| July 23, 2012
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Today's Top Stories
1. Will Dimon remain JPMorgan CEO?
2. Banks add jobs in June
3. Banks to pull out of interbank rate processes
4. Upside to CARD Act
5. LIBOR suit threat from small banks Editor's Corner: Bair on the state of financial regulation Also Noted: NexJ
Spotlight On... Hedge fund manager plays matchmaker
Morgan Stanley courts SWF; LIBOR amplified CDO losses and much more... News From the Fierce Network:
1. Upside to CARD Act
2. LIBOR suit threat from small banks
3. CAT systems on the way
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Bair on the state of financial regulation
The Dodd-Frank Wall Street Reform Act, enacted on July 21, 2010, was originally hailed as a landmark reform effort, an appropriately ambitious response to the financial shenanigans that ushered in the financial crisis and the recession, according to the bill's supporters. The industry was none too pleased with the effort, but the industry's lobbyists knew that the passage of the law was merely the beginning. What ensued was a rather historic attempt to tinker with the law, even after it was passed.
Indeed, as we pass the two year anniversary of the law, you have to wonder if there has ever been a law that left so much to the future, a lobbyist's dream bill. One critical aspect of the law, the Volcker Rule, looks like it will be delayed even more, as the July deadline for implementation will likely pass without even a final rule set. The lobbyists have certainly earned their fees for their post-passage efforts. For confirmation of the frustration felt by industry reform proponents, we turn to Sheila Bair, among the most respected of regulators who served in the immediate aftermath of the financial crisis. "Notwithstanding thousands of pages of proposed and final rules to implement this important law, nothing much seems to have changed … . The system is not getting fixed and we need to send a message to Washington. We're tired of the 600-page swap definitions and thousand page mortgage disclosure rules. To quote Roseanne Roseannadanna again, 'What are you tryin' to do? Make us sick?' We need regulators to write rules that the public can understand and the examiners can enforce. They need to stop rising to the bait when lobbyists come in seeking special interest provisions. They need to work together to prioritize, coordinate, and finalize cohesive and effective rules that are targeted on the lingering problems in our financial system -- and Congress needs to support them. It's time to stop timidly working around the edges and get the job done." That easier said than done, however. On this historic anniversary, it's easy to see why the reform advocates are so dour. But the mood could change if we were ever to get a Volcker Rule that truly restrains risks while allowing for legitimate activities in logical and enforceable ways. -Jim Read more about: regulation, Volcker Rule
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Today's Top News 1. Will Dimon remain JPMorgan CEO? There have been numerous calls for Jamie Dimon to step down from the board of the Federal Reserve Bank of New York. There have also been several pushes for the JPMorgan board to split the CEO and chairman jobs, which are both held by Dimon. But until now, there's not yet been any clamoring for Dimon to be booted from the bank completely. A commentary in the TheStreet.com takes that bold step: "It's really remarkable that JPMorgan Chase's CEO is still JPMorgan Chase's CEO, and hasn't retired to a farm in Ireland …. He hasn't even stepped down as chairman of the Morgan board of directors." The commentator, Gary Weiss, goes on to conclude th at Dimon "needs to be fired, not fined. Every day that he stays on his job is still more proof that the system just doesn't work." I have made the point that Dimon has built up a lot of goodwill with shareholders, analysts, employees, politicians and regulators. All that goodwill is helping him now--like one big chit that he called in, hence the fact that none have seriously suggested he needs to be fired from the bank. But that goodwill perhaps has now been fully amortized, and he will not be able to summon it again should more chicanery be revealed. All that said, I still think it is possible that the board will clawback some bonus funds from Dimon, as a show of executive accountability. That would be a great move on several levels for Dimon to take. We'll see if that comes to pass. For more:
- here's the commentary Related articles:
JPMorgan clawbacks sparks debate
JPMorgan CEO to face analysts
Jamie Dimon may face tougher questions Read more about: CEO, CEO succession
