A financial blogger going by the overused name of Tyler Durden points to some fishy behavior on the part of banks promoting a new stock offering by troubled Weingarten Realty. Writes the reader who alerted Swamplot to the story:
This may be a bit too finance-y for you, but apparently a recent Weingarten equity offering is being used to pay down debt to banks, which the author of this post (and me) find a bit suspicious. Further shenanigans? Analyst recommendations changing for the better just before the tender.
Is this too finance-y for Swamplot? Let’s find out!
Writing in his blog, Zero Hedge, Durden asks
If these companies are such great and worthwhile investment prospects, why are banks rushing to offload their credit exposure, which by the way is the least risky part of the capital structure, while investors are buying equity to pay down the banks credit exposure, and taking on the first-loss risk in the balance sheet? The use of proceeds in every single REIT follow-on offering has been to pay back the banks that have underwritten it. Is it that complicated to see this for the bait-and-switch it is?
Durden notes that an analyst for Wachovia Bank — now a part of Wells Fargo — upgraded earnings estimates for Weingarten and changed his recommendation on the company to “market perform” on April 15th, two months after having downgraded the REIT to a “sell.” 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.
Durden wonders how Wachovia’s compliance department could have missed this rather apparent conflict of interest:
The first rule for any sell-side analyst is do not publish research reports that could get you in hot water with the regulators. Wachovia squarely broke that rule. The only logical (and legal) explanation is if the WRI offering was put together so haphazardly and hurriedly, that the bank really had no idea it would be an underwriter until the day of the offering and thus did not even give [the Wachovia/Wells Fargo analyst] the change to get restricted.
Merrill Lynch was another underwriter, but that company’s analyst hasn’t yet issued a new recommendation for Weingarten; Durden expects that to come out in a few days. Meanwhile, Durden suggests the Wachovia analyst’s report will
inevitably cause serious headaches for all parties involved, especially if WRI stock proceeds to crash over the next several days and the class action lawsuits start trickling in.
Even better: On April 17th, the day after the stock offering was issued, Weingarten’s management reported its own earnings estimate, which happens to be 20 percent lower than the one made by Wachovia’s analyst.
- Open Letter To The SEC Regarding Wall Street’s REIT Bait-And-Switch [Zero Hedge; shorter version at Naked Capitalism]
- And What About the River Oaks Shopping Center? [Swamplot]