Today's Top Stories Also Noted: Spotlight On... JPMorgan clawbacks sparks debate News From the Fierce Network:
Today's Top News1. Morgan Stanley to pare jobs
Is there any such thing as job security on Wall Street? Last year, bankers and traders alike had reason to feel like the worst was behind them. At the midpoint of 2011, all trends were positive. Then, it all fell apart, and most banks fell right back into layoff mode. Rather than axe people en masse, firms tend to pare a bit here and there, leading to an awful office climate, as people fret about who's next, making it hard to get much done. The issue is relevant all over again in light of the news from the Financial Times that Morgan Stanley "will this week complete a round of job cuts that will ultimately lead to the company shedding 100 sales and trading staff, underscoring what is expected to prove a dismal second quarter for Wall Street banks. The cuts are across Europe, the Middle East and Asia…The bank has so far laid off about two-thirds of its original 100-person target, leaving some 33 people to go this week." Stealth layoffs are likely in the works at other banks as well. "The lack of transactions drove down advisory fees from mergers and acquisitions as well as debt and equity issuance to $32bn in the first half of the year, a fall of a quarter on the first six months of 2011." Is this any way to live? All employees would be wise to have a Plan B at this point. For more: Related articles: Read more about: Morgan Stanley, Layoffs 2. JPMorgan CEO to face analysts
It's hard to recall a more nervously anticipated earnings report by JPMorgan Chase, which reports second-quarter earnings on Friday. The pressure is on as the scrutiny of the bank on several fronts has intensified. "In a departure from his customary earnings-day conference call, Dimon will meet analysts for two hours on July 13 at the bank's New York headquarters," notes Bloomberg. You can bet he's being prepped on a wide range of questions--about clawbacks, about specifics about the size of the "hedging" loss and about the bank's exposure to the LIBOR scandal. Apart from accounting charges (stemming mainly from a DVA), the company is expected to still post a profit. But that profit just might have been a real home run were it not for the hedging near-scandal. As of now, the conventional wisdom remains that the bank's second-quarter losses due to the ill-fated trades will total $5 billion, with additional losses to come in subsequent quarters. The second-quarter losses will be more than offset by strong mortgage activity and the release of reserves previously set aside for soured loans. All in all, the reputation of Dimon has definitely been tarnished. But you have to admire that he's willing to forthrightly address all this. My sense is that the LIBOR scandal, a relatively new risk factor, will generate a lot of questions. The bank needs an answer worked out. For more: Related articles: Read more about: earnings announcement, JPMorgan CEO 3. Bank of America to take big hit on check ordering changes
Back when it was open season on big consumer banks, Bank of America, Citigroup and many others--regional as well as national banks--were pilloried for their practice of ordering check transactions to clear the largest check first, instead of in chronological order. The banks claimed that they did this as a benefit to the customers--whom they felt would appreciated having the biggest check cleared first--but that claim was interpreted in a less than charitable light. It's no secret that banks benefit massively from this practice, which can really jack up overdraft fee revenue. The effect on the bottom line remains palpable at some banks. Regulators weighed in strongly against the practice recently, and some banks have been busy changing their systems. That list includes Citigroup, BB&T, Comerica and US Bancorp. But Deutsche Bank analysts note that 12 big banks "still clear transactions with large dollar values first in order to be able to charge as many overdraft and related fees as possible." These banks include JPMorgan Chase, Wells Fargo and Bank of America, according to TheStreet.com. The analysts calculate that Bank of America faces the largest hit at $480 million, or 3 percent of estimated 2013 earnings. Regions would also be hit hard at 4 percent of estimated earnings, which amounts to $62 million. Other banks to be hard hit include Huntington Bancshares, M&T Bank and SunTrustTo be sure, overdrafts have been a huge issue and many banks chose to first grapple with Reg E changes. But perhaps they should have been more proactive on this issue. There would some legal risk attached to this as well. U.S. Bank has just agreed to pay $55 million to settle lawsuits claiming it manipulated overdraft fees on debit card transactions via transaction ordering. Many banks, including Bank of America and JPMorgan Chase, have already settle such lawsuits. For more: Related articles: Read more about: Bank of America 4. Massive losses predicted from LIBOR suits
The LIBOR rate scandal, which has been playing out in the shadows until just recently, now looms as yet another very expensive legal sinkhole for implicated banks. As of now, Barclays has been the only bank to settle, agreeing with British regulators to pay a whopping $450 million to settle charges. But various probes of other banks, involving TIBOR practices as well, have been underway for at least two years. Ath this point, settlements were expected in the U.S. by the likes of Bank of America, Citigroup JPMorgan and possibly others. As the LIBOR probes heated up, there was a surge in private litigation, led by municipalities that have been denied millions in payments from banks because the LIBOR was set artificially low. I've suggested that few banks appear to have reserved against this risk. "Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase, Deutsche Bank and Barclays," notes DealBook, which predicts the scandal "could be one of the most expensive scandals to hit Wall Street since the financial crisis." According to analysts, the ultimate costs could be tens of billions of dollars. Various derivatives pay out according to the rate, a fact not lost on the many possible plaintiffs out there. While many suits have been filed, big pensions have yet to take that step. Few would be surprised if they decide to join the ranks of aggrieved investors. That could ratchet the costs to whole new level. For more: Related articles: Read more about: LIBOR Scandal 5. Bank of America cuts commercial banking jobs
Bank of America CEO Brian Moynihan had no choice last year but to make clear that he was serious about expenses. To that end, he hit upon a good strategy, giving the downsizing effort a media-genic code name--Project New BAC--and making sure the world knew that massive job cuts were planned as part of an effort to save $5 billion annually. Back in September, the bank said it had identified 30,000 jobs that could go, the largest layoffs announced by any company. The initial effort targeted consumer banking and information technology. The next phase of the project targets commercial banking, investment banking as well as capital markets and wealth management. CNBC reports that the company continues to make good on its Phase 2 promises. The big troubled bank "has been cutting jobs in its commercial banking unit in recent weeks even as it tries to boost the group's business…" This round of cuts has lasered in "on the unit that makes loans to mid-sized companies around the country…The second largest U.S. bank is cutting bankers and loan processors in commercial banking offices scattered around the country, sources said. Bank of America hasn't disclosed the number of cuts, but one of the people said it was a small percentage of the total unit." The axe will likely fall in other areas as well, as the expense reduction imperative continues to weigh on management. For more: Related articles:
Read more about: Commercial Banking, Bank of America Also NotedSPOTLIGHT ON... JPMorgan clawbacks sparks debate The news that the JPMorgan board will clawback some bonuses previously awarded to former CIO Ina Drew and others as punishment for the "hedging" fiasco that has cost the bank dearly, is hardly a surprise. If it had not clawed back funds, the board would have faced some serious criticism. Still, you have to wonder if the board gave serious debate to the idea of clawing back bonuses from CEO Jamie Dimon. That would have sent a powerful message of CEO accountability, and I thought the move was quite possible. But it doesn't seem likely as of now. It will be interesting to see how much exactly will be taken back. Article Company News: And Finally…The future of RIMS' BlackBerry. Article
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Thursday, July 12, 2012
| 07.12.12 | Morgan Stanley to pare jobs
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