Today's Top Stories Also Noted: Spotlight On... Goldman Sachs CEO to testify News From the Fierce Network: Today's Top News1. MF Global trustee reports due today
Today, we might learn a lot more about what really happened at MF Global in the days before it imploded in controversy and recrimination. The trustee tasked with returning customer money, James Giddens, is expected to release his report on the broker dealer's final days to a U.S. bankruptcy court judge, with fresh details about what really happened to the customer money that seemed to magically disappear. Until now, Giddens has not said much about how the funds had been misused by management. Many critics of the firms may be hoping for proof of pervasive wrong-doing, such that fraud charges are inevitable. But even a damning report will not guarantee charges will be handed up. Recall the report of Anton Valukas, the trustee who released a withering report on Lehman Bros. and its auditor Ernst & Young. The report couldn't have been more damning, and many thought the report was a blueprint for eventual indictments. But federal charges were never filed. Louis Freeh, the trustee overseeing the wind-down of MF Global Holdings, the parent company of the broker-dealer, is also scheduled to submit a progress report, reports Reuters. His report is expected "to detail efforts to recoup money for the MF parent company to pay back its creditors." A decision will likely be made soon about where criminal or civil charges are sustainable. For more: Related articles: Read more about: MF Global, Trustee
2. Prosecutors near decision on MF Global
I've noted elsewhere that two trustees will issue reports today with fresh details about the implosion of MF Global, the infamous firm headed by the now-notorious Jon Corzine, and the effort to return ill-transferred customer funds. At the same time, federal prosecutors are quickly moving to the moment of truth: they will have to decide whether to prosecute executives at the firm or simply move on, according to DealBook. Edith O'Brien, a former Treasurer at the now-disgraced firm, who was mentioned by name by CEO Jon Corzine in public testimony, is a key figure. There are lots of questions, as her office sent out the customer funds at issue. It remains unclear whether she has been granted immunity from future prosecution. As is usual in such cases, there's always a fear that doing so would essentially absolve her of crimes. But not doing so may close the valve on the most useful information. In questioning of back-office employees, investigators have explored her actions, according to DealBook, which also reports that two employees of the CFO had raised red flags in the final days. There may have been tension between the CFO and the Treasurer that led to the abuse of customer funds. At this point, there's probably a greater chance of civil charges rather than criminal charges, but you never know. The SEC is under pressure to bring charges, though it has been weakened (at least in perception) by budgetary and other woes. For more: Related articles:
Read more about: prosecutors, fraud
Quite a war has broken out over banks, and we're seeing some strong analyst conviction on both the bull and bear sides of the debate. Bank of America picked up a positive note recently from Evercore analyst Andrew Marquardt, who was quoted by TheStreet.com saying that the U.S. economy is "still in repair/recovery mode," while international markets are "more concerning, which should ultimately benefit the U.S. banking sector from a flight-to-safety perspective and market share opportunity as global banks continue to be bailed out, shed assets, and build capital. We would not be surprised if investors continue to rotate into U.S. banks towards a more market-weight position as we saw briefly earlier this year." Others, however, would be surprised. Other analysts are growing more cautious on bank earnings for the second quarter. Reports from analysts at Bank of America Merrill Lynch, Wells Fargo and JPMorgan Chase suggest that the first-quarter string of upside earnings surprises will not continue in the second quarter. I've suggested that one wildcard might be consumer banking operations, as mortgage-related results could be better than expected, which will provide a powerful offset to expected weak results from investment banking and sales and trading activity. At some point, however, if the stock swoon continues, we may see more recommendations based on valuations. For more: Related articles: Read more about: banks, analysts 4. Volcker Rule, Glass Steagall, or both?
A big debate has broken out over the regulatory implications of the multi-billion trading loss that has roiled JPMorgan. I noted previously that "people seem to agree that the multi-billion dollar trading fiasco at JPMorgan Chase has huge implications for the Volcker Rule, but no one seems to know exactly what those implications are." Some have suggested--and I certainly understand the sentiment--that the biggest implication is that Glass Steagall ought to be brought back. Elizabeth Warren has been pounding this drum hard as of late. A prominent New York Times columnist, however, makes the case that bringing back the law probably would not have prevented trading debacles like the one we just saw or the financial crisis of 2008. His argument is persuasive, but he may be taking the notion of "bringing back Glass Steagall" a bit too literally. More pragmatically speaking, bringing back Glass Steagall means bringing it back in a modernized form, one that would rationally segment the banking industry. Perhaps it would lump commercial banking in with deal advisory work and classic brokerage work--and keep such activities walled off from trading business, where proprietary capital pretty much has to be deployed. It would indeed make sense to somehow separate agency trading activity--and the inevitable speculative business that it implies--from other, more traditional forms of banking. That said, we would still need a Volcker Rule, as evidenced by the fact the CIO's office at JPMorgan was responsible for the ill-fated "hedges." Pure commercial banks will still feel the need to hedge their bond portfolios, and perhaps they should allowed to do that. The rule would aim to separate legitimate hedging from directional betting. So one might argue the banking industry would be better off with both? For more: Related articles: Read more about: Glass Steagall, regulation 5. Lost opportunity to charge Bank of America executives
What did management at Bank of America know about the extent of losses at Merrill Lynch? And when did they know it? Those questions have never been thoroughly answered, but we're getting more information in the form of court documents filed in a shareholder suit against Bank of America management. As noted by the New York Times, "the filing in the shareholder suit included sworn testimony from (former CEO Ken ) Lewis in which he concedes that before Bank of America stockholders voted to approve the deal he had received loss estimates relating to the Merrill deal that were far greater than reflected in the figures that had appeared in the proxy documents filed with regulators." Two days before a shareholder vote on the deal, the bank's Treasurer suggested to the bank's CFO that the bank ought to disclose the losses of Merrill Lynch, saying that not doing so might constitute a federal crime and that he "did not want to be 'talking through a glass wall over a telephone' if no disclosure was made." In the end, these revelations are "likely to reignite concerns that federal regulators and prosecutors have not worked hard enough to hold key executives accountable for their actions during the financial crisis." I doubt charges are coming against any individuals. Some prosecutors may consider the SEC's controversial settlement with the banks, which was reluctantly approved by a federal judge, to be the final word. That outcome, however, would not sit well with some. Increasingly, it seems like a botched prosecutorial opportunity. For more:
Read more about: enforcement, Bank of America Also NotedSPOTLIGHT ON... Goldman Sachs CEO to testify Recall that when Goldman Sachs CEO Lloyd Blankfein testified in the Raj Rajaratnam trial, he went around the room shaking hands once the jury had left. That might have been a hedge of sorts, in case Rajaratnam was acquitted. Galleon and Goldman Sachs after all were on good terms back in happier times. Blankfein is scheduled to testify today in the trial of his former colleague on the board Rajat Gupta. No fireworks are expected. He'll likely speak about the confidential nature of board meetings. Article Company News: Industry News:
And Finally…Search engine reveals risks. Article
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Tuesday, June 5, 2012
| 06.05.12 | Volcker Rule, Glass Steagall, or both?
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