Friday, July 20, 2007

Bank of East Asia Its Only Just Begun

The Securities and Exchange Commission is planning to file a civil lawsuit against David Li, a director of Dow Jones & Co. (NYSE:DJ) David Li, chairman and chief executive of the Hong Kong-based Bank of East Asia Ltd, (BKEAF:PK) has received a Wells notice from the SEC, the final step before the agency files a lawsuit.

The SEC is troubled by the very obvious chain of contacts between David Li and Kan King Wong and Charlotte Ka On Wong Leung, a married couple, who are also defendants and are said to have made "highly profitable and highly suspicious" trades based on inside information between April 13 and April 30. Their Merrill Lynch account had never held a position in Dow Jones and had primarily held fixed income securities.

Leung's father, Michael Leung, is a Hong Kong businessman who works for the Bank of East Asia (BEA) and has close ties with Li.

The SEC must chase individuals who reside outside of the US. While David Li will be vigorously defending himself personally there appears to be a significant governance problem at Bank of East Asia.

BEA has just received approval from the China Banking Regulatory Commission ("CBRC") to establish a locally incorporated bank in China in March 2007. The new bank, named The Bank of East Asia (China) Limited ("BEA (China)"), formally commenced business on 2nd April, 2007. Within 90 days the Chairman becomes embroiled in a US based securities scandal.

The scandal will probably not have an impact on Rupert Murdoch's (NYSE:NEWS) bid for Dow Jones. Li is obviously from the Bancroft camp and it will look very odd that the defenders of journalistic freedom sponsored this guy into the house. David Li sits on both the audit and governance committee's of Dow Jones's board.

China is in a quandary. The SEC will need to subpoena documents from Chinese jurisdiction. If the Chinese refuse or otherwise frustrate the investigation and subsequent lawsuit the perception from the west will be that the Chinese protect white collar securities crime. There is enough Western doubt about Chinese practices as they relate to food and health standards, intellectual property and a wide variety of other issues. The Chinese will most likely want to look good in Western eyes. Privately they are probably not too impressed with the short term money grab that this really is.

If you want to watch the impact of Rupert Murdoch (who has big Chinese connections)on Dow Jones then watch the coverage on this story. The SEC will want to hang David Li. News Corp and Dow Jones lawyers are all shaking their heads and saying I cannot believe this crap. The Chinese will want to keep this out of the public eye as much as possible. The Wall Street Journal's Beijing bureau is supposedly in open revolt against a Murdoch takeover. But for Chinese regulatory affairs the Beijing Bureau is on deck.

Talk about the laws of unintended consequences.

Thursday, July 19, 2007

Hilton Two Track Governance

Hilton Hotels (NYSE:HLT) is in the process of being absorbed by Blackstone (NYSE:BX) The transaction is scheduled to close sometime in the fourth quarter of 2007. The deal is not subject to financing. The legal machine is probably chugging away to close the deal. Lots of paper work of course. Hilton has recommended of course.

Hilton has decided to cancel their upcoming conference call. The assumption must be why bother with a done deal. The last conference call had technical glitches which were not Hilton's fault but were very annoying.

The governance issue is this: Until the deal actually closes there is an obligation to keep any and all investors fully informed. Blackstone is public so when an asset is sold from one investor set to another the need for Fair and Full Disclosure does not disappear. So why not have the conference call and put it out there? No one will get hurt.

Or does Blackstone want the cone of silence to come down and keep certain matters under wraps? What matters? When you keep things in the closet it only creates doubt and skepticism.

Hilton and Blackstone investors are not being well served. Blackstone still trades below issue price. Blackstone needs to learn a few lessons about investor communications. Its not only what you say, its what you do not say that speaks more loudly.

Wednesday, July 18, 2007

Bancroft Factor

Dow Jones (NYSE:DJ) Board has kicked the deal over to the shareholders (read Bancrofts)with their recommendation for approval. The board is now off the hook. No one else has made an offer that means anything. Bancrofts have checked the market personally and must now know without a doubt that no one else wants to trump Rupert Murdoch's News Corp (NYSE:NWS)offer. Therefore price is no longer a viable reason to refuse.

