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Today's Top News1. Ex-JPMorgan Chase CEO defends universal banks
William Harrison, the ex-CEO credited with combining JPMorgan and Chase to create the universal bank it is today, has penned a critique of the "break up the banks" school of thought, positioning himself against those like Sandy Weill, the one-time builder of Citigroup. Harrison notes his view that universal banks were generally not the cause of the recession. "None of the first institutions to fail during the crisis — Countrywide, Bear Stearns, IndyMac, Fannie Mae and Freddie Mac, Merrill Lynch, Lehman Brothers, the American International Group — were universal banks." The bailouts, of course, kept some of them afloat through the roughest times, however. Harrison also takes issue with the notion that these universal banks have become too large to manage. "Large global institutions have often proved more resilient than others because their diversified business model ensures that losses in one part of the enterprise can be cushioned by revenues in other parts. In some cases, complexity can be an antidote to risk, rather than a cause of it." And he certainly doesn't think that investment banking and commercial banking ought to be split, as the diversification is beneficial. But he does believe in a qualified Volcker Rule, as long as market making and hedging are permitted. It's a persuasive piece, but it I would suggest that implementing a Volcker Rule with such exceptions will be hard and possibly self-defeating. After all, the Whale Trades were conceived as hedges. What might make the most sense for split-up advocates would be to conceive of a way to separate the "boring," FDIC-insured traditional bank -- basically traditional lending -- from other stuff. You could add other safe activities, like debt underwriting, but would that also imply that you have to run a market making operation? It may in fact be hard to logically split out the business. For more: Related articles:
Read more about: JPMorgan Chase
2. Goldman Sachs tries again with performance-right ABS
One way to higher yields is to invest in ABS linked to the royalties generated by the music of Bob Dylan, Neil Diamond and a host of lesser stars. But investors have recently grown skeptical. Goldman Sachs has tried to market such an ABS twice before and both times received a chilly response. It is hoping the third time proves to be the charm. It will try again in September to interest clients in a $300 million deal for Sesac, the Nashville concern that holds rights to the music. Bloomberg Businessweek summarizes the views of one S&P analyst: "Royalty payments connected to performances rights for copyrighted music have shown to be 'relatively insulated from economic downturns. ' Still, the company doesn't have an exclusive right to license public performances for its affiliates, and the seasonal changes in royalty receipts may lead to volatile income for the bond payments." It's unclear why Goldman Sachs pulled the plug on the deal twice before, but it has made some changes. It will now market two tranches, a junior tranche and a senior tranche. The yields on the lower-rated deal will likely top 5 percent, which is astronomical, but appropriate for a BBB- grade security, which would put it barely above junk status. The FT says that, "If the prospects darken they (Goldman Sachs bankers) have plenty of options for Dylan songs to use as soundtrack for any roadshow -- Most Likely You Go Your Way and I'll Go Mine from 1966, for example, or the more recent When The Deal Goes Down. If it falls apart entirely and bankers are denied the hunks of plastic they use to celebrate deals, they may suffer from the Tombstone Blues." Read more about: ABS, Performance Rights
It's fair to say that Barclays' experiment with an American CEO ended in disgrace. Bob Diamond proved to be a controversial leader, and the controversy finally overwhelmed him amid the great Libor rate-rigging scandal, for which the venerable British bank has agreed to pay $450 million to settle. The newly appointed CEO, Antony Jenkins, must turn his attention first to the bank's brand recovery efforts, which will be no small task. It may be that he and the board have a larger agenda in mind: He just might return the bank to its roots in traditional retail and business banking as opposed to investment banking, which was the domain of his predecessor. DealBook notes that this will not be an easy transition. Diamond's mission was "to build out a world-class investment bank from scratch. But while he made headway over the years, the single most transformative event for Barclays was the firm's acquisition of Lehman Brothers' core American banking assets in the fall of 2008. Instantly, the British firm grew from respectable mid-tier adviser and lender to a major deal maker." Obviously, the choice of Jenkins, who led the retail and business banking units, says a lot about what the board is thinking. The markets will be looking for clues as to how Jenkins will manage the transition, or even if such a transition is in the offing. For more: Related articles:
Read more about: Barclays, CEO 4. Gleacher & Co., boutiques face pressure
When Eric Gleacher started his own boutique investment bank back in 1990, most assumed it would become an instant powerhouse. The reality turned out a bit differently. The firm achieved success in winning deal advisory work, but it's history proved a bit tumultuous and it faced enough competition that it sought to diversify into other markets, notably fixed income trading and MBS work. In the end, it did a lot of things, but not any one thing well enough to secure its future. So perhaps it was inevitable that it ended up on the block and the firm has reportedly hired Credit Suisse to manage the sale. As for Gleacher himself, he's no longer said to be running the firm on a day-to-day basis, but he remains the second largest shareholder behind Matlin Patterson Global Advisors. Not every boutique is faring poorly. Lazard and Evercore Partners, for example, seem to be holding up despite the trying environment. Greenhill, on the other hand, has suffered in the weak deal environment. As the deal market picks up, the competition will be ferocious at all levels. The bulge bracket firms are certainly sensing bigger business. While some bankers at big firms have left for boutiques, it's far from certain that the move will pay off for them financially the way they hoped. For more: Related articles:
Read more about: deals, mergers 5. Can Corzine build a winning hedge fund?
One veteran bank industry analyst and talking head doesn't much care for the notion that Jon Corzine, the disgraced former CEO of MF Global, might set up a hedge fund. "At least Dick Fuld, the disgraced CEO of Lehman Brothers, has had the good sense to retire and stay out of the public eye, and ditto for Ken Lewis, of Bank of America Corp. fame. But if Corzine is allowed back into the financial services industry in any shape, form or fashion — well, that would just be criminal, and anyone who would invest with that man deserves the criminally bad returns that they will likely receive." Let's say that Corzine ends up establishing a hedge fund -- how would institutional investors react? That's an interesting question. On Wall Street, the prevailing view likely is that "hey, he wasn't accused of anything, so he's fine with us," especially if he will produce outsized returns, for which there is no guarantee. But in the world of public pensions, the thinking may well be different. At least I think these funds have grown weary of scandal. Whether they pony up with Corzine might be an interesting litmus test of sorts. Not many pensions will be able to invest with a new fund with no track record, but for those that can, it may be that the perception of investing with such a controversial person represents a risk that isn't worth the dubious opportunity for gains. I think he'll struggle to raise a large fund, though he may be able to call in some chits. For more:
Read more about: Hedge Funds, Jon Corzine Also Noted
SPOTLIGHT ON... MSSB execs to leave? Reuters reports that "several dozen Morgan Stanley Smith Barney advisers who manage tens of billions of dollars of client money are considering leaving the firm, saying that widespread technology problems have made it very difficult for them to do their jobs. The group has hired a lawyer to argue that they should be able to keep lucrative retention payments even if they quit, and they have also drafted a letter to Morgan Stanley CEO James Gorman outlining their concerns." You have to wonder if this will affect the valuation proceedings that are now underway. Article Company News: And Finally…Teleworkers are more productive. Video
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Tuesday, September 4, 2012
| 09.04.12 | The future of Barclays
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