BrokerDealers Help Mint Billionaires in 2014; Greed Is Good, Funding is Fun

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startup valuationsBrokerdealer.com blog update courtesy of extracts from 29 Dec edition of the Wall Street Journal, with reporting by Evelyn M. Rusli

As brokerdealers, investment bankers, institutional investors and entrepreneurs “close the books” on 2014, all will agree this has been a remarkable year in which “billion dollar valuations” have seemingly been the norm. Most notably, technological start-ups have enjoyed increasing valuations with each subsequent round of financing from private equity and venture capital firms, albeit many financial industry professionals are wondering whether those valuations can carry over when these private companies embark on initial public offerings (IPOs).

While “Wall Street” protagonist Gordon Gekko coined the phrase “Greed is Good!,” the Broker-Dealers mantra for 2014 was “Funding is Fun!”

Below please find highlights of the WSJ article.

Chinese smartphone maker Xiaomi Corp. is now officially the world’s most valuable tech startup, worth $46 billion—the exclamation point on a year of extraordinary valuations. Continue reading →

New IPO makes Brokerdealers Hungrier for 2015

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timthumbBrokerdealer.com blog update courtesy of Forbes.

Brokerdealers everywhere have rejoiced, Shake Shack, a newer chain restaurant, recently applied for an IPO and set to go public in 2015. Shake Shack is known for its fresh cut fires, 100% all beef burgers and hot dogs, and most of all its delicious shakes. The chain has been growing ever since its opening in New York City in 2000 and now has 63  locations open  worldwide.

Shake Shack, the New York-based burger chain created by famous restaurateur Danny Meyer, is set to go public in 2015, after filing for an IPO Monday.

The chain, which plans to list on the New York Stock Exchange under the symbol “SHAK,” details a rapid growth effort that has seen an increase from a single shack in Manhattan’s Madison Square Park to 63 locations worldwide today (about half are owned by the company, with the remainder operated by licensees.”

Restaurant concepts have proven a mixed bag in the market, as investors pore over growth prospects looking for chains that could prove as lucrative as Chipotle Mexican Grill CMG -1.73%, which has returned more than 1500% since being spun out of McDonald’s MCD -0.87% in 2006.

IPOs from companies like Noodles & Co, Potbelly and Zoe’s Kitchen were greeted with immense demand, though both stocks have taken their share of hits since debuting. More recently, burger chain Habit Restaurants has surged more than 80% since its mid-November IPO.

At a time when many legacy restaurant operators are struggling to find growth — McDonald’s certainly among them — younger chains with smaller footprints and more runway for expansion are proving attractive.

Shake Shack reported $140 million in system-wide sales for its 2013 fiscal year, up from $81 million the prior year, with 56% of revenue from its domestic, company-owned locations. Total revenue, which only includes licensing revenue from non-owned locations, was $83.8 million in 2013, up 41% from the prior year. Net income declined to $3.5 million, from $4.4 million the year before, due to a sharp increase in expenses, largely attributable to higher food costs and costs associated with opening new locations.

Growth is likely to come both abroad and at home. Aside from New York, with 15 locations, no U.S. state has more than four Shake Shacks.

“Fast-growing restaurant concepts are still hot,” says Paul Bard of IPO research firm Renaissance Capital. “Habit opened up 100% so comparable companies will see that as an opportunity and there’s a whole crop of fast-casual burger chains out there.”

Bard also points to chicken chain Bojangles and Focus Brands, a franchiser of Cinnabon and Carvel, as potential names to watch for on the 2015 IPO market as investors continue to look for growth in the consumer space.

The U.S. economy’s slow recovery and improved consumer spending is certainly a help to restaurants, but Shake Shack’s filing notes that the company’s initial expansion occurred in a far more difficult environment.

“We’ve never believed that Shake Shack only thrives in a down economy, but growing from one to 15 Shacks smack dab in the heart of the recession told us that we also don’t need a robust economy to build our business,” Meyer and CEO Randy Garutti wrote in a letter to prospective shareholders.

Meyer is listed among the shareholders who control at least 5% of Shake Shack’s shares, along with affiliates of private equity firm Leonard Green, Select Equity Group, Alliance Consumer Growth, and Jeff Flug, president of Union Square Hospitality Group, the parent company of Meyer’s other restaurant ventures, and a Shake Shack board member.

The language in the Shake Shack filing also reveals the controlling hand Meyer will maintain at the company post-IPO. He and his affiliates will be entitled to nominate a certain number of directors — five as long as he maintains 50% of his post-offering holdings, and sliding down from there — and must grant approval for a variety of corporate actions, including a sale of the company, firing or hiring of a new CEO or a change in board size, so long as the group keeps 10% of its post-IPO shares.

 

For the original Forbes article, click here.

 

BrokerDealer Bastion Up For Sale: Iconic NYSE Rumoured To Be On Auction Block

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nyse2Brokerdealer.com blog update below is courtesy of the NY Post, the Rupert Murdoch-owned publication best known for incendiary headlines and its “Page 6″ gossip column. The veracity of this story by reporter John Aidan Byrne is therefore yet-to-be confirmed by any officials of NYSE owner InterContinental Exchange.* (Editor note: as of 08.40 ET, the NYSE did issue a statement: “This story is completely unfounded and simply not true.”

The New York Stock Exchange is back in play — and it may be sold lock, “stock” and building as soon as next year, The Post has learned.

Big Board owner Intercontinental Exchange (ICE) is laying the groundwork. The latest all-out drive to make it more profitable, powered by better and faster technology — and a regulatory overhaul to regain market share — is pure window dressing, according to analysts and knowledgeable exchange watchers.

This window-dressing could presage the once unthinkable: the closure of the Big Board’s iconic trading floor.

“There is only one move, and that is a sale or spinoff of the NYSE,” said Jim Osman, chief executive of the Edge Consulting Group in London, a research firm that specializes in spinoffs and special situations.

nyseOsman, speaking to The Post in the wake of the NYSE’s latest plans to slash trading fees and punch high-speed competitors and dark pools in the gut, said the rationale made sense now that ICE has divested most of its stake in Euronext.

The Atlanta-based ICE, led by Jeffrey Sprecher, retained the prized international derivatives portion of Euro-next. That prompted Osman to conclude the next step could see it parting company with the Big Board’s equities franchise in lower Manhattan.

“We believe post-divestiture of the European business, it might now look to divest NYSE — the cash equities exchange — considering the fact that its core interest area [is] the [London International Financial Futures and Options Exchange] business that provides a duopoly for ICE in the European derivatives market along with [rival] Deutsche Boerse’s Eurex platform,” according to Osman.

Despite efforts to fortify the NYSE’s struggling stock-trading business, Osman’s view gained traction last week. The exchange’s latest multimillion-dollar renovation to spruce up its famous neoclassical building fronted by Corinthian columns is also seen as more pre-sale window dressing.

For the full story from the NY Post, please click here.

Industry Regulators Block Disclosure of Bad Actor BrokerDealers; BrokerCheck System is Broken

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California, Nevada , Arizona, Florida, New York & NJ have highest number of bad apple brokers.

BrokerDealer.com blog update courtesy of extract from Dec 26 WSJ story by Jean Eaglesham and Rob Barry …

brokercheckIn what can best be described as a Faustian tale taken from Alice in Wonderland, it should be no wonder that bad apple brokers continue to prey on investors, with no thanks to the archaic system overseen by financial industry regulators, most notably the “self-regulated” Financial Industry Regulatory Authority aka Finra. WSJ reporters Jean Eaglesham and Rob Barry provide insight into the dumb data system employed by the industry’s watchdog:

Wall Street’s own national watchdog doesn’t make public all the regulatory red flags it has about brokers, prompting calls from state regulators for more expansive disclosure.

Investors checking disciplinary records from the Financial Industry Regulatory Authority, or Finra, can see that in Bennett Broad ’s 35-year career as a stockbroker, he has faced 25 customer complaints involving alleged trading abuses, and that 15 ended in payouts to clients.

What they won’t see is that a former employer, UBS AG , launched an internal investigation into Mr. Broad’s business practices back in 2003 and then, according to state regulators, “permitted” him “to resign.” At least eight of his 25 complaints involved conduct after that investigation.

Finra, an industry-funded overseer of brokers, encourages investors to check its BrokerCheck Web page to look for regulatory red flags about individual brokers, including complaints, regulatory actions, terminations for cause and personal bankruptcies. Mr. Broad’s BrokerCheck reveals neither the UBS investigation nor his resignation—even though they show up on his state regulatory record.

A Wall Street Journal examination of federal and state regulatory data revealed that a wealth of information about brokers is reported to the national regulator but not made public by it. The Journal found at least 38,400 brokers have regulatory or financial red flags that appear only on state records, which in most states aren’t available without contacting state regulators. Of those, at least 19,000 had completely clean BrokerCheck records. A comprehensive database of brokerdealers registered in the US and major countries throughout the globe is available here.

California, Nevada , Arizona, Florida, New York & NJ have highest number of bad actor brokers.

The Journal’s analysis included 6,527 registered stockbrokers with offices in Fort Lauderdale and Boca Raton, Fla., highlighted on the adjacent map. Of those, 342, or 5.2%, reported three or more red flags on their disciplinary records. For every 10 brokers in this area, there were 4.9 disclosures, 126% higher than the rate among all brokers in the Journal’s data.

Brokers with troubled regulatory records were often found in areas with wealthy, elderly populations. In this hot spot, the share of households headed by people aged 65 and up with incomes in excess of $100,000 was about 39% greater than the nation as a whole.

For the entire article from WSJ, please click here.

Japan’s 2nd Biggest BrokerDealer Bolsters Plan For Myanmar Stock Exchange

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BrokerDealer.com blog update courtesy of excerpts from 23 Dec story published by the WSJ, with reporting by Alexander Martin and Shibani Mahtani

myanmar exchangeJapan’s Daiwa Securities Group Inc., its research arm and Japan Exchange Group Inc. said Tuesday they signed a joint-venture agreement with Myanma Economic Bank to establish Myanmar’s first-ever stock exchange in Yangon.

The deal is the latest tangible sign that plans for Yangon’s stock exchange, which the government aims to have up and running by October 2015, are moving forward.

Japan Exchange Group and Daiwa Institute of Research would “continue to contribute to the development of Myanmar’s capital market and the expansion and deepening of economic relations between Japan and Myanmar through the establishment of Yangon Stock Exchange,” the companies and Myanmar’s state-owned bank said in a joint statement.

The deal followed an agreement signed in May 2012 between Daiwa Securities and the Tokyo Stock Exchange to help set up the exchange after Myanmar began opening up the previous year following nearly five decades of military rule.

In November, the former headquarters of Myawaddy Bank in Yangon was chosen to house the stock exchange. Building renovations will be finished by June or July, according to Myanmar’s deputy finance minister, Maung Maung Thein, in preparation for the exchange’s launch.

Despite the progress, analysts have said they remain skeptical that the timeline for the exchange is achievable, given the multiple delays in overhauling Myanmar’s once military-dominated financial system.

In a note to clients earlier this month, political risk consultancy Vriens & Partners wrote that “serious doubts remain as to whether the stock exchange will be ready to move forward” by mid-2015. The consultancy also said that “questions remain around technical know-how” required to set up the exchange.

For the entire story from the WSJ, please click here.