Today's Top Stories Also Noted: Spotlight On... Payday lenders seek legitimacy News From the Fierce Network:
Today's Top News1. Are banks still too big to fail?
Bloomberg notes that the top banks are as big as ever. It cites data from the Fed showing that five banks -- JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs -- held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy. That compares with 43 percent five years ago, before the onset of the financial crisis. Obviously, the top banks remain huge, but does that mean they are still too big to fail. Plenty of people will caustically say as much, but there remains divided opinion. The key really is whether banks could be wound down in the face of another crisis -- another mother of all credit events -- without taxpayer money and harm to the financial markets. The key just might be the living wills that systemically important institutions have been tasked with writing for possible use in an orderly liquidation. These institutions, which of course include the top banks, face a July 2012 deadline to submit plans that detail how they would wind themselves down if it came to that. The regulations, drafted by the FDIC and Federal Reserve in April, apply to institutions with more than $50 billion in assets globally. Regulators have promised that the plans will ensure comprehensive and coordinated resolution planning in the event that an orderly liquidation is required. But in a crisis situation, with markets already volatile, can this be done without taxpayer support? There is no way to test this hypothesis in the real world unfortunately. We do hope Dodd-Frank and other regulations have made this scenario less likely. For more: Related articles: Read more about: too big to fail 2. Trainee lies about exam, gets barred from industry
Forbes offers an interesting article about a trainee at Bank of America Merrill Lynch who failed his Series 7 exam -- and that was just the beginning of a sad, humiliating saga that did not end well for employee or employer. Perhaps in a panic, the trainee falsely reported to his superiors that he had passed the test. "Why any trainee would lie about passing any registration examination is beyond me because these scores are part of a computerized database and are separately reported to the sponsoring member firm. In fact, on the same day that Witt told Merill Lynch that he had passed the Series 7, the firm received an email notice that he had failed. Which prompted the employer to investigate." Long story short: The firm asked the employee for documentation, which was delivered in the form of a fabricated document, which Merrill Lynch accepted. But FINRA looked into the matter. The employee then claimed he could not find the original copy of his results. But FINRA had the official results, and eventually the employee was left with no choice but to confess. He ended up being barred from the industry. I have to think this sort of thing is rare. Surely, no one should think he or she could get away with this. Still, it remains a cautionary tale. Most likely, these kinds of gamers would not make good stock brokers, though they might be able to generate lots of revenues. For more:
Read more about: Series 7, Trainee 3. BlackRock eyes market making
It was huge news when BlackRock let it be known that it was developing an electronic trading platform to facilitate fixed-income trading, one that would cross trades among buyers and sellers directly, disintermediating traditional dealers. The idea is not necessarily new. People have been talking about this for the longest time. But it just might take a company of BlackRock's heft to generate the kind of order flow that would make such an effort worthwhile. Its solution would serve 46 of its top clients. So what to make of this system? Some might be tempted to see it as the first step toward the ECN-ification of the bond market. But that's going to be hard given the sheer diversity of the market. It would appear to be more likely in markets for more fungible securities, for Treasuries perhaps. My sense is that this will eventually become a powerful trading platform that allows BlackRock to make markets, at better spreads and commissions compared to the big dealers. There is money to be made doing this, and if you can facilitate much of through a state-of-the-art electronic platform, that makes it all the better. You have to like the idea of competition for the dealers. We've been talking about the buy-side competing with the sell-side for services a lot. Maybe this is one area where the talk was justified. For more: Related articles: Read more about: trading, Market Making 4. Bank of America, Morgan Stanley beat estimates
Two more big banks released first quarter earnings this morning, and both delivered solid upside surprises. Bank of America, adjusting for the debit valuation adjustments, reported net operating income of 31 cents a share, handily beating average analysts' estimates of 12 cents a share. Its revenues of $27.3 billion were down slightly year-over-year but up sequentially. Revenues were generally in line with expectations. Morgan Stanley, also excluding one-time items, posted a profit of 71 cents a share, compared with the expected 44 cents a share. Its revenues were up significantly year-over-year and on a year-ago basis. Both banks benefits from FICC-like trading activity. At Morgan Stanley, fixed income and commodities sales and trading net revenues were $2.6 billion, up 34 percent from a year ago, reflecting particular strength in interest rates, commodities and corporate credit. At the same time, the bank ratcheted back its VAR, which declined to $84 million from $121 million a year ago. At Bank of America, FICC sales and trading revenue, excluding DVA losses, was $4.1 billion, a strong increase compared to the prior year. The increase reflected improving global markets sentiment as the European debt crisis stabilized coupled with favorable news regarding the U.S. economic environment. The largest contributor to earnings typically at Bank of America remains consumer and business banking, an area in which the bank has continued to struggle. Total revenues in this line item were $7.4 billion, compared with $7.6 billion in the fourth quarter and $8.5 billion a year earlier. For more: Related articles: Read more about: earnings, banks 5. Fake Bank of America press release
Every now and then, anti-corporate activists issue fake press releases to further their cause. Not too long ago, activists issued a fake GE press release that "announced" the company would repay a $3.2 billion tax refund. Yeah, right! To its subsequent chagrin, the AP took the fake release at face value and published an article based on it. So far, no journalist organization has been duped by the fake Bank of America release that has been circulating. Deal Journal calls the fake "quite realistic" in its detailed rendering of the logo and use of the bank's normal font. The fake release announces a new marketing campaign -- "Your Bank of America"---in a bid to find out what banking today should be about and to enlist America's help. It directs people to a web site, yourbofa.com, which features a fake letter from CEO Brian Moynihan: "Today, it's time to acknowledge that our Bank isn't working anymore." The site "features several pages that carry on the typical arguments against BofA, and while there doesn't appear to be anyone taking credit yet, it bears all the hallmarks of the recent Occupy protests against the bank. The site appears to take issue with BofA for 'funding coal' and for not paying taxes in 2010, a year it lost money. There are also several snide remarks about mortgages." For more: Read more about: Pr, Press Release Also NotedSPOTLIGHT ON... Payday lenders seek legitimacy In search of revenue, several mainstream banks have entered the market for payday loans, which carry huge fees. This might help pave the way for these much-maligned vendors to rehabilitate their reputation. To further this cause, payday lenders are stepping up their giving to political campaigns, according to a report from the watchdog group Citizens for Responsibility and Ethics in Washington. Article Company News: Industry News: Regulatory News: And Finally…Apple, Google, Intel face employee poaching antitrust woes. Article
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Friday, April 20, 2012
| 04.20.12 | Are banks still too big to fail?
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