October 20, 2008
– Comments (12)
... the executives forced to sell shares to meet margin calls?
I am so disgusted with what I have found in financial report after financial report...
Shook my head when some analysts were actually feeling sorry for the CEO of Peabody having to be forced to sell his 33 MILLION shares of stock because of margin. Only people I felt bad for were the average Joe shareholders who got crushed by that forced selling.
Forced margin calls are not good for anyone. I don't quite understand why they were not able to cover the difference with some other collateral, or was the difference too big?
In this situation, somebody would be able to buy shares on the cheap, but it wouldn't be an average Joe, in any case. it would be some investment banker in the know. Plus, shares going down cause marging calls in other accounts all over the place.
Reminds me of Railroad Tycoon margin calls -)), the more you sell the lower it goes.
My question is, if they cannot handle their own personal financing, how well do you think they will handle the company's?
More likely that they are using the margin calls as an excuse to sell before the new president/congress takes over and makes changes in the capital gains rules.
Margin is dangerous.
How does CHK go from $60 to $13? CEO forced to sell his shares because of a margin call. Sucks for people already invested, but creates an opportunity for people with cash. CHK at $13 was way too cheap.
It is soooo nice that someone blogs consistently with such relevant info as you do.....thanks for a great job.
You and Ares are just great resources....I am not sure that CAPs players appreciate the distillation and the work involved.
First I appreciate the hard work needed to have relevant blog posts such as this one.In short thanks Dwot. I echo prior sentiment and feel sorry for the individual investors, 401-K holder and pension funds. I also believe that any CEO who has to meet margin call should be reviewed by his company in the least. The primary function of a CEO is to increase share value for a corporation's shareholders in any enviroment. It is not to be the chief manager but to be the chief strategist.Failure to do so should be subject to review, sanction and termination.IMHO and all best.
i do feel sorry for them.
i remember when i had to sell my Bettie Page memorabilia to pay a phone bill; i was so unhappy! i'll never see those books, cards, and magazines again.
much like those CEO's, sometimes even smiling makes my face ache...
Hey Dowt. How is the weather up there? My small silver lining is that I did lose 1/2 of my 401k in 3 mos. but when it goes from 20k to 10k I just think of theirs and go 50mil. to 25mil. Ahh..those poor babies.
How does this happen? Well when you are issued an option on 5 million shares at $25/share and you excersize the option you need to come up with $125million or exersize the option then sell shares to cover the cost and the taxes. If the CEO is greedy they finance the money on margin. IF the stock dropps the get killed.
Soory I can see how it works but still no tears.
I was just wondering...
What would happen if a law was enacted that a CEO that was leveraged and had to meet a margin call was forced to sell the stock he owned in his own company first. That would obviously drive down the shares of his company. It would have a very negative impact on his stock options (pay compensation). He would basically shoot himself in the foot. If the margin call was bad enough, it could be argued that his over leveraging was an abdication of his fiduciary responsibility to the company and it's shareholders. Wouldn't that lead to a dismissal for cause and negate any golden parachute?
Wouldn't that curb excessive leveraging by executives?
Just a thought...