PD again

PD June 3

Maybe it is in recovery mode. Some things do not seem to add up. First of all the liability of US companies operating in the States is limited to $75 mln. Sure that will be changed after the fact but at what political cost? Secondly, this company earned 6Bln in the last quarter, so far the costs of this disaster are in the order of 1 Bln. It is not clear that the company is with its back to the wall as, no doubt, this will take 20+ years to sort out. Anybody who tried to short Philip Morris after the tobacco costs were levied and the mainstream thought was that they would face extinction soon, will tell you that that was not a good idea.

   Interestingly there is a little history worth recounting as it was so Canadian. When the company did a fairly large public offering back in 1987 the likes of Wood Gundy and, to a slightly lesser extend, Dominion Securities, were so confident that the “bought deal” was the way to go after Gordon Capital pioneered the concept in 1982, that Wood Gundy was essentially bankrupt and DS was not far behind when then Prime Minister Margaret Thatcher refused to listen to pathetic pleas to pull the issue . The deal between WG and First of Chicago fell through and in pure desperation WG accepted the somewhat reluctant embraces of CIBC with a little help of Brascan. DS, of course caved in to the Royal after having just recently tried to solve their succession problems ,endemic to every partnership, by going public. For this effectively ended the four pillar system whereby banking, trust services, insurance and underwriting were strictly compartmentalized , as under Glass-Steagal in the US.Today both these investment dealers arguable run their parent banks which definitely is food for thought.