Today's Top Stories Also Noted: Quest Software News From the Fierce Network:
Today's Top News1. Barclay's CEO Diamond resigns
In the end, it was probably inevitable that Bob Diamond would step down as CEO of Barclays, the venerable British bank. I suggested that he never really fit as the top dog. In recent years, he has been beset by controversy about his compensation and various bank tax issues. So the LIBOR scandal seems like it was the last straw for the board, who determined that Diamond's 16-year tenure had to end, despite his publically voiced willingness to stay on. Terms of his severance were not announced, but Reuters reports that the bank's board will likely ask him to give up some compensation, a good move, to be sure. Diamond is not going quietly into the dark night. The bank has released a memo, written in 2008, in which Diamond reveals that he was given implicit encouragement from the Bank of England to "massage" its "interest figures" to make the bank's financial situation look better. Barclays has previously said that, as part of the LIBOR rate setting process, it submitted artificially low figures because it thought rivals were doing the same and that higher rates would have made it appear to be in some sort of trouble. Diamond will appear as the key witness in upcoming hearings, and it will be interesting to see if he drags government officials into the morass, a scorched earth policy. Other banks are likely in the line of fire, and future settlements will be coming. For more: Related articles: Read more about: Barclays, LIBOR 2. JPMorgan still pushing proprietary mutual funds
One of the perennial issues in the wealth management industry is the extent to which brokers and advisors push proprietary products, which typically generate big fees for them personally as well as their firm even when there are cheaper, higher quality products also available. The issue is relevant again in light of a DealBook article that expressed the views of some former JPMorgan brokers that they were asked to sell proprietary mutual funds that were of dubious quality. "The benefit to JPMorgan is clear. The more money investors plow into the bank's funds, the more fees it collects for managing them. The aggressive sales push has allowed JPMorgan to buck an industry trend. Amid the market volatility, ordinary investors are leaving stock funds in droves. In contrast, JPMorgan is gathering assets in its stock funds at a rapid rate, despite having only a small group of top-performing mutual funds that are run by portfolio managers. Over the last three years, roughly 42 percent of its funds failed to beat the average performance of funds that make similar investments, according to Morningstar, a fund researcher." JPMorgan is one of the few wirehouses that still emphasize proprietary mutual funds products. Citigroup and Morgan Stanley have basically exited the business. JPMorgan has grappled with this before. In a 2011 arbitration case, it was "ordered to pay $373 million for favoring its products, despite an agreement to sell alternatives from American Century." Regulators have taken an interest in this issues in recent years, and even small independent brokerages are wary of pushing products from companies with whom they have agreements that are not always fully disclosed to the end investor. At a minimum, disclosure needs to be adequate. For more: Related articles: Read more about: Mutual Funds, Proprietary Funds 3. The costs of Bank of America's deal for Countrywide
So just how bad a deal was Bank of America's purchase of Countrywide? People often refer to the bank's deal to buy Countrywide back in 2008 as one of the worst in history. Then CEO Ken Lewis thought he had the bargain of a lifetime when he paid $2.5 billion for a company that he thought would make Bank of America the preeminent consumer bank in the country. Obviously, it didn't work out, but exactly how much did it cost the bank? People "close to the bank" have thought about, crunched some numbers and concluded that "the total costs from Countrywide to date...include $34.5 billion chewed up by a combination of consumer real-estate losses since mid-2008 and funds set aside to pay back investors who allege Countrywide wasn't honest about the quality of mortgage-backed securities it issued before the crisis. Additional legal costs from various settlements with federal and state agencies and the initial Countrywide purchase amount push total costs over $40 billion." $40 billion is a lot, and the kicker here is that the costs will likely go higher, as key pieces of litigation remain unresolved. So what do you think? Is this truly the worst acquisition in history? It certainly ruined the reputations of Lewis and Countrywide founder Angelo Mozilo, who agreed to pay $67.5 million in fines in 2010 and accepted a ban from serving as an officer of a public company. For more: Related articles: Read more about: Bank of America, deals 4. Living wills to remain largely secret
Transparency has been one of the regulatory imperatives in the wake of the financial crisis. The greater the window into the portfolios and operations of global capital markets powerhouses, the better. So it's a bit ironic that the so-called living wills that top banks--Bank of America, Barclays , Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS--will submit to regulators are to remain largely under wraps. To be sure, the FDIC and Federal Reserve will provide "a general description of the banks' resolution strategies, as well as some financial information," according to Reuters. "The release will also include the disclosure of the names of the material entities, descriptions of the core businesses and certain financial information, such as assets, liabilities, derivatives activities and hedging activities." But the guts of these plans--the blow-by-blow steps they will take to wind down--will remain a strict secret, which the industry has lobbied for. Confidentiality indeed emerged as a big concern as the living wills process unfolded. You can certainly understand the need for banks to keep critical strategic details from their top competitors. The high level information to be released was no doubt the subject of lots of internal wrangling. In any case, the information is set to be released Tuesday. For more: Related articles:
Read more about: banks, too big to fail 5. Assesing depth of Barclays scandal
It remains to be seen how far-reaching the LIBOR investigation--and perhaps the similar TIBOR scandal--will ultimately prove. Judging by what's going on at Barclays, the fallout could be ugly, both across the global banking industry and within top banks. The classic scandal questions are being asked, including who knew what and when? DealBook reports that top Barclays executives knew what was going in terms of the internal efforts to lower interest rates for financial reporting purposes. "In late 2008, Mr. Diamond, then head of the investment banking unit, informed his deputies that outside officials, including the Bank of England, were concerned Barclays was reporting high interest rates, a sign of poor health. His top deputies relayed the message to lower-level employees, instructing them to depress the rates, according to people close to the case, who spoke on the condition of anonymity. The actions masked the bank's true financial position. Jerry del Missier, a rising star in the bank who is now the chief operating officer, was ensnared by the investigation as well." According to the article, "He was briefed on the actions but did not prevent the wrongdoing, the people close to the case said. Two other top executives, Christopher Lucas, the finance director, and Rich Ricci, the investment banking chief, were also involved in the case." Diamond himself has raised an interesting point by suggesting that top Bank of England officials tacitly supported moves to "massage" interest rate figures to make the bank look better. We'll just have to see how all this plays out. But banks need to get a grip on exactly what happened, as the investigations move on to others. For more: Related articles: Read more about: Barclays, LIBOR Also Noted
SPOTLIGHT ON... California bans foreclosures on modifications One of the big problems banks faced in the foreclosure fiasco was that their systems were simply not capable of keeping up with all activity by specific customers. So it was quite common for bank employees to initiate a foreclosure on a customer that was already in talks with other employees about a modification, a sitation that was not ideal for all parties. California has just passed a law that will ban foreclosures on customers who have applied for a modification. The issue is whether bank systems are capable of handling this easily. Article Company News: And Finally… Amazing physics discovery. Article
©2012 FierceMarkets This email was sent to kumaresan.selva.blogger@gmail.com as part of the FierceFinance email list which is administered by FierceMarkets, 1900 L Street NW, Suite 400, Washington, DC 20036, (202) 628-8778. Contact Us Editor: Jim Kim Advertise Advertising: Jack Fordi or call 202.824.5040 Email Management Unsubscribe from FierceFinance Explore our network of publications: | |||||||||||||||||||||||||||||||||
Thursday, July 5, 2012
| 07.05.12 | JPMorgan still pushing proprietary mutual funds
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment