Today's Top Stories Also Noted: Spotlight On... Profitable banks trade below book value News From the Fierce Network:
Today's Top News1. Why aren't mortgage rates declining faster?
DealBook weighs in on the issue of QE3, and the extent to which the program's push to lower interest rates at the long end of the yield curve will be effective. "In September 2011, banks were making mortgages with an interest rate of 4.1 percent. They were then selling those mortgages into the market in bonds that were trading with an interest rate, or yield, of 3.36 percent, according to a Bloomberg index…That 0.74 percentage point 'spread' was close to the 0.77 percentage point average since the end of 2007. Banks were taking roughly the same cut on the sales as they were in previous years. But something strange has happened over the last 12 months. That spread has widened significantly, and is now more than 1.4 percentage points. The cause: bond yields have fallen a lot more than the mortgage rates that banks are charging borrowers." So why aren't banks passing the rate reduction on to mortgage customers? I noted the theory that massive backlogs at banks were helping to keep rates higher than expected. DealBook builds on this by suggesting that conflicts with the big GSEs are also exacerbating the situation. Because banks fear that they will be asked to buyback loans, they being extra scrupulous, taking their time, which adds to the backlog. A few big banks have been adding capacity, while others scale back, but the delays are still obvious as of now. The bottom line is that banks benefit from the spread, and they have every reason to perpetuate the current situation. You can bet this will attract more attention from lawmakers soon. For more: Related articles: Read more about: banks, Bank Mortgage 2. High-yield bond ETFs may overtake CDSs
In a sign of the times, Bloomberg reports, "The value of corporate securities held by the five-largest junk ETFs almost doubled in the past year to a record $31.4 billion, while the net amount of protection bought or sold on the debt using the two current credit-default swaps indexes declined 3 percent to $35 billion…The ETFs are growing at an average 5.2 percent monthly pace this year, which would put assets at more than $36.5 billion by Dec. 31." The fixed-income ETFs could always tank or slow down, but plenty of people are rushing in given the Fed's move to QE3. In some ways, it's hard to believe that ETFs now surpass index CDSs. The long arm of Dodd-Frank factors into any discussion of this. Investors will not be denied their ways to speculate and/or hedge the high yield market. Junk-bond ETFs have attracted 25 percent of high- yield fund inflows since 2010, according to EPFR Global. "Even investors seeking to hedge against losses on the securities have started using ETFs, with the number of shares borrowed to bet against one run by State Street Corp. surging almost three-fold from the end of 2011." ETFs as speculative vehicles raise their own specific issues. The issues in commodity-backed ETFs are much different than S&P 500 index ETFs. It remains to be seen if there are systemic issues that flow from high-yield bond ETFs. For more: Read more about: ETFs, Credit Default Swaps 3. A closer look at probe into JPMorgan's AML activity
I noted recently that the OCC had JPMorgan in its cross-hairs for possible AML violations. Reuters takes a look at the probe, observing that "the probe appears to be focused on the systems and personnel that JPMorgan uses to safeguard against illicit money flows, sources said, declining to be identified because they were not authorized to speak to the media. One specific angle of the probe is how the bank's systems were set up to review a high volume of suspect transactions." This is a generic explanation, but the point is that the probe seems to be heating up and that compliance lapses are suspected. What's more, "a lead OCC examiner in charge of overseeing JPMorgan has a reputation for a hard-nosed approach to uncovering money laundering at major banks." The step up in federal investigations--Bank of America and others are also being probed--may have been sparked in part by New York state regulator Benjamin Lawsky, who shocked the industry by strong-arming a settlement with Standard Chartered for $340 million. The feds certainly don't want to be left out in the cold, and with New York state eyeing other banks, the OCC and their federal peers may have felt compelled to get in the game. In the end, we'll likely see a settlement between JPMorgan and the OCC; the size of the settlement remains an unknown. For more: Related articles:
Read more about: Anti Money Laundering, Enforcement Action 4. Conditions ripe for CEO transition at Goldman Sachs
Is now a good time for Goldman Sachs CEO Lloyd Blankfein to move the chains on a leadership transition? It's a fun guessing game, and I've said all along that he really couldn't leave until he was assured that he could do so without the perception that he was prodded by events. If he had left at the height or even tail-end of the legal woes that beset the company, he would have indeed created such a perception. His legacy would've carried some glaring asterisks. But that's not the case right now. I raise the issue again in light of a recent article by the Deal Professor, who makes the case that Goldman Sachs is back to its old dominance. It ranks No. 1 in global and domestic advisory work, and its sales and trading units are once again on top by far. "Goldman's institutional client services segment had $9.6 billion in net revenue in the first half of this year — down about 5 percent from the previous year. But compare this with Morgan Stanley, where sales and trading revenue was $4.4 billion, down more than 32 percent. The numbers show that despite contentions that Goldman had traded against its clients by shorting the housing markets, clients have not fled. And some of Goldman's competitors have changed or made missteps in ways that will help the bank in the future." With Goldman Sachs back in shape and with the stock in rally mode, now might be a good time to start the transition process, allowing Blankfein perhaps to take on the chairman role for a few years before bowing out entirely. If he wanted to stay, however, he could always argue that with a new CFO coming on board, it would be better for him to stay a few more years. For more: Related articles: Read more about: Goldman Sachs, CEO succession 5. Bank of America web site woes continue
Bank of America offers a compelling banking web site that has proven to be a hit with customers, one that is closely watched in the industry. Unfortunately, glitches and slowdowns have been an issue for the better part of a year, and once again, the site has been hit with a slowdown, causing intermittent outages for users. The roots of the slowdown are murky. As of now, it cannot be said that any sort of hacker group is responsible, though some have taken to the Internet to claim "responsibility." At least one group has vowed attacks on U.S. banks and the New York Stock Exchange in protest of the amateur film that has roiled events in the mid-east. Asked if the bank was the target of DOS attack, the bank said that "we continuously take proactive measures to secure our systems." It is definitely possible that hacker groups might be targeting financial institutions, but we would need more data to draw that conclusions firmly. Hopefully, this is not an attack. CNN quoted a specialists at Keynote who said that, "It's possible that something Bank of America has done on its end, some kind of change, caused the problem." A year ago, the bank was hit with similar outages, which it explained as the result of heavy traffic and technical issues associated with the bank's move to a new online banking platform. If it's a buggy-code issue, the implications are still huge. In light of other recent code snafus--such as the Knight Capital glitch that costs it $440 million in less than an hour and the nasdaq's Facebook IPO disaster--this one might appear to be minor. But such snafus do not reflect a top notch organization, and it suggests some QA issues at work. New code may have pushed into production without enough testing. That's the same issue that caused some much pain at Knight. For more:
Read more about: Bank of America, online banking Also NotedSPOTLIGHT ON... Profitable banks trade below book value Here's an interesting list from an Oppenheimer: The 10 most profitable banks that trade below book value per share. The idea here is that there are bargains to be found, as the economy and industry fundamentals improve. At the top of the list: KeyCorp, "one of the best-positioned banks in the wake of the Federal Reserve chairman Ben Bernanke's latest move to stimulate the economy, by increasing the central bank's purchasing of long-term bonds, in an effort to push long-term rates below their already historically low levels." Article Company News:
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Thursday, September 20, 2012
| 09.20.12 | Conditions ripe for CEO transition at Goldman Sachs
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