Today's Top Stories Also Noted: OpenText News From the Fierce Network:
Today's Top News1. Facebook underwriters lift IPO range
We've been saying from the start of the Facebook IPO madness that the underwriters would likely raise the IPO range soon, and sure enough, they have made the move. The banks lifted the range from the $28 to $35 range to the $34 to $38 range, meaning the bank would be worth more than $100 billion if the final price rests toward the high end of the new range. These things are fairly well scripted, and should not be seen necessarily as a sign of over-the-top demand. To be sure, the range hike was not dramatically large. Of course, there's no way to predict how a stock will fare once it starts trading. Back in the dotcom era, underwriters locked in all sorts of agreements from big buy-side players to support the stock in the aftermarket, and that often ensured some huge, if artificial, one-day pops. Such agreements are not in vogue from a regulatory perspective, and we've seen quite a few Net stocks go public to huge acclaim only to fare poorly in the aftermarket. Several are below their IPO prices, and so the big debate about Facebook rages. We may be in a situation where demand is reasonably strong, but maybe not quite enough to ensure anything but a middling debut. The key just might be retail investors. We'll see if they turn out to jack demand at market prices. That's often a sucker's bet and the bloom is off the stock market rose for many retail investors these days. For every person who sees Facebook as a mere fad, there's another who thinks it's the next Google. We'll just have to see. It will be fun. For more: Related articles: Read more about: IPO, Facebook
2. JPMorgan exec disregarded warnings on portfolio risk
Just how ugly is the $2 billion--and counting--trading debacle at JPMorgan going to get? Usually, these sorts of public fiascos are followed by an airing of dirty laundry, and we're starting to see that now. DealBook reports that in the years preceding the big losses, various internal officers raised issues with some of the bets coming out of the chief investment officer's office. "Top investment bank executives raised concerns about the growing size and complexity of the bets held by the bank's chief investment office as early as 2007, according to interviews with half a dozen current and former bank officials. Within the investment office, led by Ina Drew, who resigned on Monday, the bets were directed by the head of the Europe trading desk in London, Achilles Macris. Mr. Macris, who is also expected to resign, failed to heed concerns as early as 2009 from the unit's own internal risk officer." In fact, the article says that "risk managers were largely sidelined by Mr. Macris." At one point, he brought in a risk officer with whom he had worked closely in the past, generating talk in the New York office about how effective a manager with cozy ties to Macris would be. Before the fiasco, there were trading hiccups to be sure, but at every turn CIO Ina Drew was able to assure other executives and the board that the "turbulence" was manageable--until it no longer was. You can look forward to more laundry airing. The investigations are just now heating up, and there will be no shortage of current and former employees willing to offer their perspective. It would be wise for the board to act proactively now. For more: Related articles: Read more about: proprietary trading, hedging 3. Achilles Macris in the spotlight at JPMorgan Chase
The $2 billion CDS trading debacle at JPMorgan Chase has already claimed one victim, Ina Drew, chief investment officer, whose office oversaw the disastrous "hedge." But others might resign as well. The speculation currently focuses on Achilles Macris and Javier Martin-Artajo, two CIO office executives said to have had a strong had in the trades. Reuters weighs in with a profile of Macris, whom one colleague said was "a larger than life character, but he wasn't viewed as a reckless character. Another "former colleague said he was 'sparky,' while another described him as 'something of a firebrand to say the least,' telling of one occasion when, during an argument on the phone, Macris was seen to emerge from his office shadow-boxing." In short, he seems like a classic trader. You have to wonder if the axe will claim others and about the fate of Bruno Iksil, the so-called London Whale, aka Voldemort. He's been the trader most associated with disastrous CDS positions. Media reports indicate that he has been stripped of trading authority and is expected to soon leave the bank. There are some indications that the bank will clean house in the CIO's office, which employed a few dozen. It's unclear what the human toll will be, but the bank would be wise to take this seriously and set up the sort of risk management apparatus to make future incidents less likely. The board needs to get involved in a big way in terms of special blue-ribbon committees and the like. At the very least, it needs to approach this the way Goldman Sachs approached its customer service woes with an internal committee that produced a blueprint for change in January. For more: Related articles: Read more about: proprietary trading, Hedging Risk 4. How a hedge turns into a prop bet
So just how did JPMorgan amass such large "hedges" that imploded to the tune of $2 billion--and counting? To hear Reuters tell the story, the bank just kept inching deeper and deeper into various positions, as the bond markets shifted. That forced JPMorgan into a complicated web of various long and short positions on CDSs tied to the CDX.NA.IG.9 index, which tracked CDS prices of big-name company bonds. The "bank layered swap on top of swap, complicating the structure and increasing the risk that its hedges would fail to offset losses from one swap with gains from another." Soon, "the sheer size of JPMorgan's swap position became more than the thinly traded market could easily manage. The lack of liquidity meant the exit door was too small for JPMorgan to fit through quickly once the trades started to deteriorate." It would be akin to a retail investors buying put options to hedge a stock position. But then the stock rises, and the investor realizes his hedge is going to cost him. So he or she puts some hedges on the original hedges but this time the hedges are open-ended--perhaps he sells puts. And then the market moves against those hedges but not enough to make the original hedges pay off. He or she is left with mounting losses. It's not hard to envision. JPMorgan's situation was made worse by competitors willing to bet against JPMorgan's London Whale. This would be a prime example of a hedge that was effectively a prop bet. Had the bond market moved another way, the executives in the CIO shop would have been heroes. Alas, they ended up goats. The big issue, of course, is whether this is inevitable with hedging. Is it possible for banks to not overreach at some point? The bank can take the hit to its balance sheet and income statement, but there other types of hits that are sure to come. For more: Related articles: Read more about: proprietary trading, hedging 5. Will JPMorgan clawback executive compensation?
How can Jamie Dimon redeem himself and his bank? The conventional wisdom, of course, is that the CEO of JPMorgan Chase has hurt his reputation and perhaps opened himself up to charges of hypocrisy (which may not be fair) on the issue of financial regulation. But there is something he could do that will win him loads of respect and go a long ways toward repairing his image: He could clawback funds from the executives responsible for the $2 billion trading debacle. New York City Comptroller John Liu, among others, recently joined the call for clawbacks. Sheila Bair, the respected former head of the FDIC, was quoted by Reuters saying that, "We don't know the facts and culpability, but it appears she (former CIO Ina Drew) did have a responsibility here along with a number of others. Clearly, the whole purpose of clawbacks is if you make a bad bet that results in losses, compensation should be clawed back." Dimon might include himself on the list of executives from which funds would be clawed, a move that would be viewed as a strong-leader, I'm-accountable gesture. Obviously, it will be impossible to recover the entire $2 billion. But Ina Drew made $31 million over the past two years, according to media reports. Dimon made $23 million for his work in 2011. A partial clawback will not break either one--and it would send the right message. For more: Related articles:
Read more about: proprietary trading, clawbacks Also Noted
SPOTLIGHT ON... JPMorgan management wins at annual meeting There's a lot of emotion at the JPMorgan Chase annual shareholder meeting, but not a lot of actual action against management, which has prevailed convincingly on say-on-pay and the joint CEO/chairman job, according to media reports. Few shareholder resolutions, if any, appear to be on track to win. Article Company News: Industry News: Regulatory News: And Finally…Can a vacation kill a career? 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 16, 2012
| 05.16.12 | Achilles Macris in the spotlight at JPMorgan Chase
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment