed off on $3bn to $4bn 'early bonuses' at roughly the same time. In fact, Mr. Thain complained he had been 'completely transparent' with the new parent, BoA, and that bonuses paid 3 days before the merger were paid in the full knowledge of the BoA Chairman, Ken Lewis.

Transparent he may well be and I think Ken Lewis knows exactly what this kind of transparency means. Good to know that BoA, having petitioned for a Fed bung to help it out in the light of these surprise losses, have had to use US taxpayers money to once again pay for a pile of bonuses that were completely unwarranted.

Quite how Thain can justify any bonuses at all in the light of the trading mess Merrills was in is a mystery. But I suppose the only surprise in the whole story is that John Thain was ever given a job in the first place. At least he has had the hindsight to go back and pay for the $1.22m cost of redecorating his office in which the wastepaper basket alone cost over a $1,000 calling it a 'mistake'.

The mistake was someone putting him in charge of a company let alone a bank.

Eat My Shorts!

The spookily named Paulson & Co is a US hedge fund that has made a few bob of late - just a cool £100m or so for a fair week's work. After somehow foreseeing that Royal Bank of Scotland shares would plummet on Monday, it had taken a short position a little earlier to thankfully see the shares dive 67% in a single day after the second bail out announcement. On Friday it reduced its short position just one day before the shares rallied upward by 19.8%.

There's no story, here. Nothing to read into this, move along please.

Seven Days That Created The World

Front page of this week's 'New Scientist' reveals that, on the 200th anniversary on Charles Darwin's birth and the day David Attenborough launched a new series about the value of Darwin's Theory of Evolution, the Theory is actually hokum and that the 'Tree of Life has been uprooted'. Creationists will be chucking a few parties bearing banners with misquotes but certainly it looks that at least the theory itself has evolved.

To get the context right, Newton's Theory of Gravity and Motion led the way to modern day thinking on the motion of celestial bodies thanks to his radical ideas. In the same way, Darwin's theory was the ground breaking thought process that leads to the modern views of evolution. The Tree of Life, as it is termed, was a very good way of expressing what was observed and, much like quantum mechanics changed physics, so too the new works on genomes, bioinformatics and other disciplines have transformed biology.

Still, having travelled into London this morning by car, I would like to have a chat with the theorist that said that by charging £8 to each vehicle per day for entering London would actually reduce congestion or carbon emissions. That is a theory WORTH debunking.

G'day and B'bye, Andy

Silly us. After two wins over Roger Federer and one over Nadal already this year, Andy Murray entered the Australian Open as favourite to win the title. It came as a stunning shock then that the Scot got beaten by Fernando Verdasco yesterday. We Brits are perennial losers when it comes to tennis but the good news is that Greg Rudeski has come out of retirement for our next challenge in the Isthmian Part-Timers Division of the Davis Cup where we play Liechtenstein's Extra A's Veterans in March. Should be a cracker.

The Banking Crisis Explained

Dyscalculia.

No, I have not made this up and, no, it is not a sexually transmitted disease in cats. This the term applied to those individuals who fail to see the connection between a set of objects and the numerical symbols they represent, such as a set of 5 walnuts being represented by the word five or the numeral 5. However, equally these individuals may have still have high IQs, be highly intelligent, articulate and be able to grasp conceptual mathematics.

Remind you of anyone?

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.