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Today's Top News1. Banks to submit living wills
I noted recently that the calls to break up big banks have intensified. More big investors, sick and tired of stock prices that continue to languish below tangible book value, are starting to advocate for such moves. Their goal of course is to unlock shareholder value. Others have argued that big bank break ups would enhance the systemic stability of the entire financial industry. The systemic risk argument anyway turns in part on whether the living wills that banks are finalizing will truly end the too big to fail era. The goal of course is to allow big banks to simply die if they run into trouble, thus avoiding a bailout with public funds and without long-term (or even short-term) damage to the U.S. economy. The plans, which are due to regulators no later than July 1 under Dodd-Frank, are essentially self-break up tools that could run as long as 4,000 pages, according to Reuters. "Under the Dodd-Frank Act, banks and regulators must imagine liquidations in two different ways. The first is through bankruptcy courts with banks negotiating with their creditors. This is the going-out-of-business method planned in the living wills due July 1. The living wills must include how subsidiaries in foreign jurisdictions will be liquidated. The second way is through a new kind of liquidation process in which the FDIC takes control of putting a financial giant down. This method has more flexibility than is allowed in bankruptcy courts, but still uses critical information collected in the banks' living wills, such as where exactly to find collateral." For more: Related articles: Read more about: banks, Living Wills 2. Possible secret deal in Madoff plea bargain
Peter Madoff was not spared the perp walk -- there are pictures to prove it. He was arrested on Friday in his lawyer's office and promptly taken for booking. A court appearance was scheduled for a few hours later at a federal district court in Manhattan, where he will plead guilty to negligence associated with Bernard Madoff's criminal empire. The plea will take place at same Manhattan courthouse where Bernard was charged. As part of his deal with prosecutors, Peter Madoff has agreed to a 10-year prison term and to give back $143 billion, an absurd amount that must be symbolic as much as anything. The really intriguing question about the deal is this: Was there a side agreement that will allow his daughter, Shana Madoff Swanson, to avoid charges? Recall that she was a compliance officer in the firm, as was her father. As such, they are in the direct line of fire; compliance officers are often charged in cases of financial crimes. The idea is these executives should have known something was amiss. DealBook says, however, that the deal does not call for protection from prosecution for any other person. But that may be a front. As for now, Bernard and Peter are the only members of the family to face criminal charges. We'll just have to wait and see of Peter's daughter faces charges. For more: Related articles: Read more about: Bernard Madoff, Peter Madoff 3. Clawback controversy at JPMorgan
The question on most people's mind about JPMorgan Chase is how much did the bank lose on the disastrous hedges-turned-prop-bets announced in May. But a bigger question is whether the board will execute any clawbacks from executives implicated in the mess. Attention has focused largely on Ina Drew, the CIO who oversaw the trading that allowed the positions to build. She had long been a favorite of CEO Jamie Dimon, and that status may have been reflected in his decision to let her resign rather than terminating her for cause. The decision, according to Bloomberg, allowed her to retain $17.1 million in unvested restricted shares and about $4.4 million in options that she otherwise would have been required to forfeit. To be sure, the bank can claw some of that back in various ways, it can defer vesting or reduce future restricted grants. But it's going to be a tough decision for Dimon and the board. Drew was an exemplary employee and executive over her long career. Toward the end, she battled Lyme Disease, which caused her to be absent for long stretches. During that period, there was a lot of politicking that took place, as contenders sought power. "Meetings during Drew's absence often devolved into shouting matches over the trades. In the end, there was no one to push back against the huge trades of Macris unit. After Drew returned, she seemed to have less of an appetite for managing such deep internal divisions. In the end, Macris won the internal war, and the results are history," I noted. So the board has to balance her long-term performance and personal challenges against one big mistake that took place on her watch. My guess is that Dimon will allow clawbacks, including some for his own compensation, but spare Drew as much as he can. For more: Related articles: Read more about: Hedges, board 4. ServiceNow fares well in IPO
Morgan Stanley didn't take long to get the monkey off its back. All eyes were on the ServiceNow offering, which was lead-managed by the maligned bank, though the specific bankers were not the ones took Facebook public. Still, the IPO market had been described as in a state of disrepair thanks to the Facebook fiasco. But no longer. ServiceNow rose more than 30 percent on its opening trade, "the biggest jump for an IPO in the post-Facebook world," notes Deal Journal. The cloud-computing company opened at $23.75 up from its IPO price of $18, which "was already above its expected range." A total of 11.7 million shares were sold in the IPO, which had a price range of $15 to $17. The stock trades on the New York Stock Exchange as NOW. To be sure, the idea that Facebook sank the IPO market may have been overplayed a bit. The sheer size of the offering made it somewhat unique, and no one really doubted that non-super-sized transactions could be easily handled. That said, the crisis for Nasdaq OMX endures, and it may be forced to show some meaningful infrastructure changes. But the bottom line is that buyers will not shun a promising deal just because of Facebook. It has to be said as well that another deal of that magnitude will not be coming around anytime soon. For more: Related articles: Read more about: IPO, Facebook IPO 5. SEC's Falcone charge a sign of things to come
DealBook suggests that the SEC's charges against Philip Falcone are a harbinger of things to come in the hedge fund industry. It called it a "warning that funds can now expect the same scrutiny that Wall Street banks and brokerage firms receive. This is perhaps the most prominent enforcement case focusing on how a hedge fund manager treated investors. The SEC accused Mr. Falcone of hiding information from investors, an outside law firm and even his own directors." The charges are salacious to be sure. One complaint accused Falcone of treating Harbinger Capital "like his own plaything by taking out a $113 million loan to cover his tax liabilities and cutting side deals with outside investors to get their votes." The second complaint claims that he set up a "short squeeze" on the bonds of a company called MAAX Holdings, which the SEC charges was an attempt to punish a prime broker (with whom he was feuding) that was shorting the securities. My sense is that the Falcone situation is rather unique. Few hedge fund managers would attempt the sort of shenanigans that the complaints allege. Such shenanigans are even less likely in today's market, in which limited partners hold much more sway. This is a wake-up call for anyone committing egregious acts, but those ranks are surely small. For more: Related articles: Read more about: Hedge Funds Also Noted
SPOTLIGHT ON... Citigroup embezzler gets 8 years in prison The Gary Foster scandal at Citigroup was a wake-up call in some ways, as it exposed the lengths some employees will got to in their desire to defraud their employer. Foster was able to embezzle $23 million before his scheme was uncovered. He used the proceeds to finance an extreme lifestyle, lavish to say the least. For his crimes, he was just sentenced to eight years in jail. What's really is sad is that Foster worked his way up from temp to vice president. He could have been a quite a success story. Article Company News: And Finally… More on Google vs. Apple. Article
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Monday, July 2, 2012
| 07.02.12 | Clawback controversy at JPMorgan
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