Today's Top Stories Also Noted: Spotlight On... Where's the video, Mark Zuckerberg News From the Fierce Network:
Today's Top News1. Maker taker pricing in the crosshairs
Reg NMS requires traders to route orders so that they execute at the best possible price, but that hardly means that all trades are executes at the NBBO. There are many shares as part of an order that might execute beneath the top of the order book, and modern traders, many of which have an algorithmic bent, are adept at trading through to maximize their advantage. For some, this means taking maximum advantage of the liquidity rebates that the top exchanges pay for liquidity providers. In some cases, a trading firm could churn shares of a stock like Bank of America with nothing in mind but maker-taker fees, which have been controversial for at least two years. Adding to the debate, a soon-to-be-released study from Woodbine has found that traditional buy-side players could be losing as much as $5 billion a year because of maker-taker pricing. The independent study, which was performed without support from industry participants, says that investors "lost an average of four-tenths of a cent on each of the 1.37 trillion shares traded last year because of orders being sent to exchanges that were not offering the best final price. Stocks are sent to exchanges with inferior prices for reasons other than rebates, and the study's tally includes those losses, but the authors say that the primary reasons for bad routing decisions are the rebates," according to the New York Times. This conclusion really isn't novel, per se. High-frequency traders have long argued that the higher volume they bring can actually lower trading costs and that the exchanges should be able to pay to attract liquidity. The whole notion of best execution can be complex. There are other determinants of whether a trade is a good one from the investor side. The SEC is looking broadly into a host of market structure issues. I would be surprised if they were to outlaw such pricing mechanisms, which have spread rapidly. For more: Related article:
Read more about: exchanges
The idea of bank break-ups crops up frequently these days. With most big bank stocks mired below tangible book value, I do wonder when one bank will take such a radical step to unlock value. While some investors are hopeful of break-ups, I continue to rate this likelihood a long-shot. I raise this issue in light of the recent move by bank analyst Mike Mayo, who doesn't mind being the thorn in the side of bank CFOs, to downgrade JPMorgan to underperform from outperform. In his view, the bank helmed by Jamie Dimon is the best of the best when it comes to large banks. But, like its peers, it faces some short-term challenges in terms of the trading and investment banking environment. The revenue pop in the first quarter may not be sustainable. In addition, the economy may not cooperate in a way that allows for the retail banking recovery to continue to gather steam. I agree with him on all that. The big issue is whether a break-up will truly unlock any hidden value that wouldn't be unlocked anyway once the economy improves. In Mayo's view, investors would prefer to mix and match components of the empire via spun-off stocks as a way to best play the recovery, when it truly arrives. That view has been out there a while, and so far banks have been able to hold the line against it. We'll just have to see how long that situation holds. Related articles: Read more about: Analyst 3. Why are bank stocks depressed?
Did the first quarter really change anything? True, bank earnings exceeded expectations, which were really low. But revenues popped, which was the more salient surprise, and that kept the 2012 bank stock rally alive. Some are up significantly this year, albeit from very low levels. But all that hasn't really ignited a fundamental re-think in terms of the long-term industry prognosis. While most sell-side analysts are touting these stocks, investors have balked for lots of reasons. "Instead of anticipating a revival of trading and investment-banking profits, shareholders are waiting for the firms to reduce headcount and pay across the board, even for CEOs. They see the banking boom before the 2008 financial crisis as unlikely to return amid stricter regulation and efforts to reduce sovereign debt." One analyst told Bloomberg that, "For whatever you've seen publicly that's happened in the last six months on pay, multiply that times 10 and that's what's actually going on in private" between investors and bank executives. "Breakups are likely, but I'm not sure they happen in the next six to 12 months." Now that's radical. At this point, I doubt we'll see a break up one of the SIFI banks within a year. But the point here is that investors see the need for structural change, and that view matters if banks want to get their stock prices above book value. The only big bank above book value is JPMorgan Chase, and it was just slapped with an underperform rating from analyst Mike Mayo. The industry is hardly out of the woods and tough times loom. Many project that revenue will fall under pressure later this year. The big issue short-term is credit ratings. A round of downgrades will confirm the bearish views of investors. For more: Related articles: Read more about: banks 4. Who's selling their Facebook shares?
