Job Market Wanes for U.S. Lawyers

Law-school graduates are suffering from a supply-and-demand imbalance that’s suppressing pay and job growth. The result: Graduates who don’t score at the top of their class are struggling to find well-paying jobs to make payments on law-school debts that can exceed $100,000.

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Hard Case: Job Market
Wanes for U.S. Lawyers

Growth of Legal Sector
Lags Broader Economy;
Law Schools Proliferate

By AMIR EFRATI
September 24, 2007; Page A1

A law degree isn’t necessarily a license to print money these days.

For graduates of elite law schools, prospects have never been better. Big law firms this year boosted their starting salaries to as high as $160,000. But the majority of law-school graduates are suffering from a supply-and-demand imbalance that’s suppressing pay and job growth. The result: Graduates who don’t score at the top of their class are struggling to find well-paying jobs to make payments on law-school debts that can exceed $100,000. Some are taking temporary contract work, reviewing documents for as little as $20 an hour, without benefits. And many are blaming their law schools for failing to warn them about the dark side of the job market.

The law degree that Scott Bullock gained in 2005 from Seton Hall University — where he says he ranked in the top third of his class — is a “waste,” he says. Some former high-school friends are earning considerably more as plumbers and electricians than the $50,000-a-year Mr. Bullock is making as a personal-injury attorney in Manhattan. To boot, he is paying off $118,000 in law-school debt.

“Unfortunately, some find the practice of law is not for them,” Seton Hall’s associate dean, Kathleen Boozang, said through a spokeswoman. “However, it is our experience that a legal education is a tremendous asset for a variety of professional paths.”

A slack in demand appears to be part of the problem. The legal sector, after more than tripling in inflation-adjusted growth between 1970 and 1987, has grown at an average annual inflation-adjusted rate of 1.2% since 1988, or less than half as fast as the broader economy, according to Commerce Department data.

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Some practice areas have declined in recent years: Personal-injury and medical-malpractice cases have been undercut by state laws limiting class-action suits, out-of-state plaintiffs and payouts on damages. Securities class-action litigation has declined in part because of a buoyant stock market.

On the supply end, more lawyers are entering the work force, thanks in part to the accreditation of new law schools and an influx of applicants after the dot-com implosion earlier this decade. In the 2005-06 academic year, 43,883 Juris Doctor degrees were awarded, up from 37,909 for 2001-02, according to the American Bar Association. Universities are starting up more law schools in part for prestige but also because they are money makers. Costs are low compared with other graduate schools and classrooms can be large. Since 1995, the number of ABA-accredited schools increased by 11%, to 196.

Evidence of a squeezed market among the majority of private lawyers in the U.S., who work as sole practitioners or at small firms, is growing. A survey of about 650 Chicago lawyers published in the 2005 book “Urban Lawyers” found that between 1975 and 1995 the inflation-adjusted average income of the top 25% of earners, generally big-firm lawyers, grew by 22% — while income for the other 75% actually dropped.

According to the Internal Revenue Service, the inflation-adjusted average income of sole practitioners has been flat since the mid-1980s. A recent survey showed that out of nearly 600 lawyers at firms of 10 lawyers or fewer in Indiana, wages for the majority only kept pace with inflation or dropped in real terms over the past five years.

The news isn’t any better for the 14% of new lawyers who go into government or join public-interest firms. Inflation-adjusted starting salaries for graduates who go to work for public-interest firms or the government rose 4% and 8.6%, respectively, between 1994 and 2006, according to the National Association for Law Placement, which aggregates graduate surveys from law schools. That compares with at least an 11% jump in the median family income during the same period, according to the Census Bureau. Graduates who become in-house company lawyers, about 9%, have fared better: Their salaries rose by nearly 14% during the same period.

Many students “simply cannot earn enough income after graduation to support the debt they incur,” wrote Richard Matasar, dean of New York Law School, in 2005, concluding that, “We may be reaching the end of a golden era for law schools.”

Meanwhile, the prospects for big-firm lawyers are growing richer. While offering robust minimum salaries, those firms are paying astronomical amounts to their stars.

Now, debate is intensifying among law-school academics over the integrity of law schools’ marketing campaigns. Defenders argue that the legal profession always has been openly and proudly a meritocracy: Top entrance-exam scores help win admittance to top schools where top students win jobs at top firms. Even the system that is used to issue law-school grades — a curve that pits student against student — reflects the law profession’s competitiveness.

David Burcham, dean of Loyola Law School in Los Angeles, considered second-tier, says the school makes no guarantees to students that they will obtain jobs. He says it is problematic that big firms only interview the top of the class, “but that’s the nature of the employment market; it’s never been different.”

For the majority of students and alumni, he says, Loyola “turned out to be a good investment.”

Yet economic data suggest that prospects have grown bleaker for all but the top students, and now a number of law-school professors are calling for the distribution of more-accurate employment information. Incoming students are “mesmerized by what’s happening in big firms, but clueless about what’s going on in the bottom half of the profession,” says Richard Sander, a law professor at the University of California-Los Angeles who has studied the legal job market.

“Prospective students need solid comparative data on employment outcomes, [but] very few law schools provide such data,” adds Andrew Morriss, a law professor at the University of Illinois who has studied the market for new lawyers.

Students entering law school have little way of knowing how tight a job market they might face. The only employment data that many prospective students see comes from school-promoted surveys that provide a far-from-complete portrait of graduate experiences. Tulane University, for example, reports to U.S. News & World Report magazine, which publishes widely watched annual law-school rankings, that its law-school graduates entering the job market in 2005 had a median salary of $135,000. But that is based on a survey that only 24% of that year’s graduates completed, and those who did so likely represent the cream of the class, a Tulane official concedes.

