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Today's Top News1. Mortgage boom may help banks in Q3
I've been suggesting as of late that mortgage operations will likely continue to provide a nice pop for some banks, providing an interesting point of differentiation from banks without such consumer operations. A virtuous cycle of sorts seems to be in the making. Interest rates are being forced lower, HAMP activity is starting to kick up, and some banks anyway are bent on carving out more market share. All this bodes well for banks that have maintained their commitment to the residential market. TheStreet.com notes the views of Morgan Stanley analyst Betsy Graseck, who estimates mortgage revenues will rise 34 percent in the third quarter year over year (though they will decline sequentially). She tells clients that SunTrust, Wells Fargo and US Bancorp are among the banks best positioned to capitalize. Rochdale Securities analyst Richard Bove adds Bank of America and JPMorgan Chase to the list. I have also discussed some of the caveