Spotify Direct To Market?

Spotify was one of the most eagerly awaited IPOs of this year, but it appears that the company may bypass the IPO market entirely. Recently, sources said that Spotify would be the first major company to carry out a direct listing on the NYSE. In a traditional IPO, the company sells stock to investors through investment banks. The company receives the funds raised, less the underwriter's commission. In a direct listing, the exchange lists the stock, allowing employees to buy and sell shares on the market. No new shares are created and no funds are raised by the company.

Long-Term Treasuries

In 1977, 30-year Treasury bonds first started being regularly issued. The issuance of these bonds was discontinued in 2001, then reintroduced in 2006. Although longer maturity Treasury bonds have been issued, for example, the 50-year bonds used to finance the Panama Canal, for about 40 years, 30-year bonds have been the longest term bonds issued by the U.S. government. With historically low interest rates, several countries have chosen to go the really long-term route. For example, Ireland, Belgium and Mexico have issued 100-year bonds, and Austria has issued 70-year debt. Recently, Steve Mnuchin, the United States Secretary of the Treasury, indicated that the Treasury was considering the issuance of 50-year Treasury bonds to lock in long-term interest rates. Opponents argue that the liquidity in the 50-year maturity market is not sufficient to support regular auctions for these bonds. Finding the necessary demand needed because of low liquidity could prove costly. Only time will tell if the U.S. Treasury decides to issue 50-year maturity bonds.

Currency Losses Decline

In a recent survey of 296 North American and European multinational companies for the fourth quarter of 2016, they lost a combined $10.47 billion due to currency swings, down considerably from $36.85 billion a year earlier. The average effect of these swings on EPS was $.04. The currencies that were mentioned the most as causing losses were the British pound, the euro, The Japanese yen, the Brazilian real and Canadian dollar.

International Risk

Political risk exists in varying degrees, but the most severe is appropriation of a company's assets. GM became the latest company to have its assets appropriated in Venezuela as the government of that country took control of GM's remaining plant. The plant had stopped producing cars in 2015, manufacturing only spare parts since. GM joins a list of companies, including more than 60 oil companies, meat processing plants, rice farms, and the Manpa toilet paper plant, that have had assets seized by the Venezuelan government. In March, ExxonMobil had parts of a $1.4 billion award related to seizure of its assets by the Venezuelan overturned.

2016 Executive Compensation

Equilar, an employee compensation company, released the Equilar 100, CEO compensation at the largest 100 companies by revenue. Leading the list for 2016 was Thomas Rutledge, CEO of Charter Communications, who made about $98 million. In a distant second place was Mark Parker, CEO of Nike, who took home about $47.6 million. Warren Buffett, CEO of Berkshire Hathaway, brought home only $487,881 during 2016, the only CEO on the list to make less than $3 million. Of course you needn't worry for him, Warren is still worth about $73 billion.

The Cost Of Ethics

Back in October, we discussed how the unethical behavior at Wells Fargo cost the company business with California and Illinois. What we haven't discussed about the incident is the personal cost to former CEO John Stumpf and former community banking head Carrie Tolsedt. When Stumpf resigned, he gave up $41 million in pay. Evidently, the company's Board of Directors felt this wasn't enough as they announced that Stumpf would be forced to give back an additional $28 million in pay. For Carrie Tolstedt, she forfeited $19 million in pay when she resigned. The Board announced today that it was retroactively terminating her for cause and seeking to claw back an additional $47.3 million in pay.

Commercial Paper Issuance Falls

In March 2016, an average of 95 AA-rated companies issued commercial paper per day. On March 29, 2017, only six such companies issued commercial paper. The reason behind the dramatic decline in commercial paper issuance is regulations enacted by the SEC to reduce risk in money market mutual funds. Historically, all money market funds had a net asset value (NAV) per share of $1. If the NAV dropped below $1, it was known as "breaking the buck" and had only occurred a limited number of times. In 2008, the Reserve Primary Fund became the largest money market fund to break the buck. In an attempt to reduce risk, the SEC changed the rules for institutional money market funds that means the NAV of these funds will not be pegged at $1. The result was a flight from institutional money market funds, reducing the availability of these funds as customers of commercial paper. This has made it more difficult for companies to raise short-term debt.