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Today's Top News1. States calculate Libor-related losses
I've suggested before that big consumer banks in the U.S face potentially massive legal liabilities in the wake of the Libor scandal. The New York Times reports that state treasurers are busy figuring out how much they were bilked due to the irregularities in the rate setting process, which has already prompted Barclays to settle charges for $450 million. The state treasurer of North Carolina told the NYT that the losses would likely at least equal the $25 billion that big banks collectively paid to settle charge related to the foreclosure crisis and mortgage meltdown. There will be loads of private litigation as well. In fact, such suits have been underway for some time now. The two areas where state most likely lost money was on investments with rates tied to Libor and in interest rate swaps that were also linked to Libor. Most of the losses will likely stem from the latter. In the end, there may be another tobacco industry-like feeding frenzy, as the entire buy-side spectrum gets in on the act. The losses from CDOs loom as a significant issue that could boost the legal losses substantially. Macquarie Research has estimated that banks collectively face legal liability of $176 billion. Banks have yet to reserve significantly against these losses, but those reserve hikes are coming. It's just a matter of when. For more: Related articles: Read more about: LIBOR
2. Bank of America employee moons boss, sues
At most companies, mooning your boss would be grounds for immediate dismissal. At Bank of America, the issue got a little complex in the case of Jason Selch, who brought in a fair amount of business at the bank's Columbia Management unit. In 2005, he stormed into a conference room where his superiors were meeting, dropped his trousers, and mooned the entire room. This was meant to be a protest of compensation policies and the fact that a colleague was quitting rather than accepting lower pay. He had the foresight, according to Courthouse News, to first ask if the was a non-compete agreement in play. He was told there was not, so he then proceeded to his mooning. Incredulously, Selch was not initially fired but rather was given a formal reprimand in the form of a letter from HR. But when another, higher-up executive found out about the incident, he insisted that Selch be fired, even though some of the mooned executives fought for him to be retained. The ultimate firing of Selch prompted him to sue in state court, defending the right of mooners everywhere. He charged that the actual firing was an abrogation of the warning letter he received and that his mooning was not sufficient cause of termination. Unfortunately for him, a state judge just ruled against him, calling his actions "disruptive, unruly and abusive" and possibly "obscene." He also scoffed at the idea that the warning letter was a binding contract of any kind. For more:
Read more about: workplace 3. JPMorgan defends copper ETF plans
Back in 2010, JPMorgan was accused of trying to corner the copper market. It was reported that the bank's commodity traders had amassed a huge amount of copper -- up to 50-80 percent of the inventory -- in reserves. The reason had to do with the then imminent launch of its copper commodity physically backed exchange traded fund. That led to an outcry by other firms and politicians. JPMorgan still has not launched its cooper ETF, though it has not given up on its plans. It has issued a response to critics, arguing that, according to the Financial Times, "the new copper ETF would have no untoward effects on the global economy. More surprisingly, it says that physical metal ETFs have no impact on prices at all. Seriously? JPMorgan 'does not believe that [exchange-traded vehicles] have a significant impact on price,' it says in a submission to the Securities and Exchange Commission, adding that the bank believes physical metal ETFs 'track rather than drive the price of metals.'" That would appear to be a rather naïve view. Most would agree that ETF activity can really drive prices. "Indeed, JPMorgan's defence appears to contradict its previous published views, in which it has pointed to changes in ETF holdings as a major driver of prices. In November 2010, for example, the bank said that it was somewhat bullish about silver, as 'ETF and Chinese demand could drive spot prices' higher." Physically backed metals ETFs have been controversial across the board, especially when it comes to gold and aluminum. The issue is certainly heating up in the U.S., as more critics stoke fears of what might happen to prices. For more: Related article:
Read more about: ETFs, Copper ETF 4. Bankers revolt at Morgan Stanley Smith Barney
I noted recently that several dozen Morgan Stanley Smith Barney advisors, all of whom appear to be of the rainmaker variety, were considering leaving the firm. They said that "widespread technology problems have made it very difficult for them to do their jobs," and they had gone so far as to hire a lawyer to help them hang onto various retention awards even if they eventually quit. One obvious issue here is whether this dramatic action reflected a more profound uprising within the ranks of MSSB, which will at some point become a wholly owned unit of Morgan Stanley. FOX Business reports that Morgan Stanley's wealth management chief, Greg Fleming, has just concluded a seven-city tour of the firm's brokerage offices. It was an attempt to quell irate brokers that feel the company's new technology system is so glitch-ridden that they cannot even use it to add new customers. Apparently, the old system has been deemed preferable by the unhappy brokers. Management hopes that this isn't the final straw that will prompt an exodus. The company has pledged to fix the system, but it says some fixes will take time. It also told the network that it has not seen a change in advisor attrition. Still, buggy code can really be a pain. Perhaps the company erred in rolling out the new system before it was ready. For more: Read more about: Morgan Stanley, brokers 5. Jefferies bullish on Facebook
In the wake of its botched IPO, the news about Facebook has been unrelentingly negative. There's been a lot of talk about government investigations, the most culpable parties, the massive sales by insiders, the Nasdaq's botched response, expiring locks ups and so on. The stock has languished the entire time, so it's almost refreshing to hear some unabashed bullishness. Deal Journal notes that Jefferies analysts Brian Pitz and Brian Fitzgerald, who just joined the bank from UBS, "have launched coverage on the stock with a buy rating and a $30 price target." The company went public at $38 a share. The analysts' note "gushes" with praise. "With a potent mix of unprecedented scale, high engagement, and social + behavioral targeting, we think Facebook is must-buy media for marketers as they follow users online," Jefferies writes. "Lockup pressure looks inevitable through Dec. But expansion into other business areas also looks inevitable, and at the current price investors effectively receive this optionality for free." Jefferies "also says it thinks Facebook can expand its advertising network and learn to target ads based on a user's location. The analysts also think the company can improve its search function and market share." Jefferies was not an underwriter of the botched deal. All in all, it's hard to see the stock nearly doubling anytime soon. But as analysts aiming to make a splash for their new firm, they had to be bold. For more: Related articles: Read more about: Stock Research, Equity Analysts Also Noted
SPOTLIGHT ON... Bank lobbyists to extend outreach via PAC Bank lobbyists have been in overdrive for the past few years. Dodd-Frank has proven to be a financial boon on an unprecedented scale. Will they now take their fight to the political realm? The American Bankers Association is pondering a move to form a PAC that would be able to take unlimited donations and spend freely to support candidates. The goal would likely be to buttress its anti Dodd-Frank activities. Article Company News: And Finally…Here come the iPad killers. Article
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Friday, September 7, 2012
| 09.07.12 | Bankers revolt at Morgan Stanley Smith Barney
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