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Today's Top News1. David Einhorn moving stocks as usual
David Einhorn was being David Einhorn again this week, moving stocks as few hedge managers can do right now. At the Value Investing Congress in New York, he offered four ideas and about 120 PowerPoint slides, causing quite a market stir, but his most notable words came early on in his talk, when he discussed the extent to which people should invest based on his words. According to Barron's, he told the audience, "Apparently now I'm a verb," as he showed a slide with a story using the term "Einhorned." He continued on about how analysts who just follow his words or speculate about his intentions are "about as useful as replacement referees that decide 'touchdown Seahawks.' " But if he was trying to talk the market out of basing decisions on his picks, he was not very successful. One of his most talked about "picks" was Chipotle. "We think Chipotle is a short," he was quoted. "The stock has a nosebleed valuation that does not leave room for deceleration. History says that sooner or later that even the restaurants that generate the most enthusiasm event come back to earth." In addition, "commodity prices are rising, as grains have risen and meat prices are likely to rise." Obamacare is a "big expense headwind coming," as the company has non-unionized workers and will have to insure them. Einhorn then sang, "Come to Taco Taco Taco Taco Taco Taco Taco Bell." That was enough to tank the Chipotle stock. As for other picks, he's bullish on GM and Cigna and bearish on Green Mountain Coffee Roasters. For more: Related articles: Read more about: Hedge Funds, short sellers
2. Banks on track to meet mortgage compliance deadline
Banks faced a critical deadline earlier this week to implement a slew of new regulatory mandates, and the top banks say compliance will not be a problem. The new regulations flow from the historic mortgage settlement that top mortgage originators and services inked with state attorneys general and federal agencies in February. "Collectively, the new standards are intended to eradicate the sloppy industry practices that proliferated in the wake of the housing bust, leading to frustration for homeowners and untold numbers of foreclosures that might otherwise have been avoided. The obvious question: Will banks live up to their end of the bargain?" notes the Washington Post. The signatories have all been working toward compliance for months, and so far have received a thumbs-up for their efforts from Joe Smith, the former North Carolina banking commissioner who was hired to ensure compliance. "I have assurances from them that they will be compliant and ready to go. I have no reason to believe they aren't ready," Smith told the Post. Smith also said that "it will take time to know whether the banks actually have changed their ways given the sheer number of requirements and the massive size of the firms involved." You can bet consumer watchdogs will be on the lookout as well. All in all, these new regulations are coming about at a time when mortgage business is starting to percolate. There are signs already that some banks are having trouble handling the rise in business. I can only hope they don't shoot themselves in the feet on this. For more: Read more about: banks, mortgages 3. Wells Fargo a new corporate debt underwriting power
I've noted that Wells Fargo has emerged from the financial crisis and mortgage meltdown as one of the strongest, truly national consumer banks. It has leveraged the woes of other big players to emerge as the market-share leader in residential mortgages, with about one-third of the market. It has a goal of controlling 40 percent of the market, but the San Francisco bank has been able to leverage its relative strength in other areas as well. Consider investment-grade corporate bonds. Wells Fargo "has underwritten 5 percent of this year's sales, excluding self-led deals, up from 3.6 percent in 2009," according Bloomberg. "The bank has aided borrowers from Clorox to Newfield Exploration in sales of $48.3 billion, ranking it as the eighth most active underwriter of the debt. That's up from 11th in 2010." Eighth place does not qualify it as bulge bracket sort of investment bank. They are not causing the top two banks in the market--JPMorgan Chase and Bank of America--to quake right now, but it would appear to have more upside. The bottom line is that the bank's balance sheet is sound as is its capital position. All that matters when it comes to investment-grade underwriting. It's not a coincidence that the top underwriters in this niche are all banks with massive consumer operations. For more: Related articles:
Read more about: bonds, Wells Fargo 4. JPMorgan London Whale trades and depositor money
William Cohan--former investment banker, author of "Money and Power: How Goldman Sachs Came to Rule the World" and other books, and frequent critic of banks--has a theory about the money that was actually lost in JPMorgan's London Whale losses of $5.8 billion over two quarters. "The CIO's job, we have been told, is to invest the difference between the $1.1 trillion in deposits the bank has on hand from its customers and the $750 billion the bank has lent out to corporate borrowers…To my mind, the money that Iksil lost was depositors' money. Iksil worked for the CIO, where depositors' money is invested until it is lent out. The trade lost almost $6 billion in cash, which we know is real because hedge funds such as Saba Capital, run by wunderkind Boaz Weinstein, and Blue Mountain Capital staked out the other side of Iksil's trade and made a fortune. How could there be any confusion that the money Iksil lost came from the bank's depositors?" The bank disagrees in vehement terms. "That's untrue," the bank told Cohan. "We lost shareholder money, not depositor money. Depositors have never lost a penny from our institution." To which, Cohan responds, "Although I concede in this instance no individual depositor lost his or her money, it's only because there was no run on the bank by depositors at the same time the London Whale was being harpooned. Had depositors suddenly lined up and wanted their $1.1 trillion back, not only would JPMorgan Chase be kaput, but those depositors with more than $250,000 in their accounts -- that is, above the limits of the Federal Deposit Insurance Corp. -- surely would have been left with losses." You could say that about big trading loss at any big bank. If a massive run on a banks occurs for any reason, there's no way any bank could cover every request. In such cases, it makes sense to start talking about depositor losses. But what about the Whale Trade. Did the bank play fast and loose with depositor money? For more: Related articles: Read more about: hedging, trading 5. New York AG charges Bear Stearns with civil fraud
The New York State AG has accused Bear Stearns, now owned by JPMorgan Chase, of civil fraud in connection with MBS deals struck between 2005 and 2007. The specifics of the charges seem all too familiar, echoing previous charges by the SEC against Goldman Sachs, Citigroup and others as well as private suits. The complaint says that sales staff at Bear Stearns and in particular its EMC Mortgage unit of mislead investors by not disclosing relevant information about the quality of loans in the securities and essentially ignoring information that some of the loans were tainted, even in the face of third-party information that it commissioned. Moreover, when the unit did identify dubious loans, instead of demanding a formal putback, it instead demanded a cash payment that it kept for itself; it was supposed to forward the putback proceeds to investors. What's interesting is that the charges do not relate to specific deal--such as the specific Goldman Sachs ABACUS deal--but rather to the entire class of deals. The civil suit is the first enforcement action against a top Wall Street bank to flow from the joint federal and state task force announced by President Barack Obama in January. Some will no doubt argue that the timing of the announcement was politically timed. JPMorgan Chase says it was disappointed that the AG "decided to pursue its civil action without ever offering us an opportunity to rebut the claims and without developing a full record - instead relying on recycled claims already made by private plaintiffs." The suit was brought under New York's Martin Act, which allows for fraud cases without demonstrating that the defendant intended to commit fraud. No individuals were targeted. For more:
Read more about: New York AG, Civil Enforcement Actions Also Noted
SPOTLIGHT ON... Equity traders face big slump It's been tough going for cash equities sales and trading for a while now. There has been some talk that volumes might surge in light of the fact that new regulations have left the market relatively unscathed, the third quarter will be collectively weak. Third-quarter equities-trading revenue likely fell 14 percent from the same period in 2011, the fifth straight drop of more than 8 percent, according to JPMorgan Chase analysts. Full-year revenue at the five largest U.S. investment banks may be the lowest since 2006, says UBS. Article Company News:
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Wednesday, October 3, 2012
| 10.03.12 | David Einhorn moving stocks as usual
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