Today's Top Stories Editor's Corner: Debate: JPMorgan prop trading or hedging? Also Noted: Spotlight On... Deutsche Bank aims for the top News From the Fierce Network:
Today's Top News
Just a few years ago, when the recession was setting in, the industry was awash with dire predictions that the U.S. had lost its edge as a financial superpower -- that New York was no longer the world's financial capital. Some argued that London was ascendant. One of the biggest points of debate was the market for initial public offerings. The conventional wisdom was that Sarbanes-Oxley had killed the domestic market and that had benefitted the many companies that flocked to list in London. Indeed, the AIM exchange was considered less onerous on new companies from a regulatory perspective, and to Hong Kong. People were convinced that regulation had strangled Wall Street. Now, just a few years later, it's clear that the doomsday scenarios have not come to pass. In fact, New York is once again the IPO leader of the world. Deal Journal notes that "a whopping 97 percent this year, compared to the same time last year. Three companies have raised just $488 million in IPOs in 2012 in London. Still, it isn't 2009, when there were no new listings in the same period." To be sure, Europe is beset with economic sluggishness, just as the U.S. was when the doomsayer issued their warnings. "Needless to say, Facebook's $16 billion IPO means the U.S. has left Hong Kong's stock exchange, its only viable IPO competitor, trailing far behind. Nasdaq leads in global IPO volumes with $19 billion worth of deals, followed by the New York Stock Exchange with $10.3 billion. Hong Kong is in third place with just $3.2 billion, its hopes of being the top listing destination for a fourth year running looking ever more remote." For more: Related articles:
Read more about: IPOs, initial public offering
2. What retail investors really want
The retail segment has not withered up and gone away, and most brokerages sense a huge opportunity to position themselves as advice givers in a turbulent era. The conventional wisdom is that the masses have soured on the stock market in the face of big losses and a belief that the markets are rigged against them by high frequency traders, who prey on them. To be sure, volume is down, and most would site the lack of retail conviction as one big reason why. Even as the market has surged, there's not been any huge inflow from the retail sector. Broadly speaking, this is the huge opportunity that has many people bullish on the brokerage industry. One bit of good news is that the sector is not necessarily more risk averse these days, despite an aversion to stocks. A recent poll by Natixis Global Asset Management found that "most advisors (80 percent) say the majority of their clients are torn between a desire to increase returns and the need to keep their investments safe, half (49 percent) say a majority of their clients are increasingly willing to take on more risk in search of returns. Fifty-eight percent say clients are beginning to place a higher priority on asset growth over protecting principal. Up to one-third of advisors (33 percent) say a majority of their clients are eager to make up for past losses, even if it means taking on more risk." But increasingly, additional risk may not mean a higher allocation to stocks in a traditional stock and bond portfolio. The advisory industry is in fact in a frenzy to push more alternative investments on their clients, as a way to diversify and goose returns, pitching the best of both worlds. These products tend to be very high margin for advisors, to be sure. They are incented to sell. The question is whether clients are really open to such investments. The industry is betting that they are, but you have to wonder if the disenchantment with the stock market will easily make them more open to long/short equity funds, long/short credit funds, commodity funds, exotic ETFs and ETNs and the like. My sense is that we're going to see a rise in the inflow from the retail sector into the stock market fairly soon, allowing the sector to add risk the traditional way. For more: Related articles: Read more about: retail investors 3. Where Bank of America is axing branches
Bank of America has made clear that it intends to cut back on the number of bank branches it operates, which is understandable in this era of Project New BAC. Bank of America no longer intends to be a full-service bank for all of America, if it ever really did. It prefers to stick to areas where the ROI is compelling. So where will the bank cut back? Bank of America has already closed a net 51 branches in the first quarter and still plans to close 750 branches over the next few years. The bank recently "sold 15 branches in Maine and another five branches in Iowa in separate transactions. The deals were the first branch sales by the Charlotte, N.C.