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2. Banks add jobs in June The second-quarter earnings news was not as bad as expected at most banks, but no one is so far in denial that they think the good days are back. Indeed, most banks are wisely letting it be known that they are keeping their axes swinging when it comes to expenses and compensation. Morgan Stanley was not shy in talking about the 700 job cuts coming over the next six months, bringing the total to 4,000 for the year. Citigroup plans will lay off about 350. Deutsche Bank is pondering 1,000 job cuts at its investment bank. Bank of America continues to pare jobs. Same goes for Goldman Sachs. This seems to be era of constant job cutting. The good times no longer last long enough to confer any job security. The financial sector in New York City actually boosted jobs in June, adding roughly 2,200 workers and raising the sector's total employment to 173,000, according to Reuters. "The addition fits the usual pattern for June when New York Stock Exchange member firms typically hire interns." So there you have it. Interns are arriving just in time to watch seasoned employees be escorted out of the building with boxes of personal belongings. For more:
- here's a run down from Bloomberg Businessweek
- here's the Reuters article Related articles:
Morgan Stanley to pare jobs
Banks prepare for job cutbacks Read more about: Layoffs, jobs
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3. Banks to pull out of interbank rate processes With regulators and prosecutors incensed over alleged abuses in the way banks participate in organizations that set interbank rates, more banks may decide that the risks of continued participation are too high. In one example, the Royal Bank of Scotland has pulled out of the Singaporean group that sets the SIBOR. It has previously pulled out of the process that set the Hibor in Hong Kong and the Tibor in Tokyo. Bank of America may have pulled out of the Sibor process as well. According to Reuters, neither bank "appeared on a daily page published by Thomson Reuters that lists contributors to Singapore's U.S. dollar and local currency interbank lending rates." An RBS spokesperson confirmed that the bank has pulled out of the process, while Bank of America did not comment to the news organization. The most active investigations concern the rate setting processes for the Libor and the Euribor, but the Tibor process is also under investigation. More banks pull out in several countries. If a lot of banks were to do that, one legitimate question would be whether the rate reflects the views of enough market participants. Long-term, you can bet new processes will be developed, under the watchful gaze of regulators. For more:
- here's the article Read more about: banks, LIBOR
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4. Upside to CARD Act In the once staid credit card industry, never has there been so much regulatory change in such a compressed time period. The very essence of checking accounts and credit and debit card usage seems to be up the in the air. The wisest companies will see this as an opportunity. At a minimum, some will acknowledge that there are some silver linings. One includes the fact that the industry now gets that not everyone is a good credit risk. That's evident in the mortgage industry, to be sure. But when it comes to credit cards, that realization is apt. Bloomberg Businessweek notes that, "Card companies used to lure customers by offering lower and lower rates and then later boosted the rates whenever they wanted. If their underwriting was bad at the beginning, it didn't matter so much because they could make it up later through nuisance fees and higher interest rates. The CARD Act outlawed that practice, so now card issuers must account for a customer's risk at the beginning, when they decide whether to lend and what rate to offer. The issuers can still market teaser rates, but once they set the permanent rate for the borrower, it locks in unless the borrower becomes 60 days delinquent." One beneficial consequence is that, "The more 'rational' pricing has helped send delinquencies to the lowest level on record. And 'charge-offs,' the debts lenders deem uncollectable, are at their lowest level since the end of 2006." It's now up to the industry to innovate anew in this new environment. So far, there's not been a lot progress in that area. But I'm sure it's coming. For more:
- here's the article Related articles:
Big revenue opportunity via online statements
Credit card reform worth the costs? Read more about: fees, Debit Cards
