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Today's Top News1. Volcker Rule clarification brings relief
For all the angst over the Volcker Rule, we still are not sure exactly what the letter of the law will be. True, it is scheduled to go into effect in July, which is just around the corner. But no one ever thought the final rule set would be formalized by then. Dodd-Frank allowed for a two-year phase-in period anyway. The Federal Reserve has now issued some long-sought guidance, noted by media reports, making clear what banks are expected to do during the phase in. They must show "good-faith planning efforts" to gear up for the rule, which will likely not be fully implemented until July 2014. There is a chance, if history is any guide, that the deadline will be delayed more, to as late as 2017. The Federal Reserve also pledged to provide more guidance ahead of the deadlines. So we are not very close to any actual requirements that banks stop trading with proprietary funds. But the rule has already provided cover that allowed banks to make some moves that perhaps would have been anyway. So what to expect from here? For one thing, there could be some legal challenges, as critics press the cost-benefit analysis angle that proved so effective in getting the proxy access rules invalidated by the courts. At the same time, banks will continue to walk the tightrope, interpreting the rule as necessary to preserve trading profits as the final rules are considered. For more: Related articles: Read more about: Volcker Rule
2. Ex-CalPERS head charged with fraud
The role of middlemen in the private equity placement game has sparked lots of controversy and fraud charges over the past few years, ensnaring some big-name financiers and local politicians. Steven Rattner's reputation, for example, was certainly sullied in his battle with the New York AG's office. The latest news comes from the other coast. The SEC has just accused Federico R. Buenrostro--the former head of CalPERS, among the largest and most influential public pensions in the country--with fraudulently steering payments to his close friend, Alfred J. R. Villalobos. The alleged victim was private equity firm Apollo, which apparently steered tens of millions to Villalobos. The charges piggyback charges already filed by the state of California. The complaint, filed in Federal District Court in Nevada, claims that the two men "fabricated documents to give Apollo the false impression that Calpers had approved the payments to Mr. Villalobos," notes Deal Book. The SEC "detailed how Mr. Villalobos and Mr. Buenrostro had supposedly defrauded Apollo. Mr. Buenrostro was said to have signed blank sheets of fake Calpers letterhead, which Mr. Villalobos then used to generate phony letters demonstrating that Calpers had been aware of the payments to Mr. Villalobos. They did this for at least five different Apollo investments, regulators said." A previous report commissioned by the pension found that Villalobos "turned Mr. Buenrostro into 'a puppet' by lavishing him with gifts and promises of a lucrative job once he left Calpers. The two men both live in Zephyr Cove, Nev., a small town on Lake Tahoe just across the California border…. Buenrostro took a job at Mr. Villalobos's company, Arvco Capital Research, less than two months after resigning from the Calpers board in 2008." This is a stark reminder of the shocking pay-to-play scandal that engulfed the industry not too long ago. We can only hope that CalPERS and others have cracked down hard. For more: Related articles: Read more about: fraud, CalPERS 3. SEC charges another Chinese company
A few years ago, we noted the many Chinese companies seeking to list ADRs in the U.S. seemed to embrace the Sarbanes-Oxley process as de facto proof that the company was sound. It was seen in some ways as a Good Housekeeping seal of approval. A few surveys back then noted cultural differences in the way Sarbox was perceived by would-be public companies. But now it has become clear that going through the Sarbanes-Oxley process was not the guaranteed it was touted to be. Some might say it was always more of a marketing thing for these companies. The issue is relevant in light of the news that the SEC has charged another Chinese companies with fraud. Specifically, it has alleged that SinoTech Energy and two executives with lying to shareholders about the value of assets and the use of $120 million obtained via its IPO. The complaint also alleges that the chairman siphoned $40 million from the company's bank account. This is merely the latest example of fraudulent behavior alleged by the SEC against Chinese companies. For short sellers, of course, this trend has been a god send. But now the shares of so many companies have been waylaid amid the regulatory crackdown that good shorting candidates have become much more scarce, notes the Financial Times. Some hedge funds are shifting their focus away from U.S.-listed companies to Hong Kong-listed companies. For more: Related articles: Read more about: SEC, fraud charges 4. All eyes on the Wells Fargo annual meeting
The rejection by shareholders of Citigroup CEO Vikram Pandit's 2011 compensation was the shot heard round the banking industry. So who's next? All banks are keenly aware that emboldened shareholders are locked in on this issue and perhaps other governance issues. For the moment, all eyes turn to Wells Fargo. According to one governance advisory firm, The Value Alliance, "The Wells Fargo board awarded the bank's top five executives $43.7 million in discretionary bonuses this year, so–called "performance based" pay. But the definition of performance seems narrowly defined. Foreclosure issues have scorched the bank's reputation, but the justifications in the proxy for the CEO's pay don't reflect that." There are a host of other issues that shareholders will also address, notably a proposal for placing director nominees on the ballot via the Exchange Act Rule 14a–8 process and a proposal that would split the CEO and chairman job. The Wells Fargo board has the distinction of being the first to face shareholders in the wake of the Citigroup meeting. But these are issues that will play out at every bank annual meeting. We will not likely get a lot of outright shareholders rejections, as we did with Pandit's pay for 2011, which was truly stunning. But if we see a high percentage of negative votes on certain proposals, that will be enough for shareholders advocates to claim victory. Banks certainly need to be attuned to working these issues through with resolution sponsors before the meeting. Goldman Sachs has been the most aggressive about this. For more: Related articles: Read more about: corporate governance, chairman 5. Explaining the Goldman Sachs exodus
The stream of Goldman Sachs partners who are heading for the exits has been much discussed as of late. Some have suggested that the departures suggest a lack of confidence in the future of the firm. Others have suggested that a stealthy culling was underway. Financial News offers the most likely explanation, which is that partners had been under pressure to stick around after the financial crisis as a show of loyalty, which many did. Now that the pressure has alleviated significantly, they have the green-light to leave, and many are. So there was pent-up demand for retirement, hence the spike. Going forward, we should revert to the historical norm, which is that partners stick around for 6 to 8 years after they make partner before riding into the sunset. Of course all eyes are on the looming departure of the partner of all partners, CEO Lloyd Blankfein. While the dust from the financial crisis has cleared enough for most partners to step down, it's unclear whether that holds true for the CEO. He could certainly be forgiven for wanting to stick around until the bank recovers lost ground financially. He would love to leave with the stock at a high. But despite a lot of speculation, he shows no signs of wanting to leave anytime soon. We may get some interesting transition plans that are bound up in corporate governance plans. For example, he might remain as chairman with a new CEO on board. For more: Related articles: Read more about: Goldman Sachs, CEO Also NotedSPOTLIGHT ON... Do hedge fund investors reap the big rewards? Research commissioned by the lternative Investment Management Association and KPMG has found that hedge funds delivered an average annual return of 9.07 percent from 1994-2011, compared with 7.27 percent for global commodities, 7.18 percent for stocks, and 6.25 percent for bonds. The point of course is to dispel the notion that hedge funds lag other classes. As for performance fees, the study says investors received nearly 72 percent of the profits. That contrasts with a recent publication that concluded that managers took the lion's share of profits. Article Company News: Industry News: Regulatory News: And Finally…The future of Netflix? Article
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Wednesday, April 25, 2012
| 04.25.12 | Volcker Rule clarification brings relief
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