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Today's Top News1. Battle looms over credit card fees
In the wake of big battle over the Durbin Amendment last year, I noted on a few occasions that things could have been worse for the banking industry. The new caps on interchange fees applied only to debit cards, sparing credit cards. Estimates hold that debit card interchange revenue for banks fell from $22 billion per year to $15.4 billion, and banks have been smarting ever since, as they struggle to find ways to offset the losses. I've been wondering if banks would ultimately promote credit card usage a bit more aggressively, as the interchange fees on such transactions have yet to be affected. In any case, banks should be girding for an all-out assault in Washington on their credit card interchange revenue soon. The Hill reports that the retail industry is girding for another massive push, bent on lowering the boom on fees on credit card swipes. That puts up to $44 billion in banking industry revenue at risk. "Retailers say they have canvassed Capitol Hill and have found broad agreement that the credit card system is broken and in need of fixing." One lobbyist was quoted saying, "I was struck by the universal agreement, even across parties, from members' offices that something is wrong with the credit card system. They recognize it as a problem. And the real question is how to introduce transparency as a first step toward competition." That said, the battle will be harder fought this time around, and Congress will perhaps be more sensitive to the plight of banks, which have been hit hard in general. For more: Related articles:
Read more about: Debit Cards, Durbin Amendment
2. The real secret to Jamie Dimon's success
The London Whale "hedging" fiasco At JPMorgan Chase has prompted lots of media excavations aimed at getting to the root of the issue. The New York Times Magazine, for example, weighed in with a long, sympathetic, highly informative article from the perspective Ina Drew, who oversaw the CIO unit responsible for the $5.8 billion in losses (and counting). Vanity Fair uses the London Whale episode to offer a long look at JPMorgan Chase CEO Jamie Dimon, one of the most written-about executives in the industry. It offers an interesting insight into what makes him successful: "Unlike Lloyd Blankfein, at Goldman Sachs, who was a trader, or Vikram Pandit and Brady Dougan, at Citigroup and Credit Suisse, respectively, who were bankers, Dimon never had a revenue-producing-line position at a Wall Street firm. He has never given advice to a client on how to structure a takeover, nor has he ever had one of those come-to-Jesus moments as a trader when the market is acting like a riptide and dragging you out to sea. The article continued, noting that "'He never had to think of having that internal governor like those of us who worked their way up the totem pole in their 20s, 30s, and 40s did,' says a former senior JPMorgan Chase executive. 'He never had to tolerate or be subjected to a true 360-degree review.' And yet many people consider Dimon to be the best Wall Street leader around precisely because he has always been in management and has always had an intuitive feel for—and some say a genuine love of—the "plumbing" of the business, from how checks get processed to how to connect disparate computer systems." Never having had P&L responsibility on the way to the corner office is definitely surprising. You have to wonder if it could ever happen again. For more: Related articles: Read more about: Jamie Dimon, JPMorgan Chase 3. Another perspective on Goldman Sachs stock
Barron's made a bullish case for Goldman Sachs recently, noting that it had emerged as the most focused, best capitalized and best risk-managed firm on the street. The idea that the bank is back to being the best in its class seems to be in vogue, but a MarketWatch columnist is not necessarily buying it. "It's not that Goldman is a poorly run brokerage. It's just that without the leverage used from 1999 to 2009, it's an ordinary one. That's an issue glossed over by the new Goldman bulls. Goldman's leverage ratio has fallen to 13 from 26 at the end of 2007. The difference is substantial because Goldman essentially can only make half of the bets it made five years ago in a market with fewer sure winners. Again, the box Goldman finds itself in isn't anything special. With its current price at 0.83 times book and a forward price-to-earnings ratio of 9.45 — Goldman trades at roughly the same level as J.P. Morgan — below BlackRock and better than Morgan Stanley." While the stock may be a valuation play, you do have to worry about the future. Costs cutting at some point will not be enough, and Goldman Sachs faces the same conundrum most other banks face: What is the growth driver of the future? Where will the big organically driven revenue gains come from? If you do not have a story to tell, it's hard for the world to see you as a huge growth opportunity. Goldman Sachs' macro story as of now is best told in simple terms. Quarterly revenue has fallen from a peak of $23.8 billion in the third quarter of 2007, to a trough of $5.6 billion in the third quarter of 2011, to $8.6 billion in the most recent quarter. Some would be tempted to argue that's in a very mature market, in which the tide is not rising. That's not conducive to a great growth story. For more: Related articles:
Read more about: Goldman Sachs, Bank Stocks 4. The SEC's new, holistic approach
When you get right down to it, the top investment banks pretty much run in a herd. People like to draw distinctions among the mega-banks, and there are many, but in hot markets, they're all pretty much doing the same stuff. The financial crisis clearly proved that point. Banks were pretty much all dominoes waiting to fall. Certainly, when it came to the CDO bubble, they were all on the same bandwagon. For the SEC, that held an important lesson, one that is just now coming home to roost. The agency has decided that when it uncovers enforcement issues at one brokerage firm, it will take a look at the same issue at the brokerage firm's peers, according to Thomson Reuters News & Insight. The theory is basically that, across the industry, where there is smoke there is fire across. Previously, the agency required information specific to firms before they would act. "The broad investigations approach was adopted by the SEC's structured products staff after the unit, part of the agency's enforcement division, was launched in 2010. But as improper practices involving complex products sales to investors becomes a growing concern, more brokerage firms and others involved in packaging and selling of such investments could find themselves under scrutiny." So it would appear that the top banks are all in it together. You certainly can't fault the regulators. For more: Read more about: SEC, Enforcement Action 5. HAMP leads to uptick in underwater refinancing activity
The conventional wisdom right now is that while the Fed's efforts to hold interest rates low at the long end are laudable, the actual effect on the housing market may be muted. Lots of reasons have been offered. Some think that many banks simply do not have the operational bandwidth to meaningfully close on more mortgage loans right now, as they continue to grapple with foreclosure and regulatory issues. Others might argue that the tension between the mortgage lenders and the two big housing GSEs have reduced the effectiveness of low rates. The idea is that Fannie Mae and Freddie Mac are demanding more documentation and such in ways that hamper banks efforts to lend. Still others might place that blame on banks, arguing that they have imposed massive hurdles in terms of qualifying for loans such that QE3 has been frustrated. All that said, we're seeing more progress in terms of refinancing underwater loans via HAMP. The initial effort has been disappointing, but programmatic changes took effect in March 2012, and "these changes have made a big difference. The data shows a real effect for underwater homeowners and high levels of refinances driven by very low mortgage rates…Data from the Mortgage Bankers' Association released Wednesday showed requests for refinances hit a three year high in the week ending September 28," according to The Daily Beast. "This new data largely accords with data released by the FHFA showing a spike in refinancing activity among underwater borrowers—even among deeply underwater borrowers—since the changes in the HARP program went into effect." It remains to be seen if this holds up. I can only hope that the entire market reaps the benefits of even lower rates soon. For more: Related articles: Read more about: mortgages, Refinancing Also Noted
SPOTLIGHT ON... A look at Fidelity's new president Was there really ever any doubt that Abigail Johnson would run Fidelity some day? I am not referring to the fact that she just happens to be the daughter of Ed Johnson. I am referring to the fact that she has managerial experience in just about every major aspect at the company, and over the years she uniquely qualified herself to run the show. In August, she was tapped by the board to run the entire company. A great move. Article Company News:
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Monday, October 8, 2012
| 10.08.12 | The real secret to Jamie Dimon's success
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