DiNapoli Discusses NY State Budget Deficit

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Speaking to members of the Westchester County Association in Tarrytown this morning, New York State Comptroller Thomas DiNapoli said, “For too many years, New York State has treated debt as a surrogate for wealth, using it to buy things we want, rather than things we need.” New York is spending more money than it is taking in, DiNapoli told his listeners, adding that “faced with a budget deadline, and demands from constituencies, we make compromises, we get the budget done, but don’t deal with structural imbalances.” The New York budget crisis is not as severe as New Jersey’s Di Napoli told a questioner, but its budget practices are not as good as New York City’s, where Mayor Michael Bloomberg used recent good years as an opportunity to pay down old debt and build reserves.

Bear Stearns’ Schwartz: “No Liquidity Crisis”

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CEO Alan Schwartz was briefly interviewed by CNBC’s award-winning journalist David Faber on Tuesday March 14th, and asserted that there “was no liquidity crisis” at Bear. Five days later, Bear Stearns’ management agreed to be acquired for $2/share by J.P. Morgan Chase, as an alternative to bankruptcy, as other money center banks had lost confidence in Bear Stearns solvency, in the face of recent mortgage bond related losses, and its high leverage. On 3/19, the “Wall Street Journal” said that Mr. Schwartz failed to share with CNBC viewers how the leadership team “had weathered past financial crises” and his “delivery made some experts wince.”

The Profit Calculator

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When people ask me how they should estimate the profit margin of a planned new business, I advise seeking out those who are already in that business to see what you can learn. As an alternative, if you are thinking of opening a pizza place, a copy shop, a diner, or one of a number of other businesses, “New York” Magazine has identified the profit drivers in a recent issue. Click below and you will also find out how the New York Yankees franchise increased $200 million in value, despite a $28 million loss.

RJR Nabisco still among top 10 LBO’s

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There has been extensive media coverage on the resurgence of leveraged buyouts (LBO’s), including a recent cover story, “The Buyout Binge” in the April issue of “CFO Magazine.” Nine of the top ten LBO’s were recent, and then there was the 1988 acquisition of RJR Nabisco by Kohlberg Kravis Roberts. I showed a segment of the movie “Barbarians at the Gate” to my NYU finance class, and also highly recommend the book. The RJR Nabisco deal highlights the importance that understanding business fundamentals plays in any business deal. Henry Kravis knew he needed a better understanding of RJR Nabisco’s core operations so he could price his bid accurately and compete with the insider buyout bid by CEO Ross Johnson. This made Kravis dependent on RJR Nabisco executives such as John Greeniaus, CEO of Nabisco, for their cooperation. Despite Ross Johnson’s entreaty, “Johnny, I’m going to make you rich!” Greeniaus eventually did share valuable insights with the KKR team. Hopefully dealmakers are not losing sight of business fundamentals in today’s overheated LBO market. The year after the RJR Nabisco deal the market dropped 200 points (a lot in 1989) due to the failure of Robert Campeau’s US retail operations, and the unraveling of a $6.8 billion buyout of United Airlines. Nobody wants to see a similar market meltdown resulting from the most recent crop of LBO’s.

University Venture Fund Investing $18 Million

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The University Venture Fund(UVF) recently announced that it has some $18 million to invest in new and growing companies, “Entrepreneur” reported. The UVF has deep ties to Brigham Young University, the University of Utah, Westminster Collge and Wharton School of Business. “We don’t mandate that capital go to alumni,” says managing director Jared Hutchings, “But we certainly give preferential treatment.”