The Bancrofts have long basked in the prestige of ownership of Dow Jones, Wall Street Journal, Barrons and other properties. It has been explained to them, long before Rupert Murdoch's offer was made, that Dow Jones needs to be fixed. The Bancrofts have been slowly but surely allowing the legacy asset to whither away. What have they added?

If the Bancrofts refuse Rupert Murdoch's deal, what will they counter with? Currently they are a curiosity. Their ownership is inherited through many generations. Current family members have not provided any substantial leadership in solving any of Dow Jones problems. Refusing the offer would contain the responsibility of providing a credible vision for the future. If they are concerned about journalistic freedoms and standards at a financial publication, they need to be just as concerned about creating wealth and managing viable businesses.

The question becomes: Lead, Follow or Get Out Of the Way. They have not led. They do not appear to follow. They need to get out of the way.

Tuesday, July 17, 2007

St Mary's Reg FD Challenged

St. Mary Land & Exploration Company (NYSE:SM) issued a very late in the day (Jul 16)press release (approximately 2114 ET)announcing a laundry list of significant disclosure. They also announced that their earnings will be released after the close of trading on Aug 2 with an early morning conference call on Aug 3. Consult your calenders and you will see that many observers would call this a severe violation of the thirty day quiet period regulation.

The press release starts with announcements about promotions and retirements. After your eyes glaze over the document continues with a very helpful and detailed discussion of operations and drilling activities. It concludes with financial modelling information relating to almost every aspect of operations. Any investor who closely watches the stock will be able to predict the EPS.

Guidance updates should not be issued just before the real numbers come out. They certainly should not be issued within the 30 day quiet period.

The stock is currently trading at the lower end of its 52 week range. Some significant insider selling is occurring. In June Robert L Nance a Senior Vice President backed up his truck and offloaded 34,024 shares. Shortly thereafter John Seidl a director backed up a smaller truck and offloaded 11,428 shares. So why is everyone exercising their options at the lower end of the 52 week range?

The company including its board of directors and any executive with corporate governance driven responsibilities need some remedial tutorials about securities regulations before they really get into some serious trouble. Hey In House Counsel that means you got to get tough or it will be your fault. Milam Randolf Pharo (VP Legal) does the finger point to you?

Monday, July 16, 2007

Citigroup To List In Japan

Citigroup (NYSE:C) has announced their desire to list on the Tokyo Stock Exchange. The strategic move will place the Citigroup brand front and center within the Japanese investor mindset. If it makes sense to buy scandal plagued Nikko Cordial because it offers entree into the world’s second largest equity market than it also makes eminent sense to list your shares on their exchange.

Here are a few items which may start to change the current NYSE centric thinking about the Citigroup.

The hours of operation will be radically different. Citigroup will be trading almost 24 hours a day. As bad or good news breaks in Asia and rolls through Europe investors will be able to take advantage immediately, assuming that you are awake and out of bed.

Will Citigroup become a lightening rod for foreign market sentiment?
There will also be some slightly variation to available trading days as Japanese holidays differ from those observed by the NYSE. Citigroup stock will be trading on September’s Labour Day and July 4. But the Emperors’ birthday will be strictly observed usually just before Christmas.

Many Japanese institutions and retail investors will now more easily purchase, monitor and sell Citigroup. Expect higher levels of Japanese institutional interest and perhaps a positive bull impact as they acquire a now domestically traded yen denominated issue.

If Citigroup shares are to trade in Yen there will there be ramifications in the Yen carry trade? Or will the Yen carry trade have ramifications for Citigroup share values as it becomes another hedge tool for other transactions.

Citigroup’s current dividend yield is approximately 4.1%. Bloomberg reports One Year Japanese Government Bonds yield 0.82%. The 30’s yield 2.58%. Carry trade and arbitrage issues aside will the Japanese investor find the yield attractive and just keep buying whenever American investors are selling.

The question is one of mindsets. Western Investors of Bank Stock typically act on a shared narrative. New Japanese players will view the narrative differently. The Japanese market has immense liquidity as a result of hyper low interest rates. Citigroup shares will benefit but will NYSE centric thinking investors know how to handle it.

Special note; Other western stocks listed on Tokyo are Dow Chemical (NYSE:DOW), Boeing (NYSE:BA) and JP Morgan (NYSE:JPM). We have all heard the stories about global economics. But did you know that the Dow 30 is perhaps a stealth candidate for Japanese investor sentiment.