-based company in almost 11 years and likely will not be the last in the near term. Pruning rather than wholesale exits likely will be (the bank's) approach. The company laid out its plans to retreat from certain areas when submitting its capital plan to regulators last year, but the details of the plan were not made public." It would appear that more exits will take place in smaller metropolitan areas. The recent closings all fit that bill, and Bank of America also "has a number of branches in even smaller markets, including 28 branches with a total of $706.5 million in deposits in 19 (metropolitan areas) with less 30,000 people. The company could consider shedding those branches, particularly since its deposits have contracted in 12 of the 19 markets." SNL also suggests that the bank may consider paring back in lower-income areas, which is always fraught with political baggage. "The company has 377 branches with $17.81 billion in deposits in areas where the median income is below $40,000, well below the median national household income of roughly $52,000 a year." The most vulnerable areas will likely be lower-income areas in which Bank of America is not a dominant bank. For more: Related articles:
Read more about: Bank Branches, ATMs 4. Morgan Stanley defends role in Facebook IPO
"People who thought they were buying this stock so they could get an enormous pop were both naive and ordered under the wrong pretenses," said James Gorman, CEO of Morgan Stanley, in an interview with CNBC. He is correct, but he might want to be a bit more sensitive to perceptions among the retail sector. There's a lot of controversy about the methods by which word of an amended prospectus and more pessimistic guidance from the issuer was filtered out to the investing public. It may be that the lead underwriter did everything right. Gorman certainly thinks so. "I'm confident that we followed exactly the procedures we follow, we did the job of the underwriter," Gorman told Bloomberg. "We represented the interests of the sellers and buyers putting together a book as part of a syndicate, and we, the other underwriters and the company agreed on that pricing." The danger is that the retail investor sector continues to be alienated. The fact is that it would be hard to have a really successful IPO these days without some retail participation. The fact that the underwriters made so much money shorting the stock--as a result of the greenshoe allocation--contributes to the perception problem. All in all, this was a perfect storm, featuring gale-force, ill-fated decisions by the issuer, the underwriter and the exchange. In the end, it may be that no laws were violated. But the deal was no doubt botched--that's just the perception. If the stock were to rally back to the offer prices, all would be forgiven. That just might take a while. For more: Related articles:
Read more about: investment banking, Facebook IPO 5. Traders at JPMorgan unit were active bettors
There was a period of time when JPMorgan CIO Ina Drew, who was a stickler on risk management, was on sick leave. The CIO unit traders seemed to step up their activity in that period. When she returned, she apparently wasn't quite the risk management force she once was. Bloomberg reports that Bruno Iksil--the London Whale--stands as a prime example of how risk management best practices took a hit. His "value-at-risk, a measure of how much a trader might lose in one day, was typically $30 million to $40 million even before this year's buildup, said the person, who wasn't authorized to discuss the trades. Sometimes the figure, known as VaR, could surpass $60 million, the person said. That's about as high as the level for the firm's entire investment bank, which employs 26,000 people." It could have been even worse. One focal point of investigators "is why the formula used to calculate Iksil's VaR was altered early this year, cutting the reported risk by half. The change followed an internal analysis in late 2011 and was approved by top risk executives…. About the same time, half a dozen managers typically involved in such decisions moved to new jobs." It will be interesting to see what portrait investigators paint of the internal environment, the kind of internal battles that seem to have raged. Investigators may also want to look at what exactly these massive trades were said to be hedging against. It remains really unclear. A generic answer might not suffice. If the trades (sales of index CDSs) were made, for example, to hedge generically against "rising interest rates," that might send up some red flags, leading some to concluding that the "hedges" were prop bets all along. For more: Related articles: Read more about: JPMorgan Chase, traders Also NotedSPOTLIGHT ON... Deutsche Bank aims for the top The coming of new co-CEO Anshu Jain, who built the investment banking side of Deutsche Bank, is a big moment in the industry. He promptly signaled that he intends to make the bank a global powerhouse and the only "truly global" bank based in Europe. "Only a few lenders can boast a substantial market presence in Europe, North America and Asia, substantially narrowing the peer group against which Deutsche will measure its progress towards being among the world's top five or six global lenders," notes Reuters. Article Company News: Industry News: And Finally…Happy suburban experiment. Article
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Monday, June 4, 2012
| 06.04.12 | Debate: JPMorgan prop trading or hedging?
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