Google Acquires Wiz for $32bn

Google has acquired Wiz, a cloud security company founded in 2020 that works across multiple cloud environments led by Assaf Rappaport (who previously founded Adallom, a cloud access security broker sold to Microsoft for around $320m). 

Wiz frames itself as "A new operating model for AI-era security".

Google was advised by Bank of America and Freshfields.  Wiz was advised by a slew of investment banks, including Barclays, JP Morgan, Morgan Stanley and Goldman Sachs.

Bank of America has expanded its technology banking team, including hiring Jason Rowe of Goldman Sachs and others from JP Morgan and Centerview Partners (Gary Kirkham).

SWIFT backs Blockchain Ledger

SWIFT is adding a blockchain ledger to its infrastructure stack. 

It is developing this ledger with 30 financial institutions from 16 countries, including Absa, Banco Santander, Bank of America, BBVA, Citi, Deutsche Bank, BNP Paribas, Emirates NBD, Societe Generale-FORGE, Wells Fargo and Royal Bank of Canada, taking part.

SWIFT CEO Javier Pérez-Tasso (CEO since 2019) remarked: "We...are moving at a rapid pace... to create the infrastructure stack of the future".

Chuck's Cisco Buys Splunk for A Whopping $28bn

This is Cisco's largest ever acquisition. 

The networking giant is metamorphosing into a software giant by acquisition.  

SF based Splunk brands itself as a leader in cybersecurity and observability (the security part being a post facto addition/evolution of the core log management product) with a touch of AI thrown into the mix. You could even say it enables "security observability" in an "AI friendly way".

Splunk's Burlingame-based chief executive Gary Steele who came from cybersecurity firm Proofpoint (formerly a Nasdaq-traded security-as-a-service company, taken private by Thoma Bravo in 2021 at a valuation of $12.3bn), will now report into Cisco's Chief Executive Chuck Robbins (who took on the mantle handed down by Cleveland, Ohio-born John T Chambers in 2015 who held the position for 20 years - and was incidentally also Chuck's mentor!).

Steele's new boss Chuck Robbins has a mathematics degree (from UNC-Chapel Hill) and started his career as an application developer at a bank (which was later integrated into Bank of America).

This acquisition is fundamental in that it exposes Cisco to subscription-based software revenue. 

Quinton Gabrielli (Piper Sandler) also observed it fills a hole for Cisco which has been struggling to expand its business. The acquisition announcement comes around a week after Cisco announced it was acquiring PINACL a firewall policy management solution developed within Goldman Sachs and propped up by GS Accelerate.

In August 2023, Cisco also acquired BGP Monitoring company, Code BGP, based in Greece.

Repeal and Replace the Dodd Frank Act Message from Trump is a Boon for Banking Stocks (especially Goldmann Sachs)

"Dodd Frank is a disaster" said President Trump, on the law Obama signed into law in 2010, named partly after Connecticut native, and Democrat, Chris Dodd, and Barney Frank, a Harvard Law School alumnus and also a Democrat.

Swap Execution Facilities (or SEFs) came about as a direct result of the Dodd-Frank Act.

The market response has been positive.

Goldman stock rose 4.2% (NYSE:GS) and Bank of America 2.5% (NYSE:BAC). This is despite the stocks having very similar betas of 1.5 and 1.47 respectively.

Gary Cohn, formerly Chief Operating Officer of Goldman Sachs, former options dealer and now chief economic advisor to Donald Trump, waxed lyrical to the Wall Street Journal regarding the move.

MS Debt More Risky than Bank of America, says CDS

495 basis points is the highest level it's been in 2.5 years, implying a cost of $495,000 a year to insure $10m of Morgan Stanley bonds for 5 years (more expensive than Bank of America). At 500bps premium, bonds are regarded to have junk status, say Markit. Shares in MS fell 10% to $13.51. The main driver for the concerns is MS' exposure to European bank debt, in particular France.

The End of Crazy Acquisitions for BoA?

Ken Lewis, BoA's architect of disaster mergers, the last of which was Merrill Lynch, has been gazoomf'ed by his scion Brian Moynihan who has declared "NO MORE DISASTER MERGERS". Adding to the theme of no more acquisitions, he surmised: "We do not need anything".

Bank of America's Massive One-Off Charge and Banking Environment

BoA in Q3 2010 took a charge of more than $10bn for a revaluation of its credit and debit card business which is being adversely impacted by charge-curbing regulation. This netted out with profits to give a loss of $7.3bn. Apart from the "credit charge", BoA performance is very tied to the US mortgage market: data on foreclosures etc.

Goldman's Q3 profit was $1.73bn, down from last year (blamed on lower prop trading revs due to smaller volumes and lower volatility) although revenue from investment banking advisory increased.

Banking on America: Brian Moynihan is Crowned the New Ken Lewis

Senior exec Brian M. has now been appointed BoA CEO having successfully dislodged John Thain. He originally came from FleetBoston which was acquired by BoA in 2004. He worked for FleetBoston for 11 years. Scrutiny over the ML deal proved too much for Ken Lewis who will retire on Dec 31.

Washington versus Wall Street - Should Ken have invoked the MAC (change clause) and dumped Merrill?

The Atlantic has run an article on the last days of Merrill Lynch, and the coercive influence of the Fed and the Treasury. It asks the question, "Did the deal save us all from economic apocalypse?". Let's review deal terms. BoA offered $29 a share - a 70% premium over the previous Friday close, and nearly 2x book value. Andrew Cuomo, NY Attorney General (chief legal office in NY state, which borders with Quebec and Ontario in Canada, and dominated by the Great Appalachian Valley in the East), brought many of the facts to light regarding the Fed and Treasury trying to keep the firms together, once Merrill's losses became evident. They were collateralising loans with bad assets. By November, it emerged Merrill had $9bn in losses. Should Ken Lewis at this stage have invoked the MAC (material adverse change clause) to allow his banking Wal-Mart to walk away from the deal before it closed? It was now Washington versus Wall Street.

