Today's Top Stories Also Noted: Spotlight On... What would prompt Lloyd Blankfein to step down? News From the Fierce Network: Today's Top News1. Will Jamie Dimon pay be clawed back?
The Congressional hearing featuring JPMorgan Chase CEO Jamie Dimon started out with heckler screaming, "Jamie Dimon is a crook." Other than a few other outbursts from the gallery, the hearing was pretty much as expected. Dimon stuck to the gist contained in his prepared testimony released before the hearing. He did indicate, however, that clawbacks were likely due to the internal risk management lapses that led to the "hedging" fiasco. That's bad news for the executives who have taken the blame, in particular former CIO Ina Drew, who resigned in the wake of the near-scandal. The big question of course is whether the board will clawback compensation from Dimon himself. That has to be under discussion, and it may turn out that Dimon volunteers for a clawback as a show of accountability. That would be a good idea. Hopefully, it will set a precedent in the industry. It will be a huge news event if that comes to pass. Another big question is what effect the hearings will have on the JPMorgan stock. Notes CNBC, "In April 2010, following a marathon grilling in front of the Senate's Permanent Subcommittee on Investigations, shares of Blankfein's Goldman Sachs (GS) have underperformed the market and the rest of the financial industry. Part of the reason is the curtailment of trading activities by the bank to avoid further scrutiny (and another trip before Congress) and loss of banking business because of the reputational hit that the hearing caused." It would be hard to believe that the incident will not lead to profound changes in the way the bank hedges. These changes just might limit earnings, as the CIO unit had emerged as profit center. For more: Related articles: Read more about: clawbacks, JPMorgan Chase
Wall Street can't seem to get on a roll. Just when it looks like sunny days are back, reality intrudes, and the industry heads for cover once again. It's been years since anything resembling job security has been in place. For the pulse of the industry, we turn to CNBC, which offers a view from choice watering holes. "We really haven't had one good summer since 2006. No one can relax on the beach—again!" one executive as quoted. "Go down the years. Everything was getting unhinged summer of 2007. The next year was bananas. Then you get the great depression of 2009, when everyone lost their jobs or almost did. The past two years looked good until May, then everything goes haywire…Before the crisis, people could actually enjoy the summer. Relax on the beach. Grill with friends and drink beer on your back porch," he said. At another bar, a Goldman Sachs MD was quoted saying, "The London Whale thing has everyone rattled. You don't know if some crazy guy in London or Paris or Jakarta is going to cost you the whole year's bonus. I'm working my [posterier] off just so that I don't wind up on the cutting block." In the winter of 2006, "the Goldman guy bought a house on Long Island's North Fork. His wife and two daughters live there full-time during the summer. He expected to be able to spend weekends and perhaps two full weeks there during the summer. He said he's barely spent any time there at all." Middle America might laugh at such problems, but the pain is real. You do have to feel for him. But he may have bigger concerns. He might have given the CNBC reporter enough information for the Goldman Sachs PR team to identify him. This sort of press activity is not authorized, and there may be consequences. He works at Goldman Sachs after all. That said, as a MD, he was hopefully savvy enough to alter the "facts" just so. For more: Related articles:
Read more about: banks, Layoffs
The best show in Washington on Wednesday is the appearance by JPMorgan Chase CEO Jamie Dimon before the Senate Banking Committee. The bank has already issued the CEO's testimony, which contained few real surprises. But some were struck by this passage: "In December 2011, as part of a firmwide effort in anticipation of new Basel capital requirements, we instructed CIO to reduce risk-weighted assets and associated risk. To achieve this in the synthetic credit portfolio, the CIO could have simply reduced its existing positions; instead, starting in mid-January, it embarked on a complex strategy that entailed adding positions that it believed would offset the existing ones. This strategy, however, ended up creating a portfolio that was larger and ultimately resulted in even more complex and hard-to-manage risks." You can interpret that several ways. The most favorable interpretation from the bank's perspective is that simply put the system worked. Management instructed the CIO cut its risk in the face of Basel III, demonstrating that the executives were proactive on risk vis a vis capital matters. The problem was that the unit decided to hedge existing positions instead of winding them down. So it was an execution problem, hence the "we screwed up." That interpretation has to be squared with the unit's penchant for generating huge proprietary profits in recent years, as if that were its main goal, and the massive CDS positions the unit was somehow allowed to amass. We might hear some skepticism about the favorable interpretation and more about whether the raison detre of the unit was always to generate profits above and beyond anything else--all in the name of hedging aggregate economic risks of course. For more: Related articles:
