Today's Top Stories Also Noted: Spotlight On... Nasdaq OMX takes big media hits News From the Fierce Network: Today's Top News1. Blankfein proves a good witness for Gupta
Did Goldman Sachs CEO Lloyd Blankfein hurt or help the prosecution in the Rajat Gupta insider trading case? Well, he wasn't intended to be the star witness. You could argue that his testimony was a wash, as he was used primarily to walk the jury through the ins and outs of Goldman Sachs board meetings. "The prosecution attorneys asked Blankfein to verify and identify dozens of documents including Goldman's board meeting minutes, and daily and monthly reports of the firm's revenues. They questioned Blankfein about the timing, materiality and confidentiality of information Gupta obtained as a Goldman director," according to Deal Journal. This is no doubt important information, as the jury needs to understand the gravity of the alleged crimes. But the risk, in hindsight, was that such testimony would come across as really tedious. Indeed, "without the dramatic flair of listening to wiretap recordings of phone conversations, as jurors did during the insider trading trial of Rajaratnam in 2011, the endless document dump, constant objections and side-bar conversations with the judge made for a tedious week. By Friday afternoon some jurors looked sleepy-eyed." So the risk for the prosecution is that the sleepy nature of the testimony makes it harder for the jury to connect all the dots. And in the end, they will have to connect dots, as all the evidence is circumstantial. That said, Blankfein did his job for the prosecution. He proved to be a good witness, one that the jury just might like. But it's still unclear if the jury will be willing to convict. For more: Related articles: Read more about: insider trading, trial
2. Net interest margins pressure regional banks
As hard as it was to believe just a few months ago, it now appears that interest rates will head even lower. The effect of the rate reduction will vary according to bank, especially large banks. But it would appear that regional banks will be affected perhaps a bit more uniformly. At regional banks, net interest margins have been trending down much of the year. Deposit bases increased and funding costs fell, but declining yields on loans and an increase in portfolios that have low yields ended up offsetting the decline in funding costs. This trend will likely remain intact for the foreseeable future. Analysts at Citigroup have weighed in. As noted by Reuters, "A period of prolonged low rates is a very challenging environment for a regional bank, but it is not an immediate hit that will show up in the 2Q results, rather the impact builds over time as the balance sheet turns over," the Citi analysts wrote. They cut their earnings predictions on regional banks by an average of 3 percent for 2013 and 6 percent for 2014. "Earnings could take a hit from increasing pressure on net-interest margins, mainly due to lower reinvestment rates banks will face as legacy loans and securities are repaid or mature." FBR Capital Markets analysts downgraded several regional banks, arguing that regional banks face increased margin pressure in the near term as interest rates continue to fall. For more: Related articles: Read more about: banks, Net Interest Margins 3. Citi to resubmit capital plan to Fed
When it comes to the Federal Reserve's Dodd-Frank mandated stress tests, gamesmanship does count. Bank of America passed its test, in part because it wasn't proposing a dividend hike or other capital plan. Citigroup, however, narrowly failed its test--and took its lumps in the court of public opinion--in part because it had proposed a significant plan to return capital. But Citigroup has gone back to the drawing board, and will submit a new capital plan to the Fed today, as required. The new plan will not include a proposal for a stepped-up stock buyback plan. That should do the trick, the company said in a statement: "In March, the Federal Reserve released the results of its hypothetical severe stress test scenario as part of the 2012 CCAR. The results showed that Citi comfortably exceeded the stress test requirements without Citi's proposed capital actions. However, while the Federal Reserve did not object to Citi conducting certain capital actions, such as the redemption of trust preferred securities as described below, and to continue its current dividend, it did not approve Citi's request to return additional capital to its shareholders." The bank touted its recent progress on the capital front. At of the end of the first quarter of 2012, "our Tier 1 Common ratio was 12.5 percent under Basel I and an estimated 7.2 percent under Basel III, Citi is also highly liquid, with close to $500 billion in cash and available-for-sale securities, representing approximately 26 percent of the balance sheet." Most likely, the bank will pass the test. But the miscalculation on the previous stock buyback proposal counts as a miscue. For more: Related articles: Read more about: capital
It's been discussed over on FierceFinanceIT the big green initiatives that banks have launched recently, to finance new projects, build green buildings and data centers and reap the PR rewards as well. The likes of Goldman Sachs, Citigroup and Wells Fargo have all made splashes with announcements of multibillion programs. Now it's Bank of America's turn. The company will announce a $10 billion investment program that over 10 years will support green initiatives, "including underwriting initial public offerings for so-called green companies, making loans to consumers who buy hybrid vehicles and helping developers to retrofit old factories as well as investing in renewable energy," according to the New York Times. "In addition, the bank is promising to make specific reductions in its own consumption of energy, paper and water. By 2015, Bank of America's goal is to reduce energy consumption by 25 percent from 2004 levels, along with a 20 percent reduction in paper and water use from 2010 levels. The company is also pledging $100 million in grants and low-interest loans as part of the program." I've noted before that there are PR benefits that accrue to such programs. But in the end, it will be all about the ROI. We've seen quite a few capital deployments so far, but it's too early to say much about the long-term returns. For every success, there's been a Solyndra. For more: Related articles:
Read more about: banks, green 5. Offense for Rajat Gupta's defense
After being granted a day off to attend his daughter's high school graduation, Goldman Sachs CEO Lloyd Blankfein found himself back on the witness stand. This time the questioning came from the lawyers for Rajat Gupta, the former Goldman Sachs director who stands accused of leaking inside information to a hedge fund manager who is now serving an 11 year sentence. The whole point of the exercise was to get across to the jury that the allegedly leaked information about Goldman Sachs possibly buying a commercial or about pending layoffs was in the public domain already. Gary Naftalis, the deft attorney for Gupta, had Blankfein read various articles and analysts reports that contained information about possible events. He also got Blankfein to admit that he sometimes returns phone calls right after meetings and that those calls often have nothing to do with the content of the meeting. It's critical to sow seeds of doubt in the minds of jury, after the powerful presentation of evidence by the FBI witness who proved to be a strong witness. The prosecution wants to reduce the effectiveness of the questioning, and "more often, Mr. Naftalis would find his line of questioning frustrated by Mr. Blankfein's exacting answers and hazy memory or by objections from the other side." At one point, the objections led to a 10-minute sidebar. For more: Related articles: Read more about: insider trading Also NotedSPOTLIGHT ON... Nasdaq OMX takes big media hits The WSJ weighed in--as only it can--with a front-page story about the embattled CEO of Nasdaq OMC, Robert Greifeld. The article led with an anecdote about how he decided to get on a plane and fly back to New York during the peak of the crisis, rendering him out of contact. He wasn't able to field calls from among others the chairwoman of the SEC. For the Nasdaq, the Facebook IPO fiasco is turning to a very significant event that will ultimately cost it much more than $40 million when all is said and done. If it's not in crisis response mode, it needs to move there fast. You don't want to watch this become another Tylenol or Exxon Valdez or BP Gulf Coast corporate disaster. Article Company News: Industry News: And Finally… Is the American Dream a myth? Article
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Tuesday, June 12, 2012
| 06.12.12 | Blankfein proves a good witness for Gupta
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