Today's Top Stories Also Noted: Spotlight On... FINRA to charge firms over leveraged ETFs News From the Fierce Network:
Today's Top News1. Negative stock reports remain scarce
Ten years ago, in the wake of the global settlement on tainted stock research, sell orders by equity analysts topped out at nearly 20 percent. That was hailed as progress. Now that the five-year settlement has long since lapsed, and as we enter a new regulatory cycle that's less concerned with analyst-banker conflicts, how has the percentage changed? Just 9 percent of analyst recommendations by investment banks and brokerage firms globally are a "sell" right now, based on more than 120,000 stock recommendations on nearly 17,000 companies, according to a Reuters study of StarMine data. This doesn't mean that analysts are mere tools of the investment bankers, but it was always somewhat naive to think that sell-side stock analysts would be truly independent. Even if there is no formal interaction between the research aside and the banking side, negative reports will draw negative recognition by the banking side, which is still essentially paying for the sell-side research operation. It's not easy issuing sells, and analysts who do so easily run some big career risks. With all that said, the value of sell-side research on its merits has been somewhat undervalued in recent years. While many are cynical toward it, there are few alternatives. The independent movement has long since crested and serves different needs. Sell-side researchers can indeed churn out some really good work, and some news stars have been anointed, though they have yet to achieve the stature of a Meeker, Blodgett or Grubman. For more: Related articles: Read more about: Stock Analysts, Stock Research 2. Bank of America whistleblower vindicated
Whistleblowers have been in the news as of late, with several putting themselves in line for massive paydays. While the incentives are high, the personal toll can be heavy, and not everyone will prevail in winning a huge payout. In the end, it's not about the rewards for some people, who are motivated more by a desire to see corporate crimes put to an end. Eileen Foster may be in that category. She was fired by Bank of America shortly after it absorbed her employer Countrywide, where she had been lobbying her superiors to expand an investigation into fraud by loan officers that included forgery and false declarations of income by loan applicants. "After a three-year battle, the U.S. Department of Labor's Occupational Health and Safety Administration last year ordered Bank of America to reinstate her and pay her nearly $1 million in lost wages and expenses. Bank of America, however, is appealing the decision, leaving Foster without the job or money." Bank of America has appealed the OSHA decisions as it relates to her Sarbanes-Oxley case. While the $1 million may be nice, it pales next to the $31 million that Citigroup executive Sherry Hunt was awarded for her whistleblower efforts. But money was likely not the original motivation for Foster. She was honored recently at the National Press Club, notes Reuters. In her speech, she said, "Here we are, several years after the onset of the financial crisis, caused in large part by reckless lending and risk-taking in major financial institutions, and still not one executive has been charged or imprisoned." For more: Related articles: Read more about: Bank of America, Whistleblower 3. Banks fear Fed-imposed breakup
Fed Governor Daniel Tarullo is scheduled to meet with top banks this week about the mandatory annual Dodd-Frank stress tests. Though these have largely been wrapped up for 2012, the bigger issue might just be the Fed's plans to regulate banks could be seen as too big to fail, according to the Washington Post. Bank industry lobbyists have already sent a letter to the Fed accusing it of going too far in its efforts to regulate large banks via policies on credit exposure and capital standards that it feels go against the intent of Dodd-Frank. Recall that the landmark reform law treats banks with assets of more than $50 billion as a special category, with the intent of preventing them from taking down the entire financial system if they were to fail. The industry has taken the view that what the Fed really wants to do is break up the biggest banks. The letter says the Fed "has set a course" to use these new powers "to achieve indirectly what it was not authorized to address directly — that is, precipitate a dramatic reduction in the size of large banks through size-based regulation." This is not necessarily the view of the Fed. True, the president of the Dallas Fed has taken this view, proposing breaking up the five biggest U.S. banks. But others, including Tarullo, have not gone nearly that far. Still, "he has spooked the industry by questioning whether banks can get so big that any future growth does not provide value, through economies of scale, to the financial system or economy." I doubt a Fed-enforced break-up is in the cards, but it will be interesting to see how the SIFIs are treated. For more: Related articles: Read more about: too big to fail, SIFIs 4. Will Chinese banks dominate or struggle?
There was once a day when Las Vegas was considered the gambling capital of the world. But as a recent New Yorker article makes clear, that title has been usurped by Macau, which is now five times as big as Sin City. Some U.S. casinos have indeed given up their U.S. operations in favor of their operations in Macau. It's a pertinant issue in light of Forbes 2000 list of the world's biggest companies. "Tucked in among these iconic global brands you'll see a handful of companies you might not know, with some eye-popping numbers. Companies like the Industrial & Commercial Bank of China, with $2.5 trillion in assets, and China Construction Bank and Bank of China, which both have $1.9 trillion in assets. Today 4 of the world's 21 biggest companies are Chinese banks. ICBC, which is ranked number five, is also the world's most profitable lender, earning $33 billion in 2011. Indeed, the Chinese banking system is now the third largest in the world behind the U.S. and Japan, and yet it has largely been confined to doing business at home." So, are these banks poised to become dominant global players? "In February China's central bank issued a three-step plan that would tear down the barriers surrounding China's big banks. Hopes quickly emerged that China's banks could become international players much like China's industrial companies, providing capital to a global economy that could use it." That said, there's plenty of skeptics about these banks and the services they offer foreign companies. In addition, they face some severe capital challenges and may be vulnerable to the many risky projects they've been financing. For more: Related articles: 5. Hot Brevan Howard fund spurs popularity of other funds
There are benefits to running a wildly popular hedge fund. Consider the Brevan Howard Master fund, which was one of the top performing funds last year. It gained about 12 percent, compared with an average decline of about 5 percent across the industry. The Master fund has generated positive returns every year since it was launched in 2003. Small wonder then that more investors are clamoring for a piece of the pie. Unfortunately, the fund is closed, as you might expect. Reuters reports, however, that the Brevan Howard Multi-Strategy Master Fund invests in the group's $27 billion flagship Master fund and other, smaller strategies. The multi-strategy fund has certainly benefited, as it has grown to more than $2.3 billion from around $1.1 billion last September. For most would-be limited partners, this is the only way to get into the Master Fund. You get also into other Brevan Howard funds, whether you really want them or not. "This growth spotlights the popularity currently enjoyed by a small band of hedge funds such as Brevan, which are attracting the bulk of new cash but also having to juggle a commitment to existing investors to limit the size of their flagship portfolios while not turning away new clients." This is great way to goose your gains in terms of asset gathering. But it is pro-cyclical in both directions. If the Master fund ever loses its way, it will take down the asset levels of other funds as well. Hopefully, that will not happen. For more: Related articles: Read more about: Hedge Funds Also NotedSPOTLIGHT ON... FINRA to charge firms over leveraged ETFs FINRA plans to bring enforcement actions against unnamed brokerage firms over sales practices regarding leveraged and inverse ETFs. According to Reuters, the cases will also "involve allegations of improper or inadequate training for brokers who sell ETFs." The marketing of theses ETFs has been controversial. FINRA has been concerned about possibility that retail investors hold these products for more than a day out of ignorance of the product's mechanics and goals. Article Company News: Industry News: Regulatory News: And Finally…Angry Birds in search of deals. Article
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Tuesday, May 1, 2012
| 05.01.12 | Bank of America whistleblower vindicated
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