Financial thoughts

Right after a Delaware state judge issued his ruling last week in a shareholder lawsuit contesting Kinder Morgan Inc.’s purchase of El Paso Corp., the public finger-wagging aimed at Goldman Sachs Group Inc. began.

Goldman, some pundits wrote, had emerged as the biggest loser of the bunch. The bank’s conflicts of interest in advising El Paso on the deal had been castigated by an esteemed jurist as breathtakingly over the top. Once again, Goldman had sullied its precious reputation. And so on, critics said.

While it’s always fun to fantasize about Goldman losing at anything, one gnawing question stands out: What exactly did the company lose? The answer is nothing, as far as I can tell. Actually, it won big.

Consider these facts: El Paso’s board knew that Goldman owned a 19 percent stake in Kinder Morgan worth about $4 billion when the companies’ buyout talks began last year. The directors knew Goldman controlled two seats on Kinder Morgan’s board. They were aware that Goldman had every incentive to maximize its own investment and fleece El Paso’s shareholders. Yet they turned to Goldman anyway for advice on responding to Kinder Morgan’s takeover overtures.

El Paso probably could have gotten a better price from Kinder Morgan had its representatives, including Goldman, been more faithful and less conflicted, Delaware Chancery Court Judge Leo Strine said. The difficult question he faced was whether to do anything about it. He decided he shouldn’t, concluding that any remedy he tried to fashion would do more harm than good.

DONE DEAL

He didn’t block the proposed $21.1 billion transaction between the two Houston-based pipeline operators. The sale will go through. Goldman, the world’s top-ranked takeover adviser based on deals announced last year, still gets its $20 million fee from El Paso. In all likelihood, nothing about this episode will stop anyone else from hiring Goldman in the future. Plus, Strine said it’s doubtful Goldman could be held liable for any damages, based on the facts known so far.

Maybe Goldman’s reputation did take a hit. Yet after so many scandals the past few years, including the company’s $550 million fraud-claim settlement with the Securities and Exchange Commission in 2010, you have to wonder if this new one matters.

Nobody was fooled last year when Goldman’s chairman and chief executive officer, Lloyd Blankfein, made a spectacle of unveiling a new set of fluffy business principles pledging to put clients’ interests first. It’s not the principle that counts in this business. It’s the money. And on this occasion, Goldman got a sweet deal.

Nothing was left to chance, it seems. Steve Daniel, the lead Goldman banker advising El Paso, personally owned $340,000 of stock in Kinder Morgan. This point wasn’t disclosed to El Paso, although it’s hard to imagine its directors would have cared much. They already knew he was horribly conflicted, because of his employer’s $4 billion stake in Kinder Morgan. What would their complaint have been? That he was really, really conflicted?

Not surprisingly, Goldman’s analyses of El Paso’s options pointed toward accepting Kinder Morgan’s offer. Goldman supposedly set up a “Chinese wall” to keep its bankers conflict-free. And a second bank, Morgan Stanley, was brought in to advise El Paso. The judge said the wall wasn’t effective, though. (As if these things ever are.) Goldman made sure the terms were set so that Morgan Stanley got paid only if Kinder Morgan bought the company, Strine wrote.

A deal benefiting Kinder Morgan may have been what some of El Paso’s bosses wanted. As Strine explained, El Paso’s CEO and chairman, Douglas Foshee, didn’t tell his board that he and other El Paso managers wanted to buy back El Paso’s energy exploration-and-production business from Kinder Morgan for themselves, after the deal was negotiated.

WARPED INCENTIVES

Foshee’s incentive was to limit the sale price that El Paso got, not maximize it. “Not forcing Kinder Morgan to pay the highest price possible for El Paso was more optimal than exhausting its wallet, because that would tend to cause Kinder Morgan to demand a higher price for the E&P assets,” Strine wrote. The board had given Foshee sole responsibility for negotiating the company’s sale from the outset. As for Kinder Morgan, it drove a hard bargain, as it was entitled to do.

So what did Goldman do wrong? Its bankers seem to have behaved like sharks. Guess what? Investment bankers are sharks. Goldman’s reputation was reinforced, not damaged.

