Let’s Gowex: La Charada Pescanova (a Pescanovan Charade)

Gotham City Research LLC

Gotham City Research initiates coverage on Let’s Gowex SA, with a price target of € 0.00/share (100% downside)


  • Gowex shares are worth €0.00 per share.
  • Over 90% of Gowex’s reported revenues do not exist. We estimate GOW’s actual revenues to be <€10 million.
  • The shares will be suspended, just as Pescanova’s shares were suspended.


  • Gowex’s actual Wireless revenues are at most 10% of what GOW reports in its financial statements.
  • GOW’s Hotspot network it owns or manages is ~5K in size. CEO told us 100K+ & JBCapitalMarkets estimates 35K.
  • GOW’s audit fee is €40,000, which makes sense if Gowex’s actual revenues are only 5%-10% of reported revenue.
  • 90% of Telecom revenue originated from undisclosed related parties, tied to GOW CFO & an early investor. We have evidence Gowex’s largest customer was really itself.
  • Gowex Telecom (i.e. Iber-x) website has not been updated in years. It appears…

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EU Bank Stress Test III: ECB has just as much to prove

Tower 42 [home of the EBA] seen whilst facing north at Bishopsgate

Where is the European Banking Authority’s HQ? In The City of London, of course.


Ken Odeluga, June 24, 2014, 774 words

The words “stress” and “test” signify something obvious for banks, but they’re also likely potent on a personal level for senior bankers whose banks are undergoing testing, or, in the worst case scenario, for bankers whose banks have failed.

Imagine how Citigroup CEO Michael Corbat feels.

The extent to which the tests are arbitrary or material might well be debatable, given regulatory authorities are just as much in the business of reputation management as the banks themselves.

But being the boss of the most high-profile bank to date that has ‘failed’ a stress test this side of the financial crises, might leave such a person with something to prove, to say the least.

Of course in a few months, he could be joined by others who are in the same situation, in Europe.

 Final details of plans to stress test 124 EU banks were released in April. Neither the European Banking Authority nor the ECB have highlighted any further dates ahead of release of results sometime in October; so, speculation about the outcome has been heightened.

There ought to be little mystery by now, about the process of the tests themselves. The European Banking Authority announced the latest round of testing in January; it released draft methodologies and “templates” in March and began informal discussions with banks at the same time. Final details of scenarios and methodology were released at the end of April.

Here is a roadmap and further details about Europe’s latest round of stress tests.

Whilst banks might well be resigned to the process, in-depth familiarity with details of the planned tests has sparked intense scrutiny over the capital conditions of Europe’s major banks amid a widening belief that regulators might have ‘stacked the deck’ to ensure at least one European SIFI ‘fails’ the tests. This expectation was compounded after U.S. subsidiaries of three European banking groups, in March, failed tests conducted by the Federal Reserve.

James Chappell, a banking analyst at Berenberg Bank told FT.com at the time of the release of the U.S. test results: “They have failed a big bank –Citi. The ECB will have to be willing to do the same if the market is to believe it is credible too.”

Such concerns seem to be focused around specific aspects of the European adverse stress-test scenario, especially the simulation of an international bond market collapse followed by a 7-percentage point drop in EU output over three years.

A number of analysts have questioned the validity of the scenario on the grounds that material imbalances have been created in the extent to which banks will be able fund themselves under such conditions, given that some continue to avail themselves of ECB funding from its Long Term Refinancing Operations and others will be reliant on market funding.

An additional important factor is that the tests are set against a backdrop of an unprecedented round of recapitalisations in the European sector since the second quarter of 2013.

According to Bloomberg, EUR34 billion has been raised or will be raised through new equity. Additionally, banks have raised EUR15 billion in contingent capital issuance and set aside EUR19 billion of provisions. [Note: I last checked these figures at the end of May.]

Despite misgivings about the forthcoming stress tests, a more sanguine view is that the sector is in a more robust condition than it has been at any time since the onset of the various financial crises at the end of the last decade. Whilst recognising that the ECB faces implicit questions about its credibility, proponents of the more positive view discount a political motivation behind the ECB enforcing greater rigour in the latest tests versus earlier ones.

For instance, Alberto Gallo, Head of European Macro Credit Research at Royal Bank of Scotland Global Banking wrote during a short discussion we had by email, late last month:

“I think the adverse scenario is realistic. People would not expect large banks to fail but they would like 5-10% to fail for the test to be credible. The market knows that some banks still need to raise capital, but capital markets are open and investors appear not too concerned about this.”


Mr Gallo has also become an authoritative commentator on ‘Additional Tier 1 Capital’ [including ‘contingent capital’]. Over the last few years, these forms of bank capital have  been made [by regulatory authorities] more central in judgements of bank capital adequacy ratios. Here is an opinion piece on CoCos for the Financial Times by Alberto Gallo.