The Facebook road show is underway, getting started in New York City. Mark Zuckerberg, who was scheduled to put in an appearance, will sell 30.2 million of his 533.8 million shares in the IPO, which will raise up to $1.1 billion. Other sellers, according to Bloomberg, are Goldman Sachs, which will sell 13.2 million shares, and Accel Partners, which will sell an even larger share of its stake. Still other sellers include: Elevation Partners, Greylock Partners, Microsoft, Zynga CEO Mark Pincus and LinkedIn Chairman Reid Hoffman. It would be wrong to conclude that these investors are of the opinion that there's not a lot of upside left. Most of the big owners aren't cashing out completely. To be sure, in some cases, they have good reason to sell. Zuckerberg himself will use the proceeds from his sale to pay taxes associated with exercising various options. So he's doing his part to pay down the U.S. budget deficit. At least one big investor is sitting this one out. Warren Buffett says he never chases IPOs. His investing partner, Charlie Munger, however, actively dislikes the company. "I don't invest in what I don't understand. And I don't want to understand Facebook. I don't want people putting all this personal stuff into a permanent record when they are 15 years of age. I think it's counterproductive," the 88-year-old Munger told CNN. "I just basically don't like it." But that's not going to rain on the party of those who are partially cashing out. I continue to suspect that the company will raise the offer price range in response to strong demand. The rich get richer! For more: Related articles: Read more about: IPO, Facebook 5. Moynihan to give critical testimony
I've suggested before that the volume of legal responsibilities stemming from lawsuits is a huge issue for some bank CEOs. At some point, you have to wonder when the heavy work load--every appearance generates a lot of prep work--will start to impinge on an executive's ability to do his or her job. I trust that boards are suitably on top of the issue. This has been discussed mainly in the context of Goldman Sachs, but Bank of America also faces a lot, if not more, litigation, and that represents a huge burden on CEO Brian Moynihan. TheStreet.com notes that Moynihan faces a May 18 deadline in a suit brought by MBIA against Countrywide, which Bank of America disastrously bought in 2008. A New York state judge has compelled Moynihan to testify in a case that could be settled for up to $2 billion. The bank cannot afford to let the CEO blow this off. A lot is on the line. One analyst told TheStreet.com that, "There's downside from having Moynihan testify on the issue of successor liability and having that information potentially used by others who are suing B of A and also arguing it is liable for Countrywide's actions." This analyst says that Bank of America might have to boost its reserves for mortgage securities it must buy back from investors balloon soar from $16 billion to as large as $80-100 billion if litigation with MBIA establishes precedent. You can bet the preparations for the testimony will be intense. For more: Read more about: banks Also NotedSPOTLIGHT ON... Where's the video, Mark Zuckerberg Facebook has decided not to trot out the video that caused consternation in New York, the first stop on the company's roadshow. Some complained that the video was old, and basically a waste of time. In Boston, the company took the complaints to heart. Instead, it offered up COO Sheryl Sandberg and CFO David Ebersman to answer questions. Mark Zuckerberg did not make an appearance. Article Company News: > HSBC beats estimates. Article Industry News: Regulatory News: And Finally… Michael Jordan to hire old rival. Article
©2012 FierceMarkets This email was sent to kumaresan.selva.blogger@gmail.com as part of the FierceFinance email list which is administered by FierceMarkets, 1900 L Street NW, Suite 400, Washington, DC 20036, (202) 628-8778. Contact Us Editor: Jim Kim Advertise Advertising: Jack Fordi or call 202.824.5040 Email Management Unsubscribe from FierceFinance Explore our network of publications: | |||||||||||||||||||||||||||||||||||
Wednesday, May 9, 2012
| 05.09.12 | Mayo downgrades JPMorgan
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment