Today's Top Stories Also Noted: Spotlight On... Bank stock rally may continue
Today's Top News1. New York AG has tough road on management fee waivers
The idea that private equity firms could turn management fees -- things that should be taxed at the ordinary income rate-- into performance fees -- which are taxed at the capital gains rate -- was a surprise to a lot of people. The New York state Attorney General's office apparently was taken somewhat aback, enough so that it launched an investigation, subpoenaing information from all the top private equity firms. Thomson Reuters News & Insight, however, suggests that bringing a case will not be simple. "Action may be limited to whether private equity fund managers dodged paying the state's top tax rate, currently at 8.82 percent, which applies to both ordinary income and capital gains. (Eric) Schneiderman does not have jurisdiction over whether firms improperly took advantage of a difference in federal tax rates by paying a 15 percent capital gains rate rather than the 35 percent rate on ordinary income…But how much money exactly is at stake is still not clear. The attorney general has yet to gather enough information to make an assessment of potential liabilities." The article notes that the controversial practice is already falling out of favor. "In a survey of 30 North American private equity funds that completed fundraising between 2007 and 2012, only 20 percent said they made use of management fee waivers….. In the latest guidelines issued by the International Limited Partners Association, which represent private equity investors, the association advises them that fund managers should be putting their own cash, rather than money from converted management fees, into private equity funds as investments." The negative publicity will likely hasten the trend. For more: Read more about: Private Equity, management fees 2. Bank of America's strong stock run
Now that it's stock has rallied, Bank of America investors are smiling. The stock is approaching $10 a share again, up from just under $5 a share in December. The stock has retraced, making up all the ground it lost since late March, the last time it traded at these relatively lofty levels. Since early September, the stock has risen more than 19 percent. Certainly, the stock still is mired at prices well below tangible book value per share. The big question for many is whether the rally is sustainable. According to longtime Bank of America shareholders and gadfly Jonathan Finger, it's not yet time to pull the trigger, suggesting that there is some room for the stock to run. As reported by TheStreet.com, Finger says he will continue to hold shares until they hit the book-value break- even point. He has softened just a bit, however. He doesn't think replacing CEO Brian Moynihan is the right course at this point. Finger also "praised efforts by management to strengthen the company's balance sheet by building capital and selling noncore assets." He will admit there are plenty of question markets regarding the company. For some investors, this might be the exit point. The bank still faces a ton of question regarding its legal liability, over mortgage putbacks and the Libor scandal, for example, and it has scaled back to the point that it may no longer get an outsized pop from its consumer bank. Wells Fargo may be the default bank for those aiming for exposure to a big consumer bank. For more: Related articles:
Read more about: Bank of America, analysts 3. OCC takes aim at Bank of America, JPMorgan
Prosecutors seem to have concluded much of their investigatory work generated by the financial crisis of 2008. So what's next? The Libor scandal obviously represents a major new opportunity, and we fully expect some settlements with U.S. banks sooner rather than later. The bigger enforcement opportunity may be in the realm of AML, which has kicked up as an issue with a vengeance. In July, the Senate Permanent Subcommittee on Investigations took HSBC to task for its AML miscues which may have benefitted terrorists between 2001 and 2010. And Standard Chartered settled with New York regulators for $340 million. The New York Times reports that the OCC now has Bank of America and JPMorgan Chase in its cross hairs over AML issues. Citigroup has also been under investigation. "An example of how criminals can evade the system surfaced publicly in a federal drug case in a Texas court this summer. Mexican drug cartels hid proceeds from cocaine-trafficking in two accounts at Bank of America, according to law enforcement testimony in the case, and some of the money was used to buy racehorses. Bank of America was not accused of wrongdoing, and the comptroller's office has said privately it is unlikely to bring an action related to the case." But regulators are nonetheless "beginning one of the most aggressive crackdowns on money-laundering in decades, intended to send a signal to the nation's biggest banks that weak compliance is unacceptable." For more: Related articles:
Read more about: Investigations, Anti Money Laundering 4. Audit faults Fannie Mae over loan transfer pricing
When Fannie Mae hit upon the idea that it should pay Bank of America and others to transfer some of their most troublesome mortgages to specialty companies adept in loan modifications and payment collections, it struck a wrong chord with some. It seemed like yet another way to funnel taxpayer money to the big housing GSEs, which remain effectively wards of the federal government. A Congressionally ordered investigation into the episode has just been released and has found that Fannie Mae likely overpaid Bank of America by about 20 percent and recommends that the GSE tighten up when it prices these sorts of transfers. The program itself was found to be sound in concept but not execution. Specifically, the FHFA inspector general scrutinized the $512 million payment Fannie Mae agreed to make to Bank of America in August 2011 to transfer loans to the likes of Ocwen and Navtionstar, firms that specialize in tough payment collection cases and loan modifications. In the end, the GSEs will likely beef up their compliance and analytical processes around these sorts of issues, but there would not appear to be any real fallout. For more:
Read more about: Fannie Mae, mortgages 5. CFO move leads to more Goldman Sachs CEO talk
Is Harvey Schwartz in line to become the next CEO of Goldman Sachs? One cannot discount that scenario in light of the announcement from Goldman Sachs that CFO David Viniar will retire at the end of January 2013, after 32 years with the company. Schwartz, the head of the securities division, will become the next CFO. He had already been rumored to be a possible contender for the crown once current CEO Lloyd Blankfein retires, which doesn't appear to be imminent. So how good are Schwartz's chances? Like Blankfein, he came up through the commodities division. He would appear to be a trader at heart, which might endear him to the current guard, but standing in his way are some formidable executives. COO Gary Cohn has been in the news as a man who would very much like to ascend, and that is certainly possible. Investment-banking co-head David Solomon is also in the mix, as is J. Michael Evans, vice chairman, who is settling in Manhattan in style. His real estate deals have been in the news. It's hard to say what Blankfein and the board think of the field, but it seems that the eventual successor will emerge from the crop of current executives. At this point, Blankfein could perhaps safely retire, without a lot of talk about how he was pushed by events. Goldman Sachs has weathered some brutal storms with him in charge. If the stock price were just a bit better, there would be no reason for him not to conclude that he had left an amazing legacy. In any case, the horse race is on. For more: Read more about: Goldman Sachs, CFO Also NotedSPOTLIGHT ON... Bank stock rally may continue The KBW bank index has soared 30 percent this year, almost doubling the Standard & Poor's 500 index. Most of the gains have taken place since July. So are we set for the bull market to continue? Will Bank of America jump over $10? A lot is riding on QE3, and how the fallout settles on specific banks. Smaller banks may be better positioned than the massive national banks, but you could argue that several ways. Article Company News: And Finally … Fastest smartphone ever? Article
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Wednesday, September 19, 2012
| 09.19.12 | Bank of America's strong stock run
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