Today's Top Stories Also Noted: Spotlight On... Nasdaq's response to Facebook fiasco News From the Fierce Network: Today's Top News1. Goldman Sachs to name fewer partners this year
DealBook reports that Goldman Sachs is aiming to name fewer partners, a result of the financial crisis that continues to hound the gilded bank. This fall, the firm "is expected to name fewer than 100 new partners," making it "one of the smallest classes in recent years." While Goldman Sachs has taken its lumps in the court of public opinion, making partner at the firm is a big deal, amounting to instant cachet and a hefty chunk of the firm's profit. For many, it is the capstone of career. "But this year Goldman will be more selective about the select. The firm has cut its head count over the last year by more than 8 percent, to 32,400 employees, to cope with reduced revenue amid difficult markets and new regulations. Just last week Goldman laid off another 50 employees — some of them highly paid managing directors. The size of the partnership typically shrinks in concert with the size of the staff, which means that the new members may be as few as or even fewer than those in the class of 2008, when just 94 new partners were named during the height of the financial crisis." The ranks now number around the 430 level. One insider was quoted as saying the bank is comfortable in the 400-450 range. With fewer new partners, the bank might be spared the need to cull partners at a higher rate. For all the prestige and power, partnership at Goldman Sachs is usually a temporary job. Most don't last long. The pressure to perform gets worse, and most are culled--a cruel term, but one often used--within 5 to 8 years. In a way, the effort to think the ranks of partners will make the designation all the more prestigious. The exclusive club is even more exclusive now. For more: Related articles: Read more about: Goldman Sachs, Partnerships
2. Volcker Rule may go down to the wire
The conventional wisdom is that the multibillion dollar derivatives trading fiasco at JPMorgan has proven to be an impetus toward final implementation of the Volcker Rule, among the most controversial aspects of Dodd-Frank. But I am not so sure. The rule is due to be implemented in July, but here we are in June, and the rule has yet to be finalized. The JPMorgan incident has certainly thrust the hedging exemption issue to the front and center. While many would agree that wild bets that are hedges in name only should not be allowed by banks that benefit from federal deposit insurance, it's still unclear as a matter of public policy of how regulators aim to achieve that. Is it as simple as proscribing hedges of "aggregate" positions, which the industry has lobbied so hard to allow? If the regulators have firm ideas about how they plan to tackle this, they are not letting them be known. Regulators were grilled by Congressmen this week, but few offered much beyond platitudes. The problem here is that if the regulators stick to the letter of the law and implement a rule in July, they would leave themselves open to charge that they had not adequately studied the costs vis a vis the benefits. That argument has proved to be surprisingly potent at the appellate level and will form the basis of many legal challenges. We're in for more delays most likely. For more: Related articles: Read more about: Volcker Rule 3. Did Gupta have an incentive to leak info?
Did Rajat Gupta and Raj Rajaratnam have a massive falling out in 2008, one that would preclude the possibility of Gupta providing illegal inside tips to the disgraced hedge fund manager, who is now spending 11 years in jail? That's a big issue, one that just might play a strong role in the jury's eventual decision. Prosecutors accuse Gupta of providing confidential information to Rajaratnam between March 2007 and January 2009 while serving on the boards of Goldman and Procter & Gamble. The defense counters that Gupta lost $10 million on his investments with Rajaratnam's hedge fund. In fact, one prosecution witness, Anil Kumar, testified that Gupta told him in 2009 that he was considering suing Rajaratnam over his loss, according to Reuters. Gupta was once Kumar's mentor at McKinsey. Gupta initially invested $5 million in Voyager, a fund of galleon funds, and then exercised an option to increase his stake to $10 million. The fund of fund of funds eventually blew up. Before that, the two men argued over the value of Gupta's stake. Several of the funds had investments in Goldman Sachs. This could be spun either way. You could argue that the two men were fighting, thus Gupta had no incentive to help Rajaratnam, or you could argue that Gupta had a strong incentive to help Rajaratnam in order to salvage his big investment. For more: Related articles: Read more about: insider trading 4. Fed facing tough issue on "aggregate" position hedging
The current version of the proposed Volcker Rule permits hedging and market-making in theory, as I've noted. But the exact wording of the definition of hedging is at issue now. As Bloomberg notes, "Under the proposed version, bankers would be permitted to do 'risk-mitigating hedging activities' for 'aggregate positions.' That means using derivatives or other products to reduce the risk of an entire pool of investments, as opposed to a single transaction or position." The concept of hedging against an aggregate position is once again on the front burner thanks to the JPMorgan fiasco. The idea of a hedges against aggregate positions, in the view of some, is so vague that it could be used as a justification for just about any trade. Indeed, it's still unclear what exactly JPMorgan was hedging against when it launched its disastrous trade strategy, the centerpiece of which appears to be massive selling of index CDSs. That essentially is a non-bearish bet. It pays off if the index stays roughly the same or soars. So the seller of the CDS loses if the index tanks. So what was the bank hedging against? Hopefully, more information will come to light soon. The Fed's immediate problem is that it needs to figure out exactly how it wants to define hedging. It is under pressure to come up with some way that legitimate hedging can be allowed without allowing wild proprietary bets. That's a hard distinction to codify. Some think it cannot be done. Recall that the Volcker Rule is scheduled to be implemented in July, which is just around the corner. For more:
Read more about: proprietary trading, hedging 5. MF Global trustee's big legal fees
There have been many lessons learned from the financial crisis and various scandals, one of them is that it is very expensive to wind down firms, account for losses and "do right" by victims. That truth has been underscored again by the hefty revenue that trustee James Giddens and his legal team at Hughes Hubbard & Reed have collected. According to Reuters, Giddens' team has submitted bills for $20.1 million for its work over a four-month span on behalf of its client, the Securities Investor Protection Corp. Giddens' personal fee rate is about $894 an hour, which incorporates a 10 percent reduction from his normal rate under the agreement with SIPC. Giddens personally billed 424 total hours in the four months. Other lawyers have billed even more. "James Kobak, who charges the same rate as Giddens, put in 749 hours, while bankruptcy partner Christopher Kiplok logged about 675 hours at $691.55 per hour. The full team, which includes nearly 130 lawyers and another 28 paralegals, has racked up more than 43,000 hours." This is not the first time Giddens has run into fee controversy. He also serves as the trustee in charge of winding down the broker-dealer unit of Lehman Brothers, which was dogged by similar controversy. The Giddens camp notes that he has "agreed not to bill for expenses usually covered by a bankrupt firm's estate, like meals and taxi rides." Recall that an even large trustee legal fee controversy looms over Irving Picard, who has been tasked with recovering funds from the Bernard Madoff fraud. Picard has raked in personal income of more than $5 million $554 million in legal fees for his firm amid mounting criticism. For more: Related articles: Read more about: MF Global, Trustee Also NotedSPOTLIGHT ON... Nasdaq's response to Facebook fiasco Nasdaq has announced it will set aside $40 million to member firms to make good on the botched Facebook trades. But that's getting a tepid response from some firms. Knight Capital estimates that total market maker loses might be as high as $200 million. No one wants this to devolve into litigation, though the information that might emerge from suits would no doubt be illuminating. Article Company News: Industry News: And Finally…Candidate slapped after conceding defeat. Article
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Friday, June 8, 2012
| 06.08.12 | MF Global trustee's big legal fees
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