Today's Top Stories Editor's Corner: JPMorgan "hedges" look like prop bets Also Noted: Aternity News From the Fierce Network:
Today's Top News1. Zoe Cruz shutters her hedge fund
Zoe Cruz was once consider the "Most Powerful Woman on Wall Street," a mythic title that is a curse as much as anything. Look at the many others who have held the title, the likes of Sally Krawcheck, Erin Callan, Barbara Desoer, and others. They have not fared well. But there is always life after the title has been ceded. In the case of the one-time Cruz missile, after she was summarily fired as co-president at Morgan Stanley by her mentor John Mack--who told her bluntly, "I have lost confidence in you"--she decided to start a hedge fund. Many assumed it would be a success for someone who was anointed as a future CEO of Morgan Stanley, but now the media is reporting that she will shutter her fund, Voras Capital Management, and return money to limited partners. Reuters notes that the fund had struggled to raise money since it was opened in 2010. It never got much beyond $200 million in assets under management. Given her personal brand, expectations were high. Fund performance was likely an issue. It lost about 8 percent last year vs. an average loss of about 5 percent for the rest of the hedge fund industry. She is not the only big-name refugee from a top bank to fail as a hedge fund entrepreneur. Many former prop traders are struggling as hedge fund managers in a tough market. For more: Related articles:
Read more about: Hedge Funds, Morgan Stanley
2. Bank of America management prevails despite protests
The Bank of America annual meeting was largely a success for management. It prevailed on all shareholder resolutions by convincing margins. According to the Charlotte Business Journal, management's compensation plan was approved with 92 percent of shares cast in favor of it. All management-proposed director candidates were voted in with little opposition. A shareholder proposal to provide third-party audits of mortgage servicing operations was rejected, with 85 percent voting against it. A proposal to offer more disclosure about lobbying activity fared better was rejected, though it did win 30 percent of the vote. Proposals to limit the bank's political spending, requirements that executives retain more stock, and disclosures about employee conflicts of interest all failed. The meeting was also a success in that the bank was able to successfully give shareholders a chance to air their views, even though the results weren't necessarily flattering. No one wants to be called the "worst of the worst" in print. Media outlets predictably focused on the media-genic controversy playing out as investors offered their acerbic commentary and questions directly to the CEO. In the end, management ended up with a few minor scraps but no real wounds. The 40 percent gain it has registered this year no doubt helped, but the second half of 2012 is starting to cloud up just a bit. I can only hope the revenue trends can hold up. For more: Related articles: Read more about: Bank of America, shareholders 3. CFPB weighs in on mortgage origination fees
The Consumer Financial Protection Bureau (CFPB) has emerged as an entity that cannot be ignored. Like it or not, the relatively new bureau, headed by Richard Cordray, is taking its mandate seriously. At this point in its history, Elizabeth Warren would be proud, which is of course troubling to the banking industry. Executives perked up when the bureau said it would take a fresh look at overdraft fees and bank opt-in policies. Now comes news that the bureau wants to regulate mortgage origination fees and require banks to charge a flat fee instead of a percentage of assets fee as well as to require banks to make clear that origination fees are distinct from the points people pay to lower their mortgage rate. This has long been an issue, and Dodd-Frank actually required some reforms in this area. The CFPB proposals are one possible solution. Industry lobbyists are not happy, however, saying the proposals add confusion as they mimic similar proposals from the Federal Reserve. I am surprised that this issue was not covered in the recent settlement between top mortgage services and the state attorneys general. It would have been much less controversial if it had been. The industry should now perhaps put forward some solutions of its own. Overall, one issue here has to be regulatory muddle. It would be nice if the regulators could all get on the same page with their proposals. For more: Related articles: Read more about: mortgage, fees 4. Morgan Stanley's stock gain weak, as rating issue lingers
Morgan Stanley's on the hot seat as Moody's ponders what to do about its credit rating. In February, the credit rating company put the bank's long-term ratings on watch, saying its A2 rating could fall all the way to Baa2, just barely above junk status. A three-notch fall is hardly guaranteed, but some analysts think it is more than merely possible, and that has affected its stock price. TheStreet.com notes its stock is up just 4.7 percent so far this year. The next worst performing bank is Citigroup, which is up about 20 percent. Bank of America is up about 40 percent, though it has taken a fall recently. In addition, "Morgan Stanley shares now trade at just 6.5 times estimated 2013 earnings, compared to Citigroup's 6.68 and Bank of America's 7.33, according to data from Bloomberg. Wells Fargo, which commands the highest multiple to 2013 estimates of the big six U.S. banks, is at 8.98." It might be hard for the bank to stage a meaningful rally until the credit rating picture clears up. The biggest dangers are that the bank will be forced to post more collateral, which will raise the costs of business, and that counterparties might defect to other banks. Dramatic action by Morgan Stanley management, however, could be well received. One analyst, Brad Hintz of Bernstein Research, says management could mitigate the impact of the ratings downgrade "by shifting its (over-the-counter) derivatives book into its higher rating bank subsidiary," the derivatives provisions in the 2010 Dodd-Frank legislation "might limit the effectiveness of this action over time." For more: Related articles: Read more about: Morgan Stanley, Bank Stocks Also Noted
SPOTLIGHT ON... PIMCO ETF sets new standard I've noted that PIMCO's ETF version of its popular Total Return Fund has gotten off to a rousing start. Morningstar amplifies that view, saying "Today, a little more than two months since its launch, PIMCO Total Return ETF (BOND) has thus far surpassed almost everyone's expectations. It is the fastest-growing active ETF ever, with more than $700 million in assets." This is certainly changing the game for other ETF firms. They cannot afford not to plow headlong into actively managed ETFs. Article Company News: Industry News: Regulatory News: And Finally…Do your co-workers hate you? Article
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Friday, May 11, 2012
| 05.11.12 | Zoe Cruz shutters her hedge fund
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