2008 IPO Slump

Posted on December 29, 2008 by Jack J. Gravelle

As 2008 ends, consider yet another indication that this was a terrible year for financial markets: there has been only one IPO in the US in the last four months according to IPO research firm Renaissance Capital. The U.S. total for 2008 was 43 new issues raising $50 million or more, which makes this the slowest year since 1979 and represents an 84% decline in the number of deals from 2007.

Of the IPOs that did make it to market, performance was not good. 58% percent of new issues in the U.S. traded down on their first day. 84% of global IPOs finished the year below their offer price.

And while it is true the rest of the world’s markets are also hurting (global IPO proceeds fell 69% compared to last year) the data indicates a disturbing trend that non-US markets may be more receptive to IPOs. The largest deal of the year was easily Visa in the U.S. at close to $18 billion, but the next 14 largest deals were on non-U.S. exchanges, including 3 in Saudi Arabia and several in the Asia-Pacific region.

The global IPO decline is directly linked to the absence of cheap credit and investors in general looking for less risky endeavors. The U.S. decline is also likely a result of increased regulation costs and increased competition with emerging markets that can still show significant growth.
 

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Madoff Ponzi Scheme

Posted on December 16, 2008 by Porter Wright

Porter Wright attorney Thomas Gorman discusses the Bernard Madoff $50 billion Ponzi Scheme on CNBC:

www.cnbc.com/id/15840232

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New Credit Rating Rules

Posted on December 5, 2008 by Jack J. Gravelle

The SEC has approved new rules for credit rating agencies designed to increase transparency of the rating process and decrease conflicts of interest.

Some critics contend the big three credit-rating agencies (Standard & Poor’s, Moody’s, and Fitch) bear significant blame for the current economic crisis because they over-rated what turned out to be risky subprime mortgage investments.

Rating agencies issue grades on the creditworthiness of public companies and securities. Good grades substantially increase a company’s ability to raise and borrow money.

The new rules require more disclosure about how much verification a rating agency does of the complex assets underlying a security. Rating agencies must also make available a random sample of 10% of their issuer-paid credit ratings no later than 6 months after the rating is made.

Most importantly, there are new limits on the conflicts of interest that plague rating agencies: Rating agencies can no longer structure the same products they rate. This rule is designed to prevent companies from paying for advisory services in order to get the rate they want.

One proposal not adopted was to tag structured finance products linked to mortgages and other loans (cars, student debt, etc.) with a special symbol. The symbol would alert investors that even though a structured finance product has a similar rating as traditional corporate or municipal bonds, the risks may be different. This proposal is still being considered.
 

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