On its Web site, the school currently reports an average starting salary of $96,356 for graduates in private practice but doesn’t include what percentage of graduates reported salaries for the survey.

“It’s within most individuals’ nature to keep that information private, unless it’s a high amount,” says Carlos Dávila-Caballero, assistant dean for career development at Tulane, who adds that his office tells prospective students to use the median figure as a guide because starting salaries vary widely.

Academics who have studied new-lawyer salaries say that the graduate surveys of many law schools are skewed by higher response rates from the most successful students. The National Association for Law Placement, which aggregates and publishes national data based on those surveys, concedes that it can’t vouch for their accuracy. “We can’t validate the figures; we have to rely on schools to report to us accurately,” says Judy Collins, NALP’s director of research.

A prospective student studying NALP data might conclude that the study of law is a sure path to financial security. For 2006 graduates who entered private practice, or nearly 60%, NALP shows a national median salary of $95,000, a rise of 40%, adjusted for inflation, from 1994 graduates.

The NALP data also show that the percentage of graduates employed in private practice has been steady, fluctuating between 55% and 58% for more than a decade. But in law schools’ self-published employment data, “private practice” doesn’t necessarily mean jobs that improve long-term career prospects, for that category can include lawyers working under contract without benefits, such as Israel Meth. A 2005 graduate of Brooklyn Law School, he earns about $30 an hour as a contract attorney reviewing legal documents for big firms. He says he uses 60% of his paycheck to pay off student loans — $100,000 for law school on top of $100,000 for the bachelor’s degree he received from Columbia University.

A glossy admissions brochure for Brooklyn Law School, considered second-tier, reports a median salary for recent graduates at law firms of well above $100,000. But that figure doesn’t reflect all incomes of graduates at firms; fewer than half of graduates at firms responded to the survey, the school reported to U.S. News. On its Web site, the school reports that 41% of last year’s graduates work for firms of more than 100 lawyers, but it fails to mention that that percentage includes temporary attorneys, often working for hourly wages without benefits, Joan King, director of the school’s career center, concedes.

Ms. King says she believes the figures for her school accurately represent the broader graduating class. She says the number of contract attorneys is “minimal” but declined to give a number.

The University of Richmond School of Law in the last couple of years started to be more open about its employment statistics; it now breaks out how many of its grads work as contract attorneys. Of 57 2006 graduates working in private practice, for example, seven were contract employees nine months after graduation. Schools “should be sharing more information than they are now,” says Joshua Burstein, associate dean for career services who put the changes in place. “Most people graduating from law school,” he says, “are not going to be earning big salaries.”

Adding to the burden for young lawyers: Tuition growth at law schools has almost tripled the rate of inflation over the past 20 years, leading to higher debt for students and making starting salaries for most graduates less manageable, especially in expensive cities. Graduates in 2006 of public and private law schools had borrowed an average of $54,509 and $83,181, up 17% and 18.6%, respectively, from the amount borrowed by 2002 graduates, according to the American Bar Association.

Students taking on such debt may feel reassured by incessant press reports of big firms scrambling to hire and keep associates. Making headlines this year was a bump up in big-firm starting salaries to $160,000 from $145,000 in many cities.

And indeed, some law graduates of lower-tier schools do find high-paying private-practice law jobs. In recent years big firms have boomed thanks in part to the globalization of business and Wall Street deal making; firms have been casting a wider net for new lawyers, though they still generally restrict their recruiting at lower-tier schools to students at the very top of the class or on the law review. Some students have leads on a job at a family member’s or friend’s practice.

But just as common — and much less publicized — are experiences such as that of Sue Clark, who this year received her degree from second-tier Chicago-Kent College of Law, one of six law schools in the Chicago area. Despite graduating near the top half of her class, she has been unable to find a job and is doing temp work “essentially as a paralegal,” she says. “A lot of people, including myself, feel frustrated about the lack of jobs,” she says.

Harold Krent, Chicago-Kent’s dean, said it’s not uncommon for new lawyers to wait a few months to more than a year to find a job that’s a good fit. He added that there is a “small spike” in employment after his school’s grads receive their bar-exam results, several months after graduation, because some firms wait until then before hiring.

The market is particularly tough in big cities that boast numerous law schools. Mike Altmann, 29, a graduate of New York University who went to Brooklyn Law School, says he accumulated $130,000 in student-loan debt and graduated in 2002 with no meaningful employment opportunities — one offer was a $33,000 job with no benefits. So Mr. Altmann became a contract attorney, reviewing electronic documents for big firms for around $20 to $30 an hour, and hasn’t been able to find higher-paying work since.

Some un- or underemployed grads are seeking consolation online, where blogs and discussion boards have created venues for shared commiseration that didn’t exist before. An anonymous writer called Loyola 2L, purportedly a student at Loyola Law School, who claims the school wasn’t straight about employment prospects, has been beating a drum of discontent around the Web in the past year that’s sparked thousands of responses, and a fan base. (”2L” stands for second-year law student.) Some thank “L2L” for articulating their plight; others claim L2L should complain less and work more. Loyola’s Dean Burcham says he wishes he knew who the student was so he could help the person. “It’s expensive to go to law school, and there are times when you second-guess yourself as a student,” he says.

Some new lawyers try to hang their own shingle. Matthew Fox Curl graduated in 2004 from second-tier University of Houston in the bottom quarter of his class. After months of job hunting, he took his first job working for a sole practitioner focused on personal injury in the Houston area and made $32,000 in his first year. He quickly found that tort-reform legislation has been “brutal” to Texas plaintiffs’ lawyers and last year left the firm to open up his own criminal-defense private practice.

He’s making less money than at his last job and has thought about moving back to his parents’ house. “I didn’t think three years out I’d be uninsured, thinking it’s a great day when a crackhead brings me $500.”

–Mark Whitehouse contributed to this article.

Write to Amir Efrati at amir.efrati@wsj.com

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Pension funds oppose SEC fraud move

By Jeremy Grant in Washington and Brooke Masters in New York

Published: March 4 2007 22:42 | Last updated: March 4 2007 22:42

A group of US public pension funds and state attorneys-general is opposing a move by the Securities and Exchange Commission to persuade the US Supreme Court to raise the standard needed for plaintiffs to be able to plead fraud cases.

The development sets the stage for a battle between those who argue that reform is needed to reduce a proliferation in “meritless” lawsuits in the US and those who worry about an erosion of investors’ ability to hold managers to account.

The issue is expected to move centre stage next week with the release of a report by the US Chamber of Commerce on US competitiveness and regulation.

It comes on the heels of two similar reports backed by Henry Paulson, US Treasury secretary, both of which suggest that an overly litigious environment is driving investors from the US.

Jerry Silk, a partner at Bernstein, Litowitz, Berger & Grossmann, which is acting for the funds, said they had filed a “friend of the court” brief to the Supreme Court in support of plaintiffs in a case against Tellabs, a telecoms group, alleging securities fraud. It argues against an earlier brief filed by the SEC that had urged the court to adopt a higher standard for determining intent in such fraud cases.

The SEC’s brief has raised eyebrows because lawyers say it indicates that the SEC may want a higher standard of proof before plaintiffs can bring fraud cases.

At issue before the court is how to interpret the Private Securities Litigation Reform Act of 1995, which requires investors asserting fraud to show a “strong inference” that defendants acted with the required intent.

The SEC’s brief rejects a lower court’s interpretation, urging the Supreme Court to adopt one that would require investors to show “a high likelihood” of intent.

The SEC said it had filed 21 court briefs in the past decade with the same “strong inference” position – and one that it said had been shared by “the greatest number of courts”.

The SEC is supported by the chamber and the Securities Industry and Financial Markets Association, whose members include big Wall Street banks. Mr Silk’s clients, which manage $6bn in assets, include the Jacksonville Police and Fire Pension Fund.

Separate briefs are likely to be filed for the attorneys-general of Ohio, Rhode Island, New Jersey and New Mexico by Bernstein, Liebhard & Lifshitz, the law firm.

Mr Silk said: “These public pension funds…feel compelled to file a legal brief urging the Supreme Court to ensure that an investor’s right to seek recovery for losses caused by corporate wrong-doing is not curtailed in a way Congress never intended.”

Copyright The Financial Times Limited 2007

 http://www.washingtonpost.com/wp-dyn/content/article/2007/09/21/

AR2007092102126_pf.html

Taking Cues From Fed, Speculators Bid Up Oil

By Steven Mufson
Washington Post Staff Writer
Saturday, September 22, 2007; D01

Federal Reserve Chairman Ben S. Bernanke may have cooled off the credit crisis by cutting interest rates, but he may also have heated up oil prices this week.

For seven consecutive business days, crude oil prices have hit new highs. Even after dropping slightly yesterday, crude oil on the New York Mercantile Exchange finished the week at $81.62 a barrel, up a third since Jan. 1 and not far short of the inflation-adjusted peak set in January 1981, when Saddam Hussein’s Iraq was at war with Iran.

Though gasoline prices haven’t matched earlier levels, new price increases could come soon. AAA said that the nationwide average price of regular unleaded gasoline was holding steady at $2.80 a gallon, up 34 cents from a year ago but still 43 cents below its peak, on May 24.

The fuel for the latest surge in petroleum prices has been renewed speculation by investors and hedge funds after the Federal Reserve’s cut in interest rates eased concerns about an economic slowdown. For every percentage-point increase in gross domestic product, oil consumption in the United States, the world’s biggest oil market, grows from a quarter to a third of a percent.

Lower interest rates have also undercut an already weakened dollar, which reached $1.41 against the euro. Since crude oil is priced in dollars, a weak dollar makes oil cheaper abroad and high prices in dollars more sustainable.

Oil prices this week drew strength from other areas, too. Comments by the French foreign minister, Bernard Kouchner, fanned fears of war with Iran over its refusal to open its nuclear program to international scrutiny. Last weekend, Kouchner warned Western nations to “prepare for the worst,” though he told Washington Post editors yesterday that he favored giving the head of the International Atomic Energy Agency some time to negotiate with Iran.

To top it off, nearly two-thirds of the oil output in the Gulf of Mexico, or more than 800,000 barrels a day, was idled on Thursday as an approaching storm prompted the evacuation of offshore oil facilities, the Minerals Management Service said.

Unlike the rise in oil prices in the spring, this spike is taking place when energy demand usually hits a lull, between summer driving and winter heating seasons. Moreover, the price rise has picked up momentum despite an increase in output of half a million barrels a day by the Organization of the Petroleum Exporting Countries.

“This time it’s just speculation,” Peter C. Fusaro, chairman of Global Change Associates and a consultant on energy hedge funds, said of the price increase. “There’s a large bet out there that prices will continue to trend higher. But it’s detached from fundamentals because there’s no shortage of oil.”

“It’s a big gambling hall,” said Fadel Gheit, an oil analyst at Oppenheimer. “Though oil prices may still go higher, a correction is inevitable. The only question is when and how much.”

Gheit said oil prices were inflated by as much as $30 a barrel. He also argued that while commercial inventories were modest, a buildup of government-held stocks had made demand seem stronger than it actually is.

Still, many analysts said that oil prices would remain high over the longer term because of restricted access to the world’s biggest reserves in Russia and the Middle East and because oil consumption in the United States, China and the Middle East continues to rise despite high prices.

Last week, Goldman Sachs raised its forecast for crude prices to $85 a barrel, and said there was “a high risk of a spike above $90″ a barrel. The October futures contract on the Nymex reached a record $83.90 on Thursday, its last day of trading. The peak monthly cost of crude oil to U.S. refiners was an inflation-adjusted $92.91 a barrel in January 1981, according to the Energy Department’s Energy Information Administration.

Royal Dutch Shell showed its confidence in the strength of the domestic gasoline market yesterday by announcing the biggest U.S. refinery project in three decades. The $7 billion expansion project would add 325,000 barrels a day of capacity at the Port Arthur, Tex., refinery that operates through Motiva Enterprises, a joint venture between the company’s Shell Oil unit and Saudi Aramco, the Saudi state oil company. The new facility will be able to handle relatively cheap low-quality crude oils, such as those from Alberta tar sands, new low-grade Saudi production or Venezuela.

“In spite of the high [gasoline] prices, we have still seen growth in the United States,” said Rob Routs, executive director of downstream at Royal Dutch Shell. He said that the United States has been importing about 1 million barrels a day of refined products, so that additional refinery capacity would “give security of supply” and “a good opportunity to cover the growth that is going to take place over the coming years.”

Even if gasoline demand remains healthy from an oil company point of view, many economists warn that high oil prices could hurt the U.S. economy by fueling inflation, pinching consumer spending and siphoning money into the coffers of foreign oil producers. With those producers inclined to convert some of those dollars into other currencies, that could further weaken the U.S. currency — and make it harder for the Fed to cut again.

“I don’t know any other economy in modern history that showed resilience and strength while its currency sank to record levels,” said Gheit. “Something has to give.”

U.S. Options Fall to Lowest Since July as `Uncertainty’ Wanes
By Jeff Kearns

Sept. 21 (Bloomberg) — U.S. options fell to an almost two- month low as stocks posted the biggest weekly gain since March following the Federal Reserve’s interest-rate cut.

The Chicago Board Options Exchange Volatility Index fell 7.1 percent to 19, the first close below 20 since July 25. The so- called VIX, which tends to decrease when stocks rise, dropped 24 percent this week while the Standard & Poor’s 500 Index advanced 2.8 percent.

“A lot of the uncertainty has been taken out of the market,” said Bud Haslett, director of option analytics at Miller Tabak & Co. in New York. “The aggressive rate cuts on Tuesday and the generally favorable earnings from the brokerage firms appear to have calmed fears for the time being.”

Goldman Sachs Group Inc. yesterday reported the third- biggest profit in its 138-year history after betting against the mortgage bonds that roiled credit markets, easing concern that turmoil in credit markets would curb earnings at banks and brokerages.

Today’s most-active contracts tied to the VIX, November 20 calls, fell 7 percent to $2.65. Calls give the right to buy a security for a certain amount, called the strike price, by a given date. Puts convey the right to sell.

Lower readings in the VIX, derived from prices paid for S&P 500 options, indicate traders expect smaller share-price swings in the next 30 days.

Before this week’s decline in the VIX, Haslett in a Sept. 17 research note wrote that “we could be on the verge of a substantial decline in implied volatility levels.”

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net .

Last Updated: September 21, 2007 17:34 EDT

http://www.bloomberg.com/apps/news?pid=

20601084&sid=aJQzYZkFL_jU&refer=stocks

http://www.ft.com/cms/s/2/f862dba8-66a9-11dc-a218-0000779fd2ac.html

European banks wake up to EUR 84bn hangover; barter trading and stymied deals a bitter pill

By Carrie-Anne Holt and Kate Merriam in London

Published: September 19 2007 13:29 | Last updated: September 19 2007 13:29

Please email ft@debtwire.com or call us at Americas: +1 212-686-5374 Europe: +44 (0)20 7059 6113 Asia-Pacific: +852 2158 9731 for further information on Debtwire and how to receive more articles like the one below.

——————————————————————————————————–

As the shockwaves from the US subprime collapse begin to subside, participants in the European leveraged loan market have turned to damage control. LBO underwriters are struggling with the hangovers from their excessive deal making earlier in the year.

Dealers have resorted to bartering loans in order to diversify their risk amid extreme illiquidity, while some investors tackle the task of marking to market during a pricing freefall. The few new financings to test the markets in recent weeks met extremely weak investor demand, prompting underwriters to consider selling future transactions to high yield buyers instead.

“The marking down of leveraged loan paper is almost indiscriminate now – liquidity has completely dried up,” one sellside trader said. “While the price of risk has clearly changed, current levels are totally unrelated to fundamentals and, instead, are the consequence of major technical issues which hang over the market.”

The benchmark loans backing chemical manufacturer Ineos’ LBO slipped five points since June to trade at 96.50 in early September, according to data from Markit, as did NTLs bellwether loans, slipping to 95 from 100. The benchmark iTraxx LevX Senior Series 1 5Y index dropped five points over the same period from 100.75 to 95.75.

Original expectations of a recovery in the near-term are fading fast. As leveraged loan investors are reinstated with the power of refusal, European arranging banks face the unwelcome reality of the long-term burden of their underwritten loans. The pipeline of outstanding leveraged loans for European arranging banks totals EUR 84bn, according to Debtwire.

