Today's Top Stories Also Noted: Spotlight On... JPMorgan bankers head to boutiques News From the Fierce Network: Today's Top News1. Mike Mayo: Morgan Stanley worth more broken up
Even before the Sandy Weill flap, I noted that more people are calling for big banks to consider break-ups to unlock shareholder value. Some institutions may be getting antsy at the lack of progress, and looking into the future, new regulations and economic uncertainty seem to be concluding that break-ups are the only real option. Even former Morgan Stanley CEO Philip Purcell has put forward his view that breaking up the banks would be better for shareholders. More analysts are also thinking in similar terms. A great example is the outspoken Mike Mayo, analyst at CLSA, and well-known bete noire to bank CEOs. On Bloomberg TV, he said that "This is not a tough call. If you break up the big banks, at least in the case of Morgan Stanley, I think investors would be huge winners. I hope they can achieve this value on their own without a breakup, but they don't have forever." Short-sellers, he said, would be "blown to Neptune." Mayo thinks a break up could make the company worth $32 a share. He also said Bank of America and Citigroup would do right by shareholders if they were to break up. This is an issue that bank directors cannot dismiss. At this point, they would be wise to pay heed to long-suffering shareholders and make the determination as to what will unlock the most value. This is why board members are so well paid. For more: Related articles: Read more about: banks, break up
2. Weill vs. Dimon battle continues
JPMorgan CEO Jamie Dimon and his former mentor Sanford "Sandy" Weill have a long and tortured history. They once ran Citigroup almost in tandem, controversially building it into a supermarket that Weill now regards with skepticism. But in 1998, in the wake of the famed Citigroup and Travelers merger, Weill fired Dimon. At the time, it was a shocking move. The dispute was multifaceted. Some think that Dimon's rough executive treatment of Weill's daughter played a role in Weill's decision, while others think Weill had concluded that Dimon had grown too big for his britches. In any case, it's tempting to think that Weill may be enjoying what some might call light revenge right now, as he basks in the publicity over his pronouncement that bank shareholders might benefit from bank break-ups. That talk has colored the public discussion about JPMorgan's executive shake-up, which some see as a nod toward the pro-break-up crowd. Certainly, JPMorgan has not been immune from the break-up chatter, a chatter that has intensified thanks to Weill. Deal Journal notes that, "The idea of splitting J.P. Morgan has been, and will continue to be, bandied about, particularly in the wake of the bank's $5.8 billion trading losses this year, which raised questions about being too big to manage. Today's moves, some analysts say, show the split could work." One analyst was quoted as saying, "Given the recent rhetoric on the industry in and JPM in particular, we believe this (the executive shifts) could help fuel the speculation that some of the larger banks may look to more formally separate their consumer and investment banking operations." For more: Related articles:
Read more about: JPMorgan Chase, Bank break ups
While Sanford "Sandy" Weill has made huge headlines and generated lots of controversy for his about-face on bank conglomerates, he has unfortunately opened himself up to lots of criticism. Some say that his reversal is no big deal---all he did was change his mind. "For some reason, the pundits are all 'shocked, shocked!' that someone might draw from experience and observation to change one's mind," says one observer. But others have parsed his words and turned them against him, reliving some old wars. One pundit writes: "But what was most eye-catching was Mr. Weill's claim that the conglomerate model 'was right for that time.' Nothing could be further from the truth. Mr. Weill's original business concept — the justification of financial conglomeration — was to provide one-stop shopping to any and all customers. This could now include clients for investment banking, stock research, brokerage and insurance. Then, with the 1998 merger of his Travelers Group with Citicorp, it could include savers, business borrowers and credit card users, too. But few, even among his own executives, ever believed the strategy would work." The piece goes on to list a familiar litany of wrongs committed by the bank. This is an interesting point, and Weill would add to the debate if he were to publish a piece that explores why the idea of a break-up was less relevant when he was in charge, as a way to inform the current debate. For more: Related articles:
Read more about: Bank break ups 4. Libor private litigation flood coming soon
Has the private litigation flood started against bank implicated in the great Libor scandal? If it hasn't, it won't be long. Bloomberg reports that Berkshire Bank, a small New York lender, has sued 21 banks including Bank of America, Barclays, and Citigroup for damages over the alleged manipulation of the interbank offered rate. Berkshire seeks "undisclosed compensation and punitive damages" and the right to represent other lenders in a class action. According to the complaint, "Tens, if not hundreds, of billions of dollars of loans are originated or sold within this state each year with rates tied to USD Libor…" Berkshire Bank said also that New York-based institutions "were unable to collect the full measure of interest income to which they were entitled." The extent of the ultimate damage will be of prime concern to analysts and investors, who in general still do not have a firm grasp of the potential costs. Morgan Stanley analysts were among the first to come forward with loss estimates. In terms of settlements with prosecutors and private litigants, the costs would appear to be highest for Deutsche Bank and Royal Bank of Scotland, at about $1.1 billion each over two years, and Bank of America and JPMorgan Chase, at nearly $1.0 billion each. Those estimates could easily change. It really depends on who comes out of the woodwork as a plaintiff. The likes of Goldman Sachs and Morgan Stanley, for example, must be mulling their options as potential plaintiffs. There may be some novel claims from across the securities spectrum, as many were tied to the rate. For more: Related articles: Read more about: LIBOR, LIBOR Scandal 5. Bank of America reasserts itself in mortgage market
The new king of the mortgage market remains Wells Fargo, which controlled 32.4 percent of the origination market in the second quarter, according to Inside Mortgage Finance, as noted by Reuters. That compares with 33.9 percent in the first quarter, and there's no point making much out of the slippage over a single quarter. But it is interesting to note that Bank of America seems to have awakened a bit amid the refinancing activity. Bank of America fell to fourth place from second place "deciding last year to stop buying loans from smaller banks and mortgage companies, which is known as correspondent lending. But in the second quarter it showed the biggest increase in new loans, more than 18 percent." In the second quarter, Bank of America funded $18.9 billion in residential home loans and home equity loans, compared to $16.0 billion in the first quarter of 2012 and $19.6 billion in the second quarter of 2011, excluding correspondent originations. The number of 60 or more day delinquent first mortgage loans serviced by Legacy Assets and Servicing declined to 1.06 million loans at the end of the second quarter from 1.09 million at the end of the first quarter and 1.28 million at the end of the second quarter of 2011. Bank of America also added loan officers in the quarter. The bank seems on reasserting itself. The financing environment is strong right now, and there's been an uptick in activity at many banks. For more: Related articles: Read more about: Bank of America, mortgages Also NotedSPOTLIGHT ON... JPMorgan bankers head to boutiques For the past few years, boutique banks have loomed as attractive alternatives to the bulge bracket firms. At JPMorgan, given the woes in the CIO unit, is there even more reason to leave now? Three JPMorgan investment bankers are leaving for Evercore Partners and Centerview, reports Bloomberg. In many cases, it boils down to compensation. But there are other reasons as well. Article Company News: And Finally…Skills crisis looms. Article
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Tuesday, July 31, 2012
| 07.31.12 | Weill vs. Dimon battle continues
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