On December 5 2008, shareholders approved the deal. Prior to this, no information was revealed on the exact extent of Merrill Lynch's problems. According to Lewis, Paulson threatened to remove the board and management of Bank of America should Lewis invoke the MAC, as it would sink Merrill Lynch and create a "systemic risk" to the US economy. The flip side - shareholder litigation for not invoking the MAC.

Stress Tests: Banks need over $74 BILLION!!!

10 of America's 19 largest banks failed stress tests and will need to raise a combined total of $74.6bn in new capital to cover "worst-case" losses. BoA will need $33.9bn (BoA has already absorbed $45bn in federal capital).

bank.balanceSheets(A, L). ? A= badassets

Dow closed at a 6yr low as fears spread about the banking sector and the prospect of a prolonged recession. While this happened,

investors.flock(hardAssets) {
Tbond.rally(); // reducing yields
Gold.rally(); // record levels }
bank.balanceSheets(A, L). ? A= badassets
nationalisation_fears(Bank) ? Bank = _boa. Bank = _citi.

BoA drops 13% Thursday, Thain Leaves Merrills, Tech Ups and Downs, KBC Bailout

Ex-Merrill chief John Thain is ejected from Bank of America.

mba(thain,hbs).

BoA's general counsel Brian Moynihan replaces Thain. ML announced a loss of $15.3 billion in the fourth quarter, or $9.62 a share.

Microsoft, the maniacal operating system giant, announced it was cutting 5,000 employees indicating few companies are immune to recession. Fiscal discipline is necessary for all technology companies in this climate.

Commented one investment firm manager, "it's tough to do well in this environment, and if a company succeeds, it's a huge compliment to management" adding "Microsoft has turned into the big old sluggish company that IBM used to be".

KBC has been bailed out to the tune of €2 billion from the Flemish government (Flemish is Dutch as spoken in Belgium) fueling a rebound in its shares (adding to the existing bailout paid in October). KBC announced it will concentrate its activities on home markets, reduce costs and market risk. It would scale down its derivatives business.

BoA drops 29%, FBR claims bank needs more than $80 billion

BoA (BAC:NYSE) closed at $5.10.

Barclays Bank Shares Tumble 25% in Friday Trading, BoA drops 13.7% on Q4 Results

Barclays shares fell 25%, hours after the ban on short-selling was lifted. Speculation surrounds further credit writedowns at Barclays Capital (managed by this team). Are we heading for nationalisation of Barclays?

BoA reported 2008 full-year profit of $4.01 billion compared with net income of $14.98 billion for 2007. The full-year profit was greatly impacted by a Q4 loss of $1.79 billion. These results include Countrywide Financial, acquired 1 Jan 2009, but not Merrill Lynch. Bank of America this month raised $2.8 billion by selling under 15% of its shares in China’s second-largest bank, China Construction Bank.

According to their press release, Bank of America ended 2008 with a Tier 1 capital ratio of 9.15 percent. Additional capital from the Treasury will boost the company's Tier 1 capital ratio to approximately 10.70 percent, on a pro-forma basis. T1C is a Basel-measure, measuring the ratio of the bank's core equity capital to risk-weighted assets. The Basel accord specifies capital adequacy requirements for banks, "le contrôle bancaire".

US broker Ameritrade expands into Options Market

America's 3rd largest online stockbroker TD Ameritrade agreed to acquire Thinkorswim Group for $606m (€444m) in cash and stock, in a move to push further into the fast-growing options market and build up its investor-education programs, reports efinancialnews. Other online options brokers include optionsexpress.

The FT reports the deal is expected to close in six months, subject to shareholder and regulatory approval. Ameritrade is being advised by Merrill Lynch, while thinkorswim is being advised by Park Avenue-based Paragon Capital Partners.

In other banking news, BoA has completed its acquisition of Merrill Lynch, creating the world's largest wealth management business. BoA expects to make $7bn in pre-tax expense savings, fully realised by 2012. Sources of cost reduction include elimination of positions, reduction of overlapping technology, vendor and marketing expenses.

Public Sector Borrowing and its impact on FX rates and CDS prices

GBPEUR

In the FX markets, December saw the GBP trading at parity with the EUR, its worst performance yet this year but a price target predicted by analysts in a self-fulfilling prophecy. Alastair Darling's remarks earlier in the year accelerate the sell-off.

GBPUSD

In July sterling was trading at $2, then dwindled to $1.50. Why? Partly Britain's public finances - the Treasury's pre-Budget report forecast UK public borrowing will rise to £78bn for 2008-09 and then to £118bn in 2009-10 (8% of GDP). These figures though are not consistent with data from the ONS.

Analysts point out a high level of government borrowing tends to spell trouble for sterling. A post-war high was reached in 1974-75 (6.9% of GDP), which led to Britain asking the IMF for emergency funding in 1976. The Treasury's counter is that it believes the recession will be shallow and brief. The UK has been running a deficit since 2002/2003.

The CDS market for sovereign debt has indicated the cost of insuring default by the Treasury on its gilts over 5 years has reached 100bps over Libor (7.2 bps a year ago). Analysts CEBR announced (speaking about the recession across Europe): "The United Kingdom economy is likely to be the hardest hit by the credit crunch due to its reliance on consumer borrowing and the financial sector for growth".

But who is trading in the sovereign CDS market and why? BoA research provides some answers.