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5. LIBOR suit threat from small banks There are many aggrieved parties when it comes to the LIBOR manipulation scandal. Most people assume that civil and criminal charges are coming, which will open up the floodgates to many private lawsuits. Apart from one estimate that the ultimate costs to the top banks will top $20 billion, the exact losses are hard to know. One wildcard is the extent to which unexpected suits emerge. Reuters reports that small banks may well decide to get litigious about the controversy. The Community Bank & Trust of Sheboygan has filed suit against JPMorgan Chase, Bank of America, Citigroup and other major banks, alleging that they colluded "to set rates artificially low." The harm is that the ruse to lower rates kept small banks' net interest margins artificially low. The plaintiffs' lawyer said that U.S. community banks "might have lost more than $1 billion over four years on loans to small businesses at artificially low rates. The alleged manipulation hurt small banks that operate on thin profit margins and rely more on interest income than large banks with diverse trading operations." The suit is seeking class action status, and a trove of small banks may sign on, as not all of them relied on the LIBOR to a great extent. For more:
- here's the article Related articles:
Ex-Barclays CEO contradicted on LIBOR
LIBOR fines to hit big banks hard
Criminal charges possible in LIBOR scandal Read more about: small banks, Community Banks
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Also Noted
SPOTLIGHT ON... Hedge fund manager plays matchmaker Bill Ackman is known for his canny eye for undervalued companies, but perhaps he also has a canny eye for possible matches among his single, unattached friends. According to Reuters, he periodically holds parties for single folks looking for life mates. He recently staged one his parties for 200 friends. Hopefully, people found their soul mate, or at least another business contact. Article Company News:
> Morgan Stanley courts SWF. Article
> Receiver for Peregrine to make odd hires. Article
> JPMorgan ordered to identify witness. Article
> Goldman Sachs banker to be CFO of Occidental. Article
> Does Credit Suisse board back Dougan? Article
> Kleiner, Perkins bias case to stay in court. Article
Industry News:
> The return of IPOs. Article
> LIBOR amplified CDO losses. Article
Regulatory News:
> Stay away from the fiscal cliff, please. Article
> SEC inks contract for real-time data. Article
> Two years of non-progress. Article
> Regulators need to look at Libor. Article
> IMF, Spain agree on bank monitoring. Article And Finally … Amazon to offer same-day delivery. Article > Investment Consultants Forum - The Crowne Plaza Times Square, New York, NY - March 2, 2012 This conference provides a unique environment for developing dialogue between plan sponsors, managers and consultants. This event will feature panel-driven discussions focused on specific investment techniques of fixed income and hedge fund managers, the evolving role of institutional consultants, the manager evaluation process and more. Register today. > NFC Ticketing Europe 2012 - March 20-21 - London Come and join MasterCard, Renfe, Deutsche Bahn, Visa Europe, Orange, Arriva Netherlands, O2 and many more for the first event to bring together the whole NFC Ticketing industry for discussion, debate and quality networking. Click here. > NYIF Introduction to Private Equity Investments - July 19-20 - New York, NY This course shows the potential rewards and risks within the context of portfolio theory. In addition to discussing the investment characteristics, attendees compare private equity investments to traditional stock and bond investments. Comparisons are also made to commodities and real estate investments. Register today and discover key regulatory requirements, marketing issues, and client reporting practices. > NYIF Portfolio Management Program - August 8-17 - New York, NY This program is a challenging, but rewarding, eight-day educational experience. Consisting of three modules: a three-day Fixed Income Portfolio Management class, a three-day Equity Portfolio Management class, and a two-day Theory & Practice class, these modules blend traditional lectures, case studies, and site visits, and all attendees will receive a Texas Instruments BA II Plus calculator and a tablet or Netbook to contribute to their learning experience. Register now. > BAI Retail Delivery Conference & Expo - October 9-11 - Washington, DC BAI Retail Delivery 2012, taking place October 9-11 in Washington, DC, brings together the industry’s best ideas, insights and solutions to help you rebuild profitability. With more than 200 exhibitors, it is the industry’s premier retail banking event. Register now at www.BAIRetailDelivery.com. > NYIF Advanced Alternative Investments - October 3-4 - New York, NY This advanced course gives an investment approach for evaluating the opportunities and pitfalls of alternative investments. Alternative investments discussed include real estate, hedge funds, venture capital, private equity, commodities, as well as some other specialized areas such as collectibles, entertainment financing and hypertrading. While this course covers some of the basics, it revolves around examples and discussions in class in order to enrich the knowledge of this topic. Register today.
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