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Today's Top News1. Should Wells Fargo buy Discover?
By dint of its market share -- most likely above one-third in the retail mortgage market -- and vast retail network, Wells Fargo has become a consumer banking powerhouse. In some ways, it is the new bellwether. What will it take to really separate itself from the likes of JPMorgan Chase, Bank of America and Citigroup? It's tempting here to note that its capital markets and investment banking operations are underdeveloped compared to its peers, but that might be a big benefit right now. Wells Fargo might be a net winner because of the lack of investment banking drag. What might prove transformational, according to Susquehanna, would be a deal to buy Discover, as reported by Deal Journal. That would give the bank the third largest card network, and these networks are still profitable despite new regulations. Wells Fargo has not been shy about its need to grow its credit card operations, which lags its consumer bank peers. It unsuccessfully bid on the card operations that Capital One ultimately bought from HSBC. Owning an actual network would be a bold move, especially as the race for the future of cashless payments heats up. Owning Discover would vault it into the front ranks as a card issuer and as a network facilitating transactions. It would certainly address a lot of issues and ambitions. For more: Read more about: mergers, Wells Fargo 2. Money market fund reform stalls
It was shocking news when the SEC failed in its efforts to pass rules designed to strengthen money market funds, which have been roundly criticized in the wake of the financial crisis. When the Reserve Fund "broke the buck" in 2008, it was a seismic event, but new rules were not put forward for a vote until just recently. In a shocking vote, the rules, which would have required mutual fund companies to hold collateral and to report true NAVs, were voted down 3-2. One long-time commissioner, whom many thought would vote in favor of the rules, ended up pulling a shocker and voting against them. In the aftermath, some are decrying the lobbying might of the massive mutual fund industry. The industry argues that previous reforms address the issue and that the new rules would have ended the money market fund industry as we know it. The New York Times excavates the issue, making clear that the mutual fund industry is still a force in lobbying. In the end, the chances of any "breaking the buck" episode seems remote now. The memory of the 2008 crisis has receded in intensity. And it will be a long time before regulators return to the issue again, for better or worse. Another win for the industry. For more: Related articles:
Read more about: money market funds 3. Carlyle Group prepares for big meeting
The private equity industry has taken its lumps as of late, in large part because the presidential election has focused on controversial issues, such as management fee waivers. But a White Knight may soon emerge from the industry to help rescue its reputation: Carlyle Group. The Washington Post notes that it is preparing for its annual investor conference and that it has a nice story to tell. It's in the midst of a massive buying binge of U.S. manufacturing concerns. The private-equity giant "has invested billions in basic, old-line industries such as railroads, refineries, pumps and paint companies, while many of its competitors have remained relatively quiet. Carlyle's moves are especially surprising, given that U.S. manufacturing dipped in August for the third month in a row, a sign that the economy — and production in particular — may be slowing." But the firm sees many reasons to invest and remains refreshingly optimistic about domestic manufacturing due in part to what the firm's investment head calls the "domestic energy revolution" and the dollar's weakness in international markets. Hopefully, the funds can revive companies, leading to net job growth. As for Carlyle itself, it's entering a new world as a public company. It certainly understands that it can no longer afford to be secretive and unwilling to define itself. For proof, just checkout its web site, which has drawn praise for its attempts at more openness. For more: Related articles:
Read more about: Carlyle Group 4. Rajaratnam witness sentencing
If the insider trading trials prove anything, it's that cooperating with the government will pay off. If history is a guide, former Intel executive Rajiv Goel will be spared jail time when he is sentenced this week. This is exactly the outcome he sought when he decided to turn on his former friend Raj Rajaratnam, who is no serving an 11 year prison term. Two other cooperating witnesses, who also pled guilty to insider trading charges, Anil Kumar, a former McKinsey executive, and Adam Smith, a former trader at Galleon, have previously been sentenced, and both were spared jail time. The New York Times notes that "Goel proved an effective witness, walking the jury through secretly recorded telephone calls during which he and Mr. Rajaratnam exchanged confidential information about Intel." From the prosecution's point of view, he certainly delivered the goods, so I would expect probation and some other minor penalties, like community service. It must be said that there have been rare cases where a judge disregarded the advice of the prosecution and sentenced a witness to jail anyway. In the recent case of a 17-year insider trading scheme by three men, one was sentenced to 12 years, and another was sentenced to nine years. The one who cooperated got 17 months. In the case of Goel, it will be shocking if he is sentenced to prison, but stay tuned. For more: Related articles:
Read more about: insider trading, Sentencing 5. Feds to sell more AIG shares
You are not alone if you forgot that the U.S. government is still a majority owner of insurance giant AIG. The government has sold off shares in pieces, taking its ownership stake from a high of 92 percent down to just over 53 percent, and it recently announced that it will sell off another chunk of stock, likely $18 billion worth, reducing its stake all the way to roughly 15 percent. The company itself will buy back about $5 billion of the shares. It's a good time to sell, as the price of AIG as rebounded to the point that is comfortably north of the government's break- even point. It is certainly tempting to pronounce the bailout a success, as the company has thrived as a government-owned company. "It has reported several consecutive quarterly profits, while seeing its stock rise more than 10 percent since the government began selling its holdings in May of last year," reports DealBook. Not only is the Treasury selling off more AIG stock, but the New York Fed bank has offloaded bonds that were acquired to help prop up the bank. Those bonds were also sold at a profit. The AIG bailout looms as another profitable "investment" that in hindsight answers a lot of critics. The company was certainly, "too big to fail" to an extent greater than most big banks and the government had no choice but to intervene. Kudos to the architects of the plan for making it work. Not all bailouts will prove so profitable. Read more about: Bailout, AIG Also NotedSPOTLIGHT ON... State Street fares well in junk ETFs So who is winning the junk ETF sweepstakes? State Street, which plays second fiddle to BlackRock in terms of assets, is on top in terms of performance. It has done so by investing in bonds rated at the B-tier or lower. Bloomberg reports that The SPDR Barclays Capital High Yield Bond ETF has returned 9.6 percent this year, 1.2 percentage points more than BlackRock's iShares iBoxx High-Yield Corporate Bond Fund. Article Company News: And Finally…Rookie hazing for Harper. Article
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Tuesday, September 11, 2012
| 09.11.12 | Should Wells Fargo buy Discover?
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