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Today's Top News1. Jamie Dimon loses his luster
Jamie Dimon, the embattled CEO JPMorgan, did not mince words when discussing the calamitous $2 billion trading loss his bank suffered recently, calling his bank "stupid," saying that they "screwed up" and that "we deserve any criticism we get." The trading disaster couldn't have happened at a better time for reform advocates. Internally and externally, the big losses will no doubt be dissected and will likely affect some careers. DealBook offers a list of those that will be thrust into the spotlight: Bruno Iksil, the London Whale, AKA Voldemort, acquired the credit-default swaps that led to the $2 billion loss; Ina Drew, head of the chief investment office, who expanded the office greatly per directions from above; John Hogan, the firm's chief risk officer, and Douglas Braunstein, JPMorgan's chief financial officer. But the executive with the most on the line is Dimon himself. He has emerged as a most truculent critic of the Volcker Rule. While he agreed with the idea that banks with insured funds should not be able to make massive proprietary bets, he also mocked the idea of trying to separate legitimate hedging and market making from prop trading. He even personally critcized Paul Volcker. One could argue that the $2 billion loss will undercut Dimon's case, and people will certainly push that line, suggesting that banks will easily circumvent the rules by disguising prop trading as hedging or market making. They know have more fodder to do that, whether the argument is sound or not. Dimon has certainly seen his credibility eroded. For more: Related articles: Read more about: proprietary trading
2. The real impact of the Greg Smith memo
I noted recently that Vanity Fair weighed in on the Goldman Sachs CEO succession battle, handicapping the race and speculating about when a transition might occur. The entire article is now online and what a delicious read it is, in part because of its analysis of the Greg Smith memo. Some people are inclined to see the memo as a one-day story. It's true that the incident has faded from the headlines, but the article makes clear that it detonated with massive force inside the gilded bank. The biggest "reason the op-ed resonated is that Smith is not a lone voice from inside Goldman. He merely said publicly what many former employees—who in times past would never have criticized the firm—now say privately: Goldman has changed. Once, when promotions were decided, being a 'culture carrier'—Goldman lingo for a person who is a positive force for the things the firm says it values—was at least as important as being 'commercial,' i.e., someone who excels at making money. Not anymore: being commercial, I'm told, is more of a deciding factor." A former Goldman senior banker was quoted saying, "What really bugs me about G.S. today is not that it's immoral. It's amoral." Some former executives think the company is at a critical crossroads. Which will likely keep the succession issue alive and well. Icontinue to wonder what the board thinks about this issue -- and about the article. It certainly cannot ignore either. Related articles:
Read more about: Goldman Sachs, CEO 3. Kyle Bass moves to long mortgage bonds
The housing implosion wasn't a complete surprise to everyone. A few brave hedge fund managers not only predicted the collapse but bet massively on it--and ended up billionaires or at least half-billionaires. John Paulson is perhaps the best example, but Kyle Bass is not all that far behind. His work to ferret out the CDOs most likely to implode was covered in depth by Bloomberg and by Michael Lewis in his book Boomerang. Bass ended up with profits in the half billion range. Around Dallas, he was an instant celebrity. While Paulson has run into some well-publicized troubles with his funds, Bass intends to keep his winning streak intact--in part by going on to long mortgage securities. According to DealBook, he now "thinks some of the worst bonds, those which are not backed by the government mortgage giants Fannie Mae and Freddie Mac, could yield 14 percent in the coming years. 'I think housing stops going down in the next six to 12 months,'" he said at the recent SALT panel. For more: Related articles: Read more about: Hedge Funds, CDOs 4. Higher percentage of "no" votes on pay plans
Citigroup shareholders shocked the world last month when 55 percent of the shares were cast against the executive pay plan, a stunning rebuke to the board and to CEO Vikram Pandit. Both are now in quite a conundrum as they ponder how to respond. While the vote raised the prospect that other banks' say-on-pay efforts would meet a similar fate, it seem doubtful that a majority negative vote will win out at other big bank annual meetings. Still, we've seen some intriguing meetings. At Bank of New York Mellon, 41 percent of the vote was cast against the pay plan, up from 20 percent a year ago, according to Crain's. At Lazard, management just barely prevailed. Its pay practices "were opposed by 49% of shareholders, up from 47% last year. One reason investors may be unhappy: The investment banking and asset management boutique every year spends $288,000 a year in rent—plus pays another $200,000 or so in taxes—for an apartment at the Regency Hotel on Park Avenue for Vernon Jordan, a senior Lazard executive and Bill Clinton golf buddy. Mr. Jordan was awarded about $3 million in pay last year, including his housing perk." At the NYSE Euronext meeting, 43 percent of the vote was against the pay plan, up from just 16 percent last year. These are very high percentages, and make clear that shareholders will not be patsies on unjustified pay. That said, most banks realize this, and the boards of the biggest banks no doubt took steps to ensure that their play plans were in line with the expectations of proxy advisory services--a smart move. For more: Related articles: Read more about: Say on Pay 5. Financial firms need new approach to Millennials
Are Millennials really unhappy with Wall Street? You might get that feeling judging from recent media coverage about all the Occupy Wall Street-inspired protests at recruiting events on campus. But the reality is that money will always represent a very powerful allure for young people. Plenty of young graduates are still pining for Wall Street careers, though everyone knows that it can really take a toll on people over time. The idea of "getting out" is not far from anyone's thoughts. For the Millennials, one thought is whether they want out earlier in their careers. A recent study from PwC found that 55 percent of all financial services employees born since 1980 made compromises when they took their jobs. More than half are actively looking for new jobs. About 21 percent said they would prefer not to work in the financial services industry. Only 10 percent said they were planning to stay in their current role for the long term. HR says that, "financial services firms need to adopt a different approach to their graduates' careers or risk the sector's current talent shortage growing further." PwC says, "Financial services companies might have a tougher time competing against other industries for the reputation-conscious millennial generation, whose experience and expectations have been marred by the financial crisis. This generation of graduates actively seek out employers whose values reflect their own, so the sector's ability to restore trust and re-engage with society will be critical in attracting the best talent from current and future graduates." For more: Related articles: Read more about: banks, recruiting Also Noted
SPOTLIGHT ON... Is Facebook overvalued? Is Facebook set to storm out of the gate, en route to becoming the next Google, or is it already overpriced and poised to meander once the froth of the IPO settles? That's the big debate, and many people have opinions. One poll of investors from Bloomberg suggests the stock may already be overvalued. I still think that the price range may be boosted ahead of the deal. Article Company News: Industry News: Regulatory News: And Finally … Is Stallone immortal? Article
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Monday, May 14, 2012
| 05.14.12 | The real impact of the Greg Smith memo
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