Alliance Boots’ stagnant syndication epitomizes the unprecedented drop in investor appetite this summer. The sell-down of the long anticipated EUR 9.02bn jumbo debt package began on 29 June, but the debt remains largely unsold with just the GBP 750m mezzanine facility out in the market for sell-down. The remainder sits on the balance sheets for the eight-strong banking syndicate.

ABN Amro and Citigroup halted syndication of the EUR 1.075bn covenant-lite recapitalisation of home improvement group Maxeda on 13 July, despite extending more secure terms and an extra 25bps fee in an attempt to persuade investors. A week later, syndication of the estimated EUR 960m buyout debt for retailer HEMA stalled, leaving the same arrangers treading water.

With approximately EUR 9.6bn of unsold debt, Barclays Capital has taken the biggest hit in Europe. The bank counts a portion of the record breaking GBP 9.02bn Alliance Boots financing in its portfolio of underwritten deals. Add half the GBP 5.07bn jumbo debt backing the AA/Saga tie-up and these two deals alone represent approximately EUR 4.9bn of the overhang for Barclays.

Citigroup sits in second place for amount of leftover LBO loans in Europe with EUR 8.2bn on the balance sheet. While the US investment bank was also part of the Alliance Boots arranging group, it also holds a portion of the GBP 2.85bn debt package for UK music group EMI and the EUR 3.68bn debt package for Tata Steel on its balance sheet.

RBS takes bronze from deal volumes. A total of 16 outstanding deals tally up to EUR 7.7bn of unsold debt for the Scottish bank. While RBS also approved a token underwrite on the Alliance Boots financing, the bank’s exposure to almost every deal in its portfolio totals less than EUR 800m.

Even deals agreed and launched following the liquidity downturn have struggled to syndicate. Syndication of the SEK 5.15bn (EUR 564m) LBO debt backing Bridgepoint’s acquisition of Gambro Healthcare, for example, has not been placed and discussions over fees and interest payments continue. The nephrology treatment specialist’s deal remains stuck although leveraged loan investors say the company’s stability and position in the healthcare sector make it an attractive investment.

Gambro’s acquisition financing is 5.5x levered through senior debt with offered first lien pricing of 275bps over Euribor and second lien pricing of 500bps over Euribor. In contrast, Swedish healthcare provider Capio sold a 5.8x levered senior LBO financing in March with a spread of 200bps on its first lien debt and 400bps on its second lien.

With no appetite from the institutional market, European arrangers find themselves turning to each other to offload some of their credit risk. “Banks are coming round to the idea of ’swapping deals’,” said one banker, explaining that arrangers have started approaching one another to exchange EUR 10m-EUR 20m pieces of debt. “Although net-net it still amounts to the same [on the balance sheet], total concentration to one credit can be reduced,” he added.

Bankers have also started restructuring the debt packages for their remaining deals, with some exploring the addition of PIK tranches to reduce the interest bearing debt burden for LBO credits. Re-issuing the subordinated tranche at a deep discount is a possible solution, explained one banker.

Restructuring deals to include PIK tranches could also facilitate a possible sell-down to traditional high yield investors, one arranger said. “This is a trend that has been witnessed before but I don’t know whether this will solve the problem,” countered another. “I would question how much liquidity there is in the fixed income markets at all.”

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Debtwire is the most informed news service available on global distressed debt and leveraged finance and is used by hedge funds, proprietary trading desks, asset managers, restructuring financial and legal advisors. Debtwire provides clients with articles such as the one above in real-time via an online platform and personalized email and BlackBerry alerts. For further information on Debtwire please email ft@debtwire.com
or call us at Americas: +1 212-686-5374 Europe: +44 (0)20 7059 6113 Asia-Pacific: +852 2158 9731

Copyright The Financial Times Limited 2007

UPDATE 1-Morgan Stanley to buy stake in China’s Jutian Fund
Reuters - 14 minutes ago
By George Chen SHANGHAI, Sept 19 (Reuters) - Wall Street bank Morgan Stanley (MS.N: Quote, Profile, Research) plans to buy into China’s Jutian Fund Management Co in a move to tap China’s red-hot wealth management sector, sources close to the situation …

Adds details, quote, background)

By George Chen

SHANGHAI, Sept 19 (Reuters) - Wall Street bank Morgan Stanley (MS.N: Quote, Profile, Research) plans to buy into China’s Jutian Fund Management Co in a move to tap China’s red-hot wealth management sector, sources close to the situation said on Wednesday.

Morgan Stanley had signed an initial agreement with Jutian Fund, based in the southern Chinese boom town of Shenzhen near Hong Kong, and the small Chinese fund manager had applied to regulators to approve the deal, the sources said.

Jutian Fund plans to sell about a 50 percent stake in the firm to new foreign and domestic investors, including Morgan Stanley, as part of a restructuring to boost its business, said a Jutian Fund official who declined to be named.

The Jutian official declined to say how big a stake Morgan Stanley would take or how much it would pay, but said the Wall Street bank would be joined by a Chinese firm as a co-investor.

If the deal is approved, Morgan Stanley would transform Jutian Fund into a fund management joint venture controlled by the U.S. bank, said the sources, who declined to be identified.

The sources and the Jutian official said it was not certain if the deal would win regulatory approval.

“Probably the only issue left there now is whether they can secure approval from Chinese regulators,” said one of the sources, noting that investments in the fund industry have been slow to get the green light as Beijing looks to control the rollout of new fund products.  Continued…

“Sorry everyone” - the latest resignation email

The M&A drought notwithstanding - there are obviously deals out there to keep some poor souls chained to their desks day in, day out.

The latest in the genre of IB resignation emails has hit London - and this time it’s a UBS banker who has made a snap career change and dispatched a heartfelt missive to his colleagues. Sent at 7.02am on a Sunday morning after a long, long night, one healthcare banker in the New York office had had enough.
—– Original Message —–
From: Mauldin, Jonathan-IBD+
To: XXXXXXXXXXXXX
Sent: Sun Sep 16 07:02:32 2007
Subject: Sorry everyone

I’m leaving the bank now.

‘m not made to do this. If I put my mind to something as much as I do
here to mindless text editing, copy and pasting, and getting yelled at
for stuff other people can’t/won’t/don’t do, I would be much better off.
It’s 6:43 a.m. on a Sunday, and I have at least 14 more hours of work to
do today that will not be fulfilling, useful, appreciated, recognized,
or paid for.

Sorry this is last minute, but it’s just not worth doing more

My blackberry is on my desk

Apparently that failed staffing request was fatal (no, not as in I’m
going to kill myself, hehe, I’m just going to go enjoy life). There is
no happiness here.

I took all my personal stuff. No one needs to contact me for anything
(except for a drink for those of you with my personal number). I will
only be at my New York address a few days longer.

Good luck y’all,

Jonathan Napier Mauldin
UBS Investment Bank
Global Healthcare Group
299 Park Avenue, 36th Floor
New York, NY 10171

(P) 212.821.5273
(F) 212.821.5482
Jonathan.Mauldin@ubs.com

P.S. I’ll be waiting for some smart-ass associate to send a
“best-practice e-mail for how to quit properly”. Thank you XXXX,
XXXXX, and XXXXX for your previous e-mails. I will be sure to keep
your tips in mind.

Dealbreaker has been on the case with Mr Mauldin (who was maudlin). He told them: “After my 120th hour this week on the job, I decided to peace out. I hadn’t had a day off in three weeks (day off meaning a Saturday or Sunday either), and I got yelled at at 6 in the morning.”

A downtrodden employee deserving of our sympathy or a whinging little toe-rag who knew what came with the big pay cheque? You decide.

http://ftalphaville.ft.com/blog/2007/09/19/7427/

Recommended books

Posted by: IBTalk - Aug 5, 2007 - 22:07

Barbarians at the gate (Bryan Burrough & John Helyar) - This is the story of the largest corporate take-over in American history. With a stake of US$25 billion, the battle for the control of RJR Nabisco during October and November 1988 became a symbol of the greed and power-mongering of the eighties. » Read Article

http://ibtalk.com/articles/

sorry-everyone-the-latest-resignation-email/

BREAKING THE BANK
For Hedge Funds, Hunting
In Packs Pays Dividends

Financier Hohn Sparks
Battle for ANB Amro,
Gets Help From Allies

By CARRICK MOLLENKAMP, JASON SINGER, ALISTAIR MACDONALD and EDWARD TAYLOR
September 19, 2007; Page A1

LONDON — The world’s biggest banking takeover battle began with a letter from a hedge fund with a heartwarming name: The Children’s Investment Fund. TCI, as the fund is known, donates a chunk of its profits to charities helping orphans and AIDS victims.

The Feb. 20 letter to the board chairman and chief executive of the largest bank in the Netherlands, ABN Amro Holding NV, alleged they were doing a “terrible” job for shareholders. It demanded that the bank be broken up or sold. (Read the letter.)

Behind TCI is one of the hedge-fund world’s most combative financiers, Christopher Hohn of London. The 40-year-old son of a Jamaican car mechanic, Mr. Hohn is part of a network of hedge funds that have swooped down several times on companies and insisted on change.

Executives at some of the targeted companies have complained that the funds push close to the boundaries of securities laws requiring investors to disclose it when they work together. One German chief executive, having been shot down in one of Mr. Hohn’s sorties, wrote a book about the experience titled “Invasion of the Locusts” and called the hedge-fund boss’s style “poison.”

TCI says it has followed the law in each case and acted independently of the funds to which it has ties. Mr. Hohn relishes the fights. A family New Year’s card in 2006 described his “exceptionally exciting year overthrowing German CEOs.”

The $100 billion bidding war over ABN Amro is the biggest example yet of Mr. Hohn sparking change. A bevy of other London funds — some with ties to TCI — joined his campaign. After a furious battle among Europe’s leading banks, a consortium led by Royal Bank of Scotland Group PLC is in the driver’s seat to acquire the Dutch bank. ABN Amro’s shareholders meet tomorrow to discuss the consortium’s offer and a lower bid by Britain’s Barclays PLC.

Hedge funds often hunt in packs. In a typical case, several of them have independently acquired shares of a company perceived as undervalued, waiting for the right moment to push for a sale. Once one fund jumps in with a public demand, the rest follow.

That much is legally innocuous. The controversy arises when the attackers have connections among themselves. In some circumstances, laws require the ties to be disclosed, and the group must follow rules that apply to any single shareholder including disclosure of stakes above a certain size. The theory is that the target company and the public are entitled to know when investors acting together own a big stake.

National Differences

National laws differ on the details. In the Netherlands, the relevant jurisdiction in the ABN Amro case, shareholders needn’t disclose cooperation unless they have a formal agreement, Dutch lawyers say. Elsewhere in Europe, the requirement may kick in if funds have common directors or hold stakes in each other. In the U.S., a group is loosely defined as having an agreement or profit-sharing arrangement, among other factors, lawyers say.

Hedge funds are finding plenty of targets in Europe. Some targets are sprawling corporations with units that can be broken off and sold. Others are old-line underperforming businesses that formerly didn’t face activist shareholders. As debt-market troubles make buyouts more difficult, some expect hedge funds to step up their push for internal change at companies.

