Today's Top Stories Editor's Corner: A modest solution: Nationalize banks? Also Noted: Spotlight On... Is the banking industry "unusually corrupt?" News From the Fierce Network:
Today's Top News1. Race to succeed Dimon as CEO
JPMorgan CEO Jamie Dimon has made it clear that he's not going vacate his job any time soon. In an interview with Bloomberg, Dimond said that," I obviously serve at the pleasure of the board, it's completely up to them, but I would hope it's many, many more years." With that said, taking a long-term view, you can't help but interpret the announced executive shuffle as part of a horse race for the future. Wise boards always have succession plans in place, even if the current chairman and CEO has no plans of leaving. Mike Cavanagh, 46, and Daniel Pinto, 49, will become co-CEOs of the Corporate & Investment Bank. Cavanagh, once seen as a protégé of Dimon, will take on the Treasury and Securities Services, while Pinto will oversee all trading businesses. Jes Staley, 55, currently CEO of the Investment Bank, will take a new position as chairman of the Corporate & Investment Bank, which may be seen as a sign that he's out of the running for the future. The board has also promoted two to the position of co-chief operating officer. Frank Bisignano, 52, who was put in charge of overhauling the mortgage business last year, will maintain prime responsibility for all mortgage business. Matt Zames, 41, who will remain head of the chief investment office and mortgage capital markets will also serve as cco-COO. Chief financial officer Doug Braunstein will now report to Zames. Previously, he reported to Dimon. For more: Related articles: Read more about: CEO, CEO succession
People were a bit antsy as they awaited the earnings results of the boutiques. No one doubts their ability to pick off deals and advisory mandates, but when the merger market itself is mired in slow growth, are they destined to fare poorly? Lazard and Evercore Partners have reported that in the second-quarter "their core mergers advisory businesses had held up well on the strength of several major transactions. Lazard's financial advisory revenue slipped only 3 percent during the second quarter, to $243 million. And Evercore's investment banking revenue rose 35 percent, to $151.4 million during its second quarter," according to DealBook. Evercore was able to post a 19 percent gain in profit. "Each firm participated in some prominent transactions during the quarter. Among Lazard's assignments were the Anheuser-Busch InBev $20.1 billion takeover of Grupo Modelo and the $6.7 billion deal by Walgreen for a 45 percent stake in Alliance Boots of Britain. Evercore advised on Bristol-Myers Squibb's $6.8 billion purchase of the drug maker Amylin Pharmaceuticals and AOL's sale of patents to Microsoft for $1.1 billion." The boutique merger advisory firms have staffed up, as bankers from the bulge bracket firms jumped ship with higher pay and a more free-wheeling environment in mind. They are poised to do well, if only the merger market will allow for growth. Once we get back to a robust deal environment, they will likely be seen as purer bets on deal volume. It will be interesting to take a look at compensation levels as the boom gets underway. For more: Related articles:
Read more about: mergers, earnings 3. Jefferies is highest paying investment bank
So, which banks pay the most? At the mid-year mark, it's not surprising that Goldman Sachs is near the top. The bank set aside $225,789 for each of its 32,300 workers, but that's good enough only for second place. According to Bloomberg, mid-market powerhouse Jefferies set aside $870 million in the first half of its fiscal year for compensation, enough to pay its 3,809 employees an average of $228,407. JPMorgan Chase may be falling behind. "Average pay for the 26,553 people in JPMorgan's investment bank was $184,989, or at least 18 percent less than Jefferies's and Goldman Sachs's reported figures. Average compensation for Morgan Stanley's 58,627 workers was $137,548. It was 10 percent less than both in fiscal 2011." To be sure, the difference between Goldman Sachs and Jefferies may be muddied by the fact that Goldman Sachs accounts for all workers, while Jefferies counts only full-time workers. These figures also do not account for stock-based compensation and deferred cash. All in all, however, Jefferies revenues has held up a bit better than its bigger brethren, and it will use the fact that there can be bigger upside in terms of compensation at smaller firms to attract talent. For more: Related articles:
Read more about: banker pay, bonuses 4. Banking industry remains influential
No one doubts the influence of the banking industry. Banks have the power to sway the economy, and big companies cannot do without their services. Despite a lot of public anger in the wake of the financial crisis, the big four consumer banks and the top investment banks are as influential as ever. They may be even more so given that they have redoubled their efforts to lobby the government. Still, an esteemed New York Times columnist wonders whether the LIBOR scandal and the JPMorgan "hedging" fiasco will change anything in terms of the banking industry's influence. "There is a question as to whether that power is in danger of being broken as a result of public revulsion over the JPMorgan hedging fiasco and the Libor scandal. The banks had turned this year's debate into one over regulations they do not like, and seemed likely to at least win a few concessions. Suddenly the issue is whether big banks should be broken up." My sense is that nothing has fundamentally changed. Although there's been a spike in rhetoric when it comes to breaking up big banks, it will likely prove fleeting. There have been these sorts of rhetorical bursts before. The banking lobby will not soon relent on Dodd-Frank. But even with a few criminal prosecutions in connection with Libor and a whole new Libor process, what has changed? This isn't to say that a super-influential banking industry is a good thing or a bad thing. It's a just a comment on the longevity of the status quo. For more: Read more about: banks, Lobbying 5. Time to decouple Google and Facebook?
After Google went public, it immediately became a bellwether stock, one that was widely watched by people outside the tech sector. Over time, it delivered enough good news to make it one of those rare stocks that seemed to defy gravity. According to a Forbes article, "Google experienced its greatest revenue growth rate prior to the IPO, and its revenue growth rate decelerated into 2009. This is understandable given the magnitude of the growth rate prior to the IPO (400+%) and the growing base made comparisons more difficult. That said, Google was able to deliver higher earnings every year through 2007, albeit also at a slower growth rate. The best gains for the investors would have been to hold the stock through the period of the most explosive growth and, for Google, it was the period from the IPO through the end of 2005 when the stock movement was fairly consistently upward." Facebook obviously is on a different track, but for a while it will be the must-watch stock in every earnings season, just like Google was. This time around, investors are taking a different attitude toward the slowdown in growth. The company hit revenue targets--everyone acknowledges that the revenue-burst years, like in the case of Google, came before the IPO--but user growth seems to be slowing in the midst of massive investments that have sunk its free cash flow. The big issue may be the extreme costs of significantly boosting its user base. The LATimes adds that, "Facebook's tight-lipped approach to financial forecasts and company strategy almost guarantees that the gyrations will continue. The company offered no guidance for the current period, disappointing some investors." At this point, the two stocks have likely been decoupled in the mind of Mr. Market. For more: Related articles: Read more about: Facebook IPO Also NotedSPOTLIGHT ON... Is the banking industry "unusually corrupt?" The Atlantic notes that two leaders of the law and economics movement have explored the idea of whether the banking industry, after so many scandals, is "unusually corrupt." The answer appears to be something very close to yes. The reasons put forth include "the enormous amounts of money at stake" and the "attractions of high leverage and government guarantees, and because of the opportunity to make large amounts of money in the short term." Article Company News: News From the Fierce Network:
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Monday, July 30, 2012
| 07.30.12 | And the highest paying investment bank is ...
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