Today's Top Stories Editor's Corner: Exploring network security Also Noted: Spotlight On... New head of CIO office at JPMorgan News From the Fierce Network:
Today's Top News1. UBS rogue trader trial begins
Remember Kweku Adoboli? He is the alleged rogue trader at UBS, who is accused of gaming the system to make unauthorized bets that ultimately cost his bank $2.3 billion. Adoboli has been in prison much of the time after being arrested about a year ago. He was released on bail in June and has been working on his defense ever since. It is unclear exactly what he will argue, but his legal team might go for a scorched sort of approach in which it claims that Adoboli's managers knew what he was doing all along. His arrest certainly had major impact at the firm. Then-CEO Oswald Gruebel stepped down and about 10 others also left. UBS claims that it has since cleaned up its controls problems. A lot has happened in a year, including the embarrassing "hedging" fiasco at JPMorgan's London unit, where the bank and others are investigating whether any rogue trading was an issue. In a sense, Adoboli may have been ahead of his time. The bank's current management is girding for some fallout. UBS Group CEO Sergio Ermotti sent a message to staff this week warning them that the bank's "culture and practices" will be examined and suggesting that they need "to stay calm and objective and to avoid comment in order not to jeopardize the trial," notes Here is the City. Ermotti continued, writing that "As uncomfortable as the entire trial will be for UBS, it will show us what the consequences are when misconduct occurs or when individuals do not take their responsibilities seriously. Misconduct also includes turning a blind eye, that is, failing to intervene when there are irregularities or failing to escalate concerns, however minor these may seem. Such behavior is unacceptable." For more: Related articles: Read more about: rogue trader 2. Wells Fargo, Bank of America win with real estate recovery
So who will be the big winner as the mortgage market continues to recover? With nearly 40 percent of the retail market, Wells Fargo is an obvious bet. JPMorgan analysts write that the San Francisco-based giant is "the only bank in our [bank coverage] group with a substantially larger share of the purchase market versus refis," as noted by TheStreet.com. So assuming that purchase mortgage activity soars and reduces the volume of refis, which is where the action is now, Wells Fargo seems positioned to benefit the most. However, other banks will likely fare well also. When you look at total costs, "Bank of America and SunTrust are at the high end at 138% and 95% of 2Q12 EPS, respectively." A 5-20 percent further reduction in residential mortgage related net loan charge offs and real estate expenses above expectations could add 3-7 percent to 2013 EPS for Bank of America and SunTrust, the analysts say. "In addition, 10% reduction in other credit related expenses could add 2-5% to '13 EPS." These expenses are particularly high for Bank of America. All in all, a surge in retail mortgage activity would lift a lot of ships. We're at the beginning of what looks to be an exciting recovery and chance for banks to breathe more life into income statements. For more: Related articles:
Read more about: mortgages, Rewal Estate 3. Wells Fargo supporting non-profit lending company
Some might consider merchant cash advances the wholesale equivalent of cheesy consumer payday loans. The idea is to extend instant cash advances to small businesses in a way that allows the lenders to recover the advance and then some via automatic fixed percent deductions from debit card and credit card proceeds. The appeal is that the small business pays off the loan in accord with revenue generation, which makes sense. As you might guess, the downside is the gargantuan effective interest the small business pays, as legally, these are not loans. Wells Fargo, which finances at least two of these operations, also supports a non-profit with an interesting twist on this idea, according to Bloomberg Businessweek. A California community development lender, Opportunity Fund, "is making the cash advance model much more friendly to businesses with a loan it calls EasyPay. Like a merchant cash advance, an EasyPay loan gives businesses up to $100,000 in a lump sum payment, and collects fixed percentage of the merchant's daily credit and debit card sales. Unlike cash advances, EasyPay is a real loan, with a fixed simple interest rate that works out to be about 12 percent on an annual basis." That's high, but much less so than what purely commercial cash advance lenders charge effectively. "Opportunity Fund subsidizes the loans to keep them cheap and also reports borrowers' repayments to credit bureaus. That helps them qualify for future loans, which cash advances don't do." Wells Fargo doesn't see any contradiction in supporting a entity that might be undercutting businesses that it finances, notably RapidAdvance and Advance Me. It wants to provide diversity in financing for small businesses of all types and needs. For more: Read more about: Wells Fargo 4. Influential subcommittee takes aim at JPMorgan
Recall that when the Senate Permanent Subcommittee on Investigations decided to take a closer look at Goldman Sachs, the results ended up being a problem for the bank's top executives. After the subcommittee forwarded its result to the DOJ with a recommendation that CEO Lloyd Blankfein and others be prosecuted for perjury, the department ultimately declined to bring any charges. But not before Blankfein and others were forced to lawyer up, and not until after the mess proved to be a huge distraction. So what to make of the news that the same subcommittee is turning its attention to JPMorgan Chase? Bloomberg reports that, "The Senate panel is unencumbered by many of the political restraints faced by other congressional committees. As a permanent fixture in a chamber whose members only have to run for office every six years, the panel has the resources and the appetite for spending months or years issuing subpoenas, interviewing witnesses and poring over documents. The subcommittee's work also stands out in a town where investigations and white papers often dissolve into partisan strife. By a tradition unique in Congress, the minority party's staff is involved throughout the inquiry. Members from both parties tend to stick together when presenting conclusions." The panel is actively seeking witnesses. At some point, it will no doubt call CEO Jamie Dimon to testify. Pleading the fifth will be out of the question, so he'll have to prepare assiduously. A lot will be on the line. For more:
Read more about: Hearings, JPMorgan 5. BlackRock a difference maker at proxies
As of June 30, BlackRock managed a whopping $3.6 trillion in equity, fixed income, cash management, alternative investment, real estate and advisory strategies, making it the largest asset manager in the United States. About $1.6 billion of its assets are in equities, which makes it a force during proxy season. So how did the firm tend to vote in 2012? Reuters quotes one expert, who said that BlackRock's approach "is not carpet-bombing, it's more smart-bombing. They're focusing their ire on the real outliers." Management at some companies found themselves aligned against the big firm, but at many of the top financial services companies, management found an ally in big BlackRock funds, which tend to vote in lockstep. BlackRock funds tended to vote "with management at Citigroup to approve the pay of named executives like CEO Vikram Pandit. At Citigroup's meeting on April 17 just 45 percent of stock was voted to back Pandit's 2011 pay of $15 million, a surprise that showed investors in a fighting mood. The notion was reinforced the next month when 40 percent of JPMorgan shares were voted in support of a union-sponsored measure to strip Chief Executive Jamie Dimon of the additional title of chairman. BlackRock Global Allocation voted against the measure at JPMorgan, however, and supported JPMorgan's pay plan." In any case, no matter what Blackrock does, it carries clout, and the firm takes its voting seriously. It may want to go ahead and start a formal proxy advisory firm. For more: Related articles: Read more about: buy-side, BlackRock Also NotedSPOTLIGHT ON... New head of CIO office at JPMorgan JPMorgan has named Craig Delany, who had been the COO of mortgage banking unit, to head the bank's now infamous CIO unit, which stuck the banks with $5.8 billion in losses and sparked multiple rogue trading investigations. He replaces Matt Zames, who had taken over in the wake of the incident and now is the co-COO of the entire bank. Delany's job will be to return he unit to its roots as a true hedger and conservative investor, more worried with offsetting losses legitimately than hitting proprietary home runs in the name of hedging. Article
Company News: And Finally…Fire vs. other tablets. Article
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Monday, September 10, 2012
| 09.10.12 | UBS rogue trader trial begins
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