Comments on: Issuing Stock and Favorable Recommendations: Why the Banks Love Weingarten Realty

By: Dave

Dave — Fri, 24 Apr 2009 01:52:08 +0000

Just to clarify further, the research analyst who upgraded the shares is not part of the process to prepare an equity offering. Investment banks operate with a “Chinese wall” between research and corporate finance (which handles the equity issuance), so it is unlikely that the analyst was “brought over the wall” until the day the deal was announced; thus by law he had no knowledge that a deal was imminent. Also, having Wachovia as a lender and an underwriter is very common practice. Companies often reward banks in their credit facilities by including them in equity and subordinated debt issuances. This is not out of the norm in any way.

Furthermore, issuing equity to pay down debt is common practice. In fact, for small cap growth companies, it is rare that they ever pay down debt with free cash flow; they almost always issue new equity to reduce bank debt. Granted Weingarten doesn’t fit the small cap bill, issuing equity to pay down debt is de rigeur.

Sorry to clutter this space with corporate finance, but I thought it could use some clarification.

By: JW

JW — Thu, 23 Apr 2009 18:31:44 +0000

In case anyone needs clarification here, issuing equity to pay down debt, invest in operations, pay a dividend to existing owners, or event to literally throw down a drain, etc., is completely legal. Where does a conflict of interest occur in Wachovia gets investment banking fees for underwriting a public stock offering while the lending side of the business has a loan outstanding with the same company? Good for Wachovia for landing both deals. The only motivation Wachovia has is to price the offering “well” so that it may collect interest and repayment of principal for its outstanding loan.

By: RWB

RWB — Thu, 23 Apr 2009 13:15:38 +0000

“Nate, if people are stupid enough to buy the stock blindly after this information comes out, so be it.”

Despite the lax, selective enforcement of securities laws the past few years, we fortunately don’t operate under a system of caveat emptor. That’s why we have an SEC, and why companies have to put all those “forward looking” statements in official communications.

That said, you are right. This kind of information, made public by a blogger, is important. I would say not only should people not purchase the stock, but people holding these shares should think about selling. Wachovia (Wells Fargo), Merrill Lynch (BofA) and other underwriters apparently have little faith in the company, so why should anyone else?

By: kjb434

kjb434 — Thu, 23 Apr 2009 12:54:35 +0000

Nate, if people are stupid enough to buy the stock blindly after this information comes out, so be it.

By: Nate

Nate — Thu, 23 Apr 2009 04:19:15 +0000

This looks to be too finance-y for kjb. Good thing he has his civil engineering job to fall back on. Raise “capital” to pay off debt? Really? Is that what they teach you at Louisiana Tech! Ha! Nice try. Why dont you take an economics class before you spout off (but I read atlas shrugged!)

Now go design me a storm drain, son. Next.

Weingarten can go to hell. A den of thieves.

By: Peter

Peter — Thu, 23 Apr 2009 03:39:18 +0000

It is not too finance-y. Swamplot is about real estate. Commercial real estate is finance. If Moodys can rate sub prime based bonds as AAA paper, simply to get more business ( without any consequence ), then Wachovia can play games too. We need real regulation that is effective at protecting investors; not the window dressing, keep the lawyers busy, kind we currently have.

By: matt

matt — Thu, 23 Apr 2009 00:39:14 +0000

The very next day, Wachovia became one of the underwriters of a new Weingarten stock offering — the proceeds of which are to be used to reduce the bank’s credit exposure to the company.

Sounds like Phil Gramm joined the board of Wells Fargo.

Sounds like Andy Fastow joined the board of Weingarten.

By: groovehouse

groovehouse — Wed, 22 Apr 2009 20:49:23 +0000

Not too finance-y. This is what I like about Swamplot, a little bit of everything!

By: JPSivco

JPSivco — Wed, 22 Apr 2009 19:33:18 +0000

It is sad that analysts, companies, and even our US treasury secretary all seem to be trying to prop up stock values. Unfortunately, it will not be prosecuted in the current environment.

By: Darby Mom

Darby Mom — Wed, 22 Apr 2009 19:05:04 +0000

Thanks for putting this article on the site. It’s not too finance-y at all, and provides insight as to how business really works, unfortunately. Caveat Emptor

By: EMME

EMME — Wed, 22 Apr 2009 17:28:54 +0000

There is a period of time that they are supposed to remain silent (I think) and it is more than one day. I am thinking 30-60 days. I could be wrong, it has been awhile since I left securities company I worked for.

By: RWB

RWB — Wed, 22 Apr 2009 16:43:03 +0000

I think the reason it looks suspicious is that the equity offering that Wachovia (and others) is underwriting will be used to repay debt to Wachovia. As the blogger wrote, if Weingarten is a good investment for an equity investor, then shouldn’t they also be a good borrower for a lender like Wachovia? After all, that’s how Wachovia makes money–collecting interest payments. To put it another way, if Wachovia is worried that Weingartens can’t pay back its loan through cash from operations or through refinancing, then why should I (as an equity investor) want to long these shares? OK, nothing illegal here, except maybe (probably?) for the analyst upgrade.

That said, this whole offering and the purpose for it should be a much brighter signal to potential Weingarten investors than any analyst report. It says that Wachovia thinks Weingarten is risky and Wachovia wants you, Mr. Investor, to bear 100% of that risk instead of us.