 Ken Odeluga



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Apple Tax Probe – Why it’s not a Core Issue for Investors

Ken Odeluga, 11th June 2014, 400 words Image


Apple shareholders have not had a great deal to complain about so far this year. Sure, because Apple is a corporate titan with a market capitalisation of more than $500 billion, basic questions that worry the overall market (like ‘how much longer can the rally last’?) concern Apple holders too.


But with AAPL having gained around 17% in the year to date (adjusted for Monday’s 7-for-1 stock split) Apple buyers have already had a chance to reap a solid harvest in 2014.


So what should Apple shareholders think about news reports, like this one, suggesting the European Union has started an investigation into Apple’s tax affairs (and those of other big US names) similar to the probe by US tax authorities, last year?


Well, to answer that question, first, we need to note one subtle but important difference between the IRS’s beef with Apple, and the one the EU appears to have.


The IRS said it was going after Apple because of the tech giant’s ‘stateless income’ (that basically means offshore wealth).


But the EU’s alleged investigation is directed at a few European countries with looser taxation rules on the basis that these may represent indirect state aid.


So, in the US, the blame was directly on Apple (and others) but in the EU, Apple is only indirectly in the firing line.


The major upshot from that difference: even if the EU decides beneficial taxation is a form of state aid in disguise, there is unlikely to be direct punitive action against Apple.


(Even in the unlikely event that Apple does face a penalty, like a fine, for instance, history suggests it would be immaterial, compared to Apple’s enormous profits.)


But keep in mind that Apple could end up paying more tax regardless of the outcome of the EU’s investigation.


That’s because Ireland has already signalled it will abolish, within a year, the soft tax rules that Apple and other global corporate giants have benefited from.


Even so, that puts a potential hit on AAPL two years into the future and realistically, such an early warning gives Apple ample time to take steps to offset any tax hit.


All this translates into a likely neutral near-term impact on Apple’s stock price.


Again, like the overall market, Apple’s stock will face its day of reckoning, sooner or later. But that day is unlikely to be the same day Apple pays its next European tax bill.


Ken Odeluga


Disclosure note: I do not own any class of Apple Inc. stock, bonds, or derivatives that can be written off any of such assets, nor have I ever owned such assets, although I may do so in future. I have not sold Apple Inc. stock or any other Apple Inc. financial asset short, but may do so in future. 

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Poll: Thames Estuary Airport: Fly or Sink?

It’s the Mayor of London’s pet project, but do you think it will ever get off the ground? To lower the risk of further painful puns please give us your views as soon as possible.

Results will be available on completion and the poll will remain open for the foreseeable future. Thanks.

image: Foster and Partners’ artist impression of the Thames Hub

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The Case of the Disappearing FBI probe into Heinz Option Trades


Panoramics of Münsterhof square in Zürich, September 2008, ‘Roland zh’. The address of Goldman Sachs Bank AG [Zürich] is Münsterhof 4. [From Wikimedia Commons, “the free media repository”]

Two deals involving Berkshire Hathaway partner, 3G Capital, were scrutinized by the SEC for alleged insider trading. 

3G no stranger to US courts…

The takeover of H.J. Heinz & Co  by Berkshire Hathaway was done and dusted in May.

By definition that means all loose ends surrounding the takeover [including legal challenges] were cleared up.

Well, that would be true as far as it goes, but there is still one obvious issue outstanding, even though the takeover has been completed.

The freeze on a Swiss bank account linked to possible insider trading in H.J. Heinz Co. call options, just before Heinz agreed to be bought by Berkshire Hathaway Inc. and Brazilian investment firm 3G Capital, was never lifted.

Additionally, although the corporate side of the takeover played out in the northern hemisphere, and the wheeling and dealing in options reportedly took place in the US and Switzerland, further reports indicated the SEC was also investigating related CFD trading, with a focus on one of the largest markets for that type of bet, The City of London.

Another twist, it makes sense to suppose the options contracts have long expired, and are now worthless.

More to the point, and perhaps somewhat bizarrely from the point of view of us non-legal folks, the SEC’s lawsuit against ‘unknown traders’ suspected of insider trading in Heinz stock options, remains open.

[In July I e-mailed the SEC to check if it had made any further ‘statement directly related to this case, either formally or informally?’ after the FBI announced it was weighing in with its own investigation. I’m still waiting for a reply from the SEC as I publish this blog post.]

The FBI does not comment on current, ongoing cases.

So, this post is my attempt to keep as many of the strands of the mystery as possible in one place for safekeeping, until such time as the investigations are concluded and this becomes a court case story….or not.

Let’s start with some reductive basics.

Switzerland. Yes, there are a few connections.

But there is absolutely no suggestion whatsoever of wrongdoing by the Swiss-Brazilian co-founder and board member of 3G,  Jorge Paulo Lemann. He lived in Switzerland for several years from the 1990s, onward. Nowadays he ‘shuttles between ‘São Paulo, Lake Zurich and St. Louis.’

And for that matter, nor is there any suggestion whatsoever of wrongdoing by 3G Capital Inc. itself.

However, 3G Capital has had its share of direct tangles with US prosecutors.

There again, 3G Capital was indirectly ensared in another case of possible insider trading last year when the SEC froze the assets of another former Brazilian banker in September 2012.

In November 2012, that ex-banker, Igor Cornelsen, agreed, without admitting or denying culpability, to pay $5.1 million to settle SEC charges that he and his firm, Bainbridge Groupmade more than $1.68 million by trading Burger King options, using confidential information, ahead of the 2010 announcement that the company was being bought by 3G Capital.

According to the SEC, Igor Cornelsen sought information from his Wells Fargo broker, who regulators alleged was stealing information from another customer involved in the Burger King deal.

Cornelsen was alleged to have sought inside information from his broker Waldyr Da Silva Prado Neto by sending him emails with such masked references as: “‘Is the sandwich deal going to happen?'”, according to the SEC’s statement on the case and settlement versus Cornelsen.

As for Waldyr Da Silva Prado Neto, the last reference I can find on http://www.sec.gov/ to the commission’s investigation specific of him, was posted on September 21 2012 .

In that post, the SEC said the probe was continuing.

Both WSJ.com and FT.com reported in February 2013 that the SEC continued to investigate Waldyr Da Silva Prado Neto.

It’s worth repeating that there’s no suggestion whatsoever that such ticks against Cornelsen and Waldyr Neto involve any current executive or official of 3G Capital.

We’ll know more, I guess, when the FBI has completed it’s own investigation into the Heinz derivatives trading and has concluded whether or not wrong-doing took place, and also, by whom [maybe].

Guessing when that might be seems like a bet as complex, murky and vaguely crazy as a stock option trade, with a CFD on the side.


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A Sketchy Cyprus Day

The situation in Cyprus which an investor might try to assess this morning is not quite as dire as the one seen 24 hours ago; at least on the surface.

The vote on that vexatious tax on deposits did not take place on Monday as originally planned but has been delayed till Tuesday at 1600 GMT.

Also, banks in Cyprus will now not re-open until Thursday, not Tuesday as first mooted.

A Eurogroup meeting concluded yesterday with the view that small depositors should be treated differently from large depositors.

This bolsters the treaty principle that deposits under EUR100k be guaranteed.

However the work-around which protagonists have adopted to achieve this involves a 15.6% levy for savers of above EUR100k (versus the original plan of taxing deposits under EUR100k at 6.75% and those above EUR100k at 9.9%).

The evasive action by the main players also appears to include some tacit devolving of responsibility, with the reaffirmation of Cyprus having the prerogative to decide how it raises the mooted EUR5.8bn through any alternative proposal, so long as it does indeed raise that sum.

Down the line this sleight of emphasis by the EU with respect to responsibility might prove useful for saving face.

It’s important to note that the EU appears to be attempting to subtly re-frame the focus of the debate, albeit a little late. This is because whilst the market is calmer on the surface, so far Tuesday, it is still clearly positioned to take account of the risk of potential contagion [which might lead to potential bank runs elsewhere in Europe, let alone in Cyprus
when the banks re-open] and in the event of an escalation of Cyprus’s crises and/or knock-on events, the EU’s battered reputation will probably be back on the line, which in turn might increase the risk of market volatility.

Of course, the chances of the amended proposals being passed in the Cypriot parliament, remain just as sketchyas before the amendments, due to the thin majority of the ruling coalition, with no party enjoying an absolute majority and three parties having stated outright that they will not support the tax.

No Threat from Russia

The good news for both Cyprus and the EU, is that whilst, the Russians
are angry, those very large depositors whose adroitness can be described as ‘light’ at best, don’t have a legal leg to stand on.

Russian deposit holders might be responsible for an estimated one-half of the funds with Cypriot banks, according data from IHS Global and of course, they can’t all in fact be sketchy.

Either way, the country can be expected to maintain pointed rhetoric in the near term over any form of taxation on deposits–President Putin on Monday described the proposals as “unfair, unprofessional, and dangerous.”

However, whilst the size of the complete effect of the proposed taxation of deposits would be major for Cyprus, it can be deemed as minor for Russia.

It appears unlikely that Russia will engage in more than rhetoric in terms of ‘retaliation’ and will probably pay little more than lip service in support of any Russian chancers who opt for the litigious gambit.


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Dancing Fox

Dancing Fox

A foraging fox in Dulwich south west London, Sunday January 20th 2012. © Harry Dorset, 2011 #uksnow

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