Read more about: hearing, JPMorgan 4. Strong ties between JPMorgan, Senate Banking Committee
If the tone of the conversation between JPMorgan CEO Jamie Dimon and the Senate Banking Committee wasn't nearly as cantankerous as you thought it would be, there's a reason. The Center for Responsive Politics notes that committee members, on both sides of the aisle, have benefitted from donations by Dimon personally and by bank's PACs. Dimon has personally contributed to committee members Bob Corker (R-TN) and Mark Warner (D-VA). Dimon has also contributed to the top Republican Richard Shelby (R-AL) and the top Democrat Chairman Tim Johnson (D-SD). To each, Dimon gave $2,000 in 2008. These are small sums to be sure. They pale next to the contributions handed out by the bank's PACs and by employees. "JPMorgan Chase has been relatively non-partisan in its giving to Banking Committee members…. Its PAC money has found its way to all but six of the committee's senators." Sen. Johnson has taken nearly $38,000 since 2008. Sen. Shelby has taken nearly $64,000 in JPMorgan-related contributions. This doesn't guarantee lenient treatment. Indeed, a Bloomberg reports discusses the possibility that some members, whether they were recipients of big donations or not, will try hard to appear as though they are not being overly deferential. In addition, the bank has strong ties to the committee via the revolving door. Naomi Camper, currently the co-head of the bank's federal government relations group, was on the staff of Sen. Johnson from 2001-2004, and Kate Childress, a t lobbyist at the bank, was an employee of the committee before moving to JPMorgan Chase. For more: Related articles: Read more about: JPMorgan, Lobbying 5. Private equity fund distributions surge
These days, general partners of private equity funds have to show their limited partners some love. That is, they've got to show enough liquidity events to keep them happy and in the truck. That has been the norm as of late. According to research by Cambridge Associates, general partners in private equity firms returned $93.6 billion to investors during 2011, "a 25-year high and the first time since 2005 that distributions outpaced capital calls." General partners called up only $77.5 billion in 2011, roughly the same amount they called in 2010. The $93.6 billion in distributions represents a 30 percent increase over 2010, according to the data. Not to be left behind, venture capital distributions for the year were also up 14.2 percent to $15.2 billion, the fourth highest annual total on record at Cambridge. That has helped keep returns high, and limited partners happy. As noted by Private Equity Beat, the Cambridge Associates LLC U.S. Private Equity Index returned nearly 11 percent for 2011, and the Cambridge Associates LLC U.S. Venture Capital Index returned 13.2 percent. That compares with a -1.8 percent return by the NASDAQ Composite, a 2.1 percent gain by the S&P 500, and an 8.4 percent return by the Dow Jones Industrial Average. These numbers come in spite of a fourth quarter during which both indexes underperformed the public markets. And yet limited partners remain somewhat restive, given the deal environment. The power pendulum has swung in their favor, and they are much less docile bunch these days. For more: Related articles: Read more about: Private Equity Also NotedSPOTLIGHT ON... What would prompt Lloyd Blankfein to step down? Here's one way to prompt Goldman Sachs CEO Lloyd Blankfein to step down: Get him an offer to be a high-ranking government official. He was quoted at a recent event saying that, "When you think of my last five or six predecessors, five of them left because they went to the government. I would say the government isn't going to call me up. So that means staying forever or dying at my desk." My sense is all those reports that a CEO transition may be at hand--there have been myriad such articles--could be wrong. But you never know what kind of palace intrigue is at work here. There's not a lot of clarity on succession issues. Article Company News: Industry News: And Finally … Do mobile ads work? Article
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Thursday, June 14, 2012
| 06.14.12 | Strong ties between JPMorgan, Senate Banking Committee
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