Mr. Hohn is particularly feared. A BlackBerry devotee, he reads and sends email messages to executives late into the night and into the next morning. Executives whose companies he has targeted talk of his calling them at all hours. In meetings, Mr. Hohn sometimes asks the same question repeatedly, people who have been present say.

His style was on display in September 2006 when he met with executives of Euronext, then an independent company operating stock exchanges in Paris and other European cities. Mr. Hohn said Euronext shareholders deserved the chance to vote on two potential merger partners, the New York Stock Exchange and Deutsche Börse AG. Mr. Hohn, whose hedge fund owned about 10% of Euronext, favored a merger with the German exchange, while Euronext Chief Executive Jean-François Théodore wanted a deal with the NYSE.

The meeting at Mr. Hohn’s headquarters soon turned contentious as Mr. Hohn began lecturing Euronext about shareholders’ rights. “I’m going to make [sure] that shareholders have a choice,” Mr. Hohn said repeatedly.

Mr. Hohn added another jab, alleging that Mr. Théodore wanted a deal with Americans so he could get an American-style pay package. The urbane Frenchman’s expression turned icy. “That is a very serious allegation,” he said, according to a person familiar with the exchange. Mr. Hohn didn’t raise it again. Euronext declined to comment, as did Mr. Théodore, through a spokeswoman.

Mr. Hohn gave up the fight late last year after NYSE’s share price rose, making its share-based offer more valuable, and Deutsche Börse dropped out. In June, Euronext and NYSE agreed to combine in a $20 billion deal.

TCI’s other campaigns have had mixed success. The hedge fund drove Mittal Steel Co., the world’s largest steel maker by output, to pay $2 billion more than it planned to shareholders of the Brazilian unit of a company Mittal had agreed to take over in June. But this year TCI lost a public fight to force Electric Power Development Co. of Japan to pay a big dividend as the former government-owned company marshaled support from establishment shareholders.

Overall, Mr. Hohn’s approach has paid off for his investors. Through August, TCI had risen 9.5% this year, according to a person who has seen the results, compared with a 6.17% gain on the HFRI Fund Weighted Composite Index, a broad industry measure of hedge-fund performance. Last year, TCI posted a return of about 40%, compared with 12.9% for the HFRI index. Its assets total about $10 billion.

Mr. Hohn grew up in Surrey, England. At private-equity firm Apax Partners, colleagues spotted his ambition. “It became obvious he wanted to leave when he published his CV by accident on the central server instead of his private PC,” says Jon Moulton, Mr. Hohn’s boss at the time, who now works at another private-equity firm.

Yale Endowment

After seven years at hedge fund Perry Capital, Mr. Hohn left to run his own fund. TCI opened for business in January 2004, backed by 25 investors, including Yale University’s endowment.

A few months after TCI opened, Mr. Hohn began aiding allies in the business. He helped Edoardo Mercadante, a former asset manager at Merrill Lynch & Co., start a hedge fund called Parvus Asset Management (UK) LLP. Mr. Mercadante says he gave TCI a minority stake in Parvus in return for investor introductions and back-office support. TCI’s two co-heads of business management have served in similar roles for Parvus. TCI has an 18% stake in Parvus, according to TCI filings to U.K. authorities earlier this year.

It’s not uncommon for a hedge fund to lend its infrastructure to a newcomer, in exchange for some kind of remuneration such as a stake in the newcomer. TCI and two funds it assists — Parvus and another fund called Algebris Investments — say they maintain complete autonomy in making investment decisions. They “do not have access to each others’ portfolio positions or trading activity,” TCI said in a statement.

Mr. Hohn has also tapped an influential acquaintance: Lord Jacob Rothschild, a London businessman from the famed European banking dynasty. Lord Rothschild’s investment company or his family have put money into both Parvus and TCI. Lord Rothschild calls Mr. Hohn a “harsh and brilliant critic.” He says, “We heard about Parvus through TCI. We have him to thank for that.”

In January 2005, Mr. Hohn started his first big public fight: trying to force Deutsche Börse to drop its $2.46 billion offer to buy London Stock Exchange PLC. Mr. Hohn thought Deutsche Börse was overpaying. By the end of February, TCI had acquired at least a 5% stake in Deutsche Börse.

Following the TCI move, a New York hedge fund in which Lord Rothschild’s son is a partner chimed in with its own public protests. Around the same time, Lord Rothschild’s fund, of which Mr. Hohn was later named a director, acquired a stake of about £31 million, or about $62 million, in Deutsche Börse, according to that fund’s annual report.

A spokesman for the son’s fund, called Atticus, said in an emailed statement that the fund makes “independent investment decisions.” Lord Rothschild says his fund acted independently of both Atticus and TCI.

The pressure worked. After months of trying to fend off the hedge-fund campaigns, Deutsche Börse Chief Executive Werner Seifert withdrew his offer.

Mr. Hohn wasn’t finished. Next, he called for Mr. Seifert to resign. Mr. Hohn and Lord Rothschild went to Frankfurt to meet with Mr. Seifert and Deutsche Börse Chairman Rolf Breuer in April 2005. Mr. Hohn also took Parvus’s Mr. Mercadante to at least one meeting with Mr. Seifert. A month later, Mr. Seifert threw in the towel and announced he was quitting.

Mr. Seifert bitterly recounted the events in a 2006 book of which he was co-author with a German professor. The title: “Invasion of the Locusts: Intrigues, Power Struggles and Market Manipulation.”

Recalling one conversation with Mr. Hohn, Mr. Seifert wrote, “Hohn claimed that he, together with his allies, had control of between 60% and 80% of Deutsche Börse’s capital and began to read out a long list of owners. At the end, he boasted, ‘My position is so strong that we can bring Mickey Mouse and Donald Duck onto the supervisory board.’”

“His rules of the game are poison for an open and fair market,” Mr. Seifert wrote.

A subsequent investigation into hedge-fund trading of Deutsche Börse by German markets regulator BaFin found there was insufficient evidence to ask prosecutors to bring charges. BaFin didn’t disclose which hedge funds it was investigating, but an official says TCI was among them. Mr. Hohn said at the time, “We have not acted in concert with other shareholders according to the law.”

Mr. Hohn was riding high. In January 2006, a Hohn family holiday card recounted the achievements of the four Hohn children, their mother and the paterfamilias.

Holiday Greetings

“Chris has had an exceptionally exciting year overthrowing German CEOs and expanding his investment conquests to China and Brazil,” the Hohns wrote. The holiday greeting noted that “Chris and his team’s investment performance” was “50% this past year and over 100% return over the last two years.”

Mr. Hohn met his American-born wife, Jamie Cooper-Hohn, at Harvard. He attended the business school there, and she went to the Kennedy School of Government. Formerly an employee at nonprofits in New York and Washington, she now runs the charity funded by TCI, called The Children’s Investment Fund Foundation. It has given grants to former President Clinton’s foundation and AIDS-support groups in Kenya and India.

TCI charges investors a fee, on average, of 1.5% of assets under management, plus 13.5% to 16.5% of profits. Of the management fee, a third goes to the charity. If net return exceeds 11%, investors must pay an additional 0.5% of assets to be directed to the charity.

In the year ending August 2006, the foundation received about $459 million from TCI and other sources, according to its U.K. filings. The money has flooded in so quickly that the foundation says it is unable to give most of it out yet. Last year, its grants totaled about $10 million. A spokeswoman said the figure is projected to rise to about $60 million next year. The Hohns have said they approach the charities they fund with the same exacting method Mr. Hohn brings to investments. The foundation employs “portfolio managers” to oversee its donations and track progress through numerical results.

Mr. Hohn is hoping to reap another windfall in his campaign at ABN, but he faces a reprise of the questions about his tactics. At an initial meeting this January with ABN Chief Executive Rijkman Groenink, Mr. Hohn brought along Davide Serra, who manages Algebris Investments. TCI has a minority stake in Algebris and the two funds have offices on adjacent floors of the same Mayfair building.

Mr. Groenink says he figured the two funds had a relationship. “Otherwise why then would these two hedge funds together ask for an appointment?” he asks. “I understood that indeed Mr. Serra had been doing all the analysis on ABN.”

In addition, Lord Rothschild’s fund acquired an undisclosed number of ABN shares between Feb. 21 and May 22. A spokesman for the fund says Lord Rothschild didn’t discuss the purchases with Mr. Hohn.

On April 23, ABN announced it had agreed to sell itself to Barclays for about $90 billion in stock, while breaking off an American banking unit for a separate sale. Mr. Hohn was upset. He favored a higher potential bid from the consortium of European banks, which wanted to keep the U.S. unit.

A few days later at ABN’s annual meeting, Algebris’s Mr. Serra asked Mr. Groenink why ABN shareholders weren’t being given the chance to vote on the offers. Before answering, Mr. Groenink said, “Mr. Serra is related or linked to TCI for those of you in the audience who don’t know that.”

Mr. Hohn wasn’t in the audience, but his lawyer was. Frank Peters took a microphone from a person sitting nearby. Mr. Serra “doesn’t work for TCI. He is not representing TCI,” said the lawyer.

Mr. Groenink had another reason to feel troubled by the hedge funds circling the bank, people familiar with the situation say. ABN’s board became concerned that someone was leaking information to Algebris’s Mr. Serra, a person familiar with the matter says.

In April, the European bank consortium sent a letter to ABN expressing its intention to bid for the bank. That same day, Mr. Serra telephoned a person close to ABN to inquire how the bank would respond to the bid, according to people briefed on the conversation. ABN directors and executives hadn’t yet received the consortium’s letter and didn’t know about the approach.

Mr. Serra said he didn’t make such a phone call and declined to comment further on alleged leaks. An ABN spokesman declined to comment.

Justice’s Inquiry

In late April, ABN’s chairman, Arthur Martinez, informed the board that the U.S. Department of Justice would be looking into allegations about an ABN executive as part of its previously disclosed investigation into ABN’s handling of money transfers from countries under U.S. sanctions. Mr. Serra called a person close to ABN and said he was aware of the new twist in the probe, according to people briefed on the conversation. Mr. Serra declined to comment on this reported call. Mr. Martinez and an ABN spokesman declined to comment about any possible leaks.

Mr. Hohn’s quest for fresh investment targets continues. In recent months, TCI has bought about $700 million worth of stock in railroad operator CSX Corp. Atticus, the hedge fund of Lord Rothschild’s son, owned 17.8 million CSX shares in March, according to a U.S. securities filing then, a holding worth about $730 million now. An Atticus spokesman reiterated that the fund makes its decisions independently and noted that Atticus owns shares in three other major U.S. rail companies.

A spokeswoman for CSX said company executives have met with TCI multiple times in recent months. Mr. Hohn accuses the company of refusing to lay out a clear plan for improving performance. A spokesman said the company has “the most aggressive financial targets in the industry.”

Write to Carrick Mollenkamp at carrick.mollenkamp@wsj.com, Jason Singer at jason.singer@wsj.com, Alistair MacDonald at alistair.macdonald@wsj.com and Edward Taylor at edward.taylor@wsj.com

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