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Today's Top News1. Watershed charges against Bear Stearns
In one view, the charges that joint federal state task lobbied against Bear Stearns, now owned by JPMorgan Chase, are warmed over allegations developed by private litigants. The long lag time between the actual events and the charges, which were formally brought by New York AG Eric Schneiderman, has contributed to the idea that the move was essentially political and therefore less consequential. The AG "owes his biggest debt of gratitude to the monolines Ambac, Syncora and Assured Guaranty and their counsel at Patterson Belknap Webb & Tyler. Patterson has been relentless in its pursuit of Bear Stearns and, by extension, JPMorgan. Just look at the amended complaint Ambac filed in New York State Supreme Court in February 2011 against JPMorgan and the Bear mortgage arm, EMC. It's 160 pages of brutal accusation, documenting the same theories put forth by the New York AG -- but in much more detail," notes Thomson Reuters News & Insight. While the AG has indeed filed warmed-over charges, they are still significant. Why? "Because Schneiderman is the first regulator to acknowledge in a legal complaint that the mortgage securitization process was rotten to its core. He is the first government official to stand up and demand legal accountability on behalf of the market and all of its participants, not just for investors in individual MBS deals like Goldman's Abacus CDO or the Magnetar and Citigroup CDOs." I continue to believe that some sort of global settlement might be forthcoming, and other firms will no doubt charged as well. For more: Read more about: Bear Stearns, class action suit
2. A bright side to the private equity debate
For private equity firms, is there a silver lining in the unprecedented attention being given to the industry as a result of the presidential election? Leave it to Stephen Schwarzman to articulate it. In his mind, the attention was actually good for the industry. "There's a point of view that these businesses have performed very well for institutions," Schwarzman said on Bloomberg Television. "Ironically, it gave the public and other people a chance to think through these arguments," he said, adding that, "We have not seen any of the blow back that you might expect." He's got a point. For all the controversy and public angst over private equity firms, limited partners are willing to take the heat. As of now, we're not sensing a lot of new reticence on the part of big institutions when it comes to investing in these funds. There are certainly are issues. Performance remains the key problem, and some LPs are none too pleased with the trend toward PE firms going public. But I've said all along that pensions have little choice but to stick with alternatives. This rosy scenario basically assumes that there won't be a lot of political blowback once the election is over. If the much-discussed move to end the favorable treatment of carried interest every turns real--and that's a distinct possibility--it'll be a much different story. For more: Related articles: Read more about: Private Equity 3. Hedge funds AUM remain strong
Recall that in the wake of the financial crisis, which took a toll on hedge funds inflows, everyone was wondering when the industry would get back to $2 trillion in assets under management. It took a few years, but now the discussion has shifted to when the industry might eclipse $3 trillion. An update: Hedge funds saw inflows of $34.6 billion in August, a 1.4 percent increase that brought total AUM to $2.6 trillion, according to eVestment|HFN. Performance accounted for $13.1 billion of that increase; investor inflows accounted for $21.5 billion. The results brought year-to-date gains in AUM to $31.0 billion, as noted in FINAlternatives. Middling performance industry-wide to date has affected inflows. Hedge funds are up 3 percent, compared with about 15 percent for the Standard & Poor's 500. All told, you have to be somewhat impressed that flows have held up so well. The same goes for private equity, which breached the $3 trillion level as of the end of last year. The long-term narrative remains the same. As long as big public pensions remain under pressure in terms of future liabilities, they will continue to make allocations to alternatives. That said there will be more movement within alternatives, as lack of performance will be much less tolerable going forward. For more: Read more about: Assets Under Management
The somewhat lethargic market for mergers and acquisitions have led to a bit of a buyer's market. According to a UBS banking writing for the Financial Times, auctions staged by sellers are still common. But there would appear to be bidders in all rounds, and the power dynamic seems to have shifted, as buyers become increasingly aggressive in seeking information and dictating the terms of auctions. The FT notes that, "Sellers are still able to achieve value in a world where big buyers have more influence. Nevertheless, the timetable and due diligence process – both of which were carefully controlled by the seller in an auction environment, have become more determined by the buyer. This has meant deeper scrutiny and due diligence towards selling companies than I can remember in a long time. Sellers have to rely less on projections of future returns and more on fitting in with the business model of buyers. The general insistence of buyers on longer due diligence processes has particularly assisted Asian bidders – who over recent years have become far more experienced and credible acquirers, but still find that auction dynamics can be at odds with their longer, multilayered decision-making processes." As more bidders emerge over the next few years, it will be interesting to see how the process shifts. For more: Related articles: Read more about: mergers, deals 5. Stock bonuses may pay off in future years
As the third-quarter earnings reporting season gets underway, compensation ratios will be in the spotlight. While ratios may stay roughly the same, few think that total compensation is going up at the top banks. In fact, some individuals wouldn't be surprised to see their total take go down. What's more, cash bonuses will continue to be scarce, and many have resigned themselves to a stock-heavy bonus. In addition, according to the New York Post, deferral periods will likely be extended at most of the top banks, following in the footsteps of Deutsche Bank. On average, deferral periods could be lengthened from three to as many as five years Is that too long? The conventional wisdom from the trenches is that the longer the deferral period, the worse for employees. People want their money now. The silver lining here is that stock prices remain depressed, and over the next five years, there may well be some big upside. Already, executives who were compensated in stock over the past few years have seen some strong paper gains, even though the stocks are mired below tangible book value per share. If employees can stick it out over the long haul, they just might be very richly rewarded. At some point, these stocks will surge. For more: Related articles: Read more about: banker pay, bonuses Also Noted
SPOTLIGHT ON... Gross' ETF beats mutual fund One of the big stories in the mutual fund industry has been the success of Pimco's Total Return bond ETF, which started trading on the NYSE Arca exchange on March 1. Since then, it has gained more than 10 percent, compared with about 6.5 percent for the mutual fund version. Many are closely watching the ETF and the underlying fund for clues as to how actively managed ETFs might fare. Article Company News:
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Wednesday, October 10, 2012
| 10.10.12 | Watershed charges against Bear Stearns
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