If El Paso’s shareholders dislike the deal, they can vote against it. The vast majority won’t. There is no competing bidder, because El Paso’s board didn’t seek one. What El Paso shareholders lost was the possibility that another company might have offered a higher premium than Kinder Morgan did. There’s no way to know if anybody would have.

While the conflicts here may have been extreme, managers and buyout advisers at big companies pull similar escapades all the time, skimming corporate resources for themselves at the expense of passive shareholders. (Foshee stands to receive about $90 million once the sale is completed.) There usually isn’t much outsiders can do about it, which is something everyone should understand before they buy stock in a public company.

As for the notion that Goldman lost? Come on. It was paid $20 million for advising a client in a deal where Goldman itself was on the other side. What’s amazing is that El Paso let Goldman pull this off.

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Egyptian lawmakers are meeting in Cairo to decide who will write the country’s new constitution, a debate focusing on the role of Islamists in constructing the document.

The Saturday parliament meeting is supposed to decide who will be on the 100-member panel tasked with drafting the first constitution after the overthrow of Hosni Mubarak.

Debate preceding the session has focused on the role Islamists will have in drafting the crucial document.

The Muslim Brotherhood and ultraconservative Salafist, who scored the strongest in the country’s first parliamentary elections, say 40 percent of the panel should come from parliament payday advance lender.

Liberals, fearful their role in writing the constitution will be minimal, demand that only 20 percent of the panel come from parliament.

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Victoria’s Secret parent Limited Brands Inc (LTD.N: Quote, Profile, Research, Stock Buzz) reported a large sales gain for February, leading a charge of retailers that benefited from rising consumer confidence to beat Wall Street forecasts.

Limited, which also owns Bath & Body Works, said on Thursday that sales at stores open at least a year rose 8 percent last month, above the analysts’ average forecast of 6.2 percent compiled by Thomson Reuters.

So far six retailers, including Stage Stores (SSI.N: Quote, Profile, Research, Stock Buzz), and teen-oriented The Buckle Inc (BKE.N: Quote, Profile, Research, Stock Buzz) and Zumiez Inc (ZUMZ.O: Quote, Profile, Research, Stock Buzz) have reported February sales that have come in above Wall Street forecasts.

Improving consumer confidence is one reason analysts expect February same-store sales to be up 3.4 percent for the 21 companies tracked in Thomson Reuters’ same-store sales index.

Other chains, including Macy’s Inc (M.N: Quote, Profile, Research, Stock Buzz), Kohl’s Corp (KSS.N: Quote, Profile, Research, Stock Buzz) and Target Corp (TGT.N: Quote, Profile, Research, Stock Buzz), will report later on Thursday morning.

The housing market appears to be stabilizing, and the unemployment rate fell to 8.3 percent in January from 9.1 percent in August. The University of Michigan’s consumer confidence survey rose for the sixth straight month in February payday lenders.

And the surging stock market, which this week hit its highest levels since May 2008 financial meltdown, has been a boon for upscale chains like Saks Inc (SKS.N: Quote, Profile, Research, Stock Buzz) and Nordstrom Inc (JWN.N: Quote, Profile, Research, Stock Buzz) in recent months.

But the rising price of gasoline is casting a pall on consumer spending. As of Thursday, a gallon of gas in the United States cost $3.74, up 35 cents from a year earlier, according to the American Automobile Association.

On Wednesday, Costco Wholesale Corp (COST.O: Quote, Profile, Research, Stock Buzz) said its same-store sales had risen 8 percent in February, outpacing the 7.6 percent rise that analysts expected, according to Thomson Reuters data. Much of the warehouse club chain’s gains in the past year have come from shoppers seeking cheaper gasoline.

Wet Seal (WTSLA.O: Quote, Profile, Research, Stock Buzz) was one of the few chains to report a decline in sales, but the fall of 5.8 percent was less steep than expected.

Home decoration and furniture chain Pier 1 Imports Inc (PIR.N: Quote, Profile, Research, Stock Buzz) said its same-store sales for the full holiday quarter rose 10.3 percent.

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Employment will improve more this year than economists previously estimated, helping the world

Two months after filing for personal bankruptcy, former SynCare LLC chief Stephanie DeKemper on Tuesday asked that the corporation itself be granted Chapter 7 protection.

SynCare listed assets of $125,854 and debts over $5.6 million in papers filed with the Indianapolis federal bankruptcy court.

Nearly $2 million of that debt is owed to Clayton-based Centene, the corporation that provided seed money DeKemper used to purchase SynCare in early 2010.

SynCare proceeded to secure a Missouri Department of Health and Senior Services contract to oversee services for the state’s 50,000 homebound Medicaid patients.

The state terminated the pact last September, barely four months after it went into effect, following a public outcry over SynCare’s failure to deliver the services outlined in the agreement.

With one exception, this week’s corporate petition mirrors the personal bankruptcy papers filed on behalf of DeKemper the last week of December.

The personal bankruptcy names nearly 150 SynCare employees from Missouri seeking back wages and and reimbursement for business-related expenses.

The corporate Chapter 7, conversely, lists compensation owed to 13 people once employed at SynCare’s Indianapolis headquarters.

Fifth Third Bank, holding outstanding loans totaling $850,000 joins Centene as the corporation’s largest creditor.

The papers show Bank of America being owed $676,964 for a letter of credit secured by Centene.

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Dallas Federal Reserve Bank President Richard Fisher said on Thursday U.S. economic conditions were improving and repeated his view that further easing from the U.S. central bank was not needed.

“The tone is a lot better. It’s not brilliant; we don’t have enough new hiring taking place, (but we’re) definitely moving in the right direction,” Fisher told CNBC television.

“Given the improvement in the data that we’ve seen, things are getting better, not worse. I don’t see any need personally for QE3 here,” he said, referring to the possibility of a third round of central bond buying, or quantitative easing.

The Fed has held overnight interest rates near zero since December 2008 and has bought $2.3 trillion in government and mortgage-related bonds.

After the central bank’s last policy meeting on January 24-25, Chairman Ben Bernanke said policymakers were still debating whether further bond purchases might be warranted.

At that meeting the Fed also said it expected to keep rates “exceptionally low” at least through late 2014, a statement that Fisher cautioned against viewing as an iron-clad promise.

“The intention, as I view it, of the committee is to make sure that we adjust to the real economy, and as new data comes in, more anecdotal evidence on top of that is confirming what the data says, then we will adjust. The question is when,” he said,

“I happen to be a little more optimistic about economic movement here” than some others on the Fed’s policy-setting panel, said Fisher, who is not currently a voter on the committee.

The Dallas Fed chief said he had told his colleagues at the January meeting that the central bank’s post-meeting statement might be unduly dour, given what he was hearing from corporate executives around the nation.

“At the last meeting … I warned that I thought the statement was talking down the economy,” he said.

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Asking prices for London homes rose to close to a record in February, helping push national values up the most in almost a decade, Rightmove Plc said.

Average asking prices in the U.K. capital rose 2.5 percent from January to 449,252 pounds ($710,300), less than 1,000 pounds below the record reached in October, the operator of Britain

A Johnson & Johnson consumer health unit plagued by product recalls says it is pulling some versions of infant Tylenol off store shelves due to problems with a device that helps measure doses.

McNeil Consumer Healthcare says it is recalling about 574,000 bottles of a grape-flavored version of the liquid medicine, which was distributed nationally.

The medicine bottle comes with a syringe and has a protective cover, or flow restrictor, at the top to help measure the right dose pay day loan lenders. McNeil says that restrictor has been pushed into the bottle in some cases when the syringe is inserted.

McNeil is one of three business segments for J&J, which is based in New Brunswick, N.J. The consumer division has issued about two dozen recalls in more than two years.

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A few members of the Federal Open Market Committee meeting said the central bank may soon have to consider more asset purchases, while others said the economic outlook would have to deteriorate first.

A few members said economic conditions

European leaders maintained pressure on Greece to accept terms demanded by international lenders during a weekend of talks to avert a financial collapse.

Interim Greek Prime Minister Lucas Papademos struck a tentative deal with party leaders to boost economic competitiveness and extend spending cuts after euro-area finance chiefs told them an increase in the 130 billion-euro ($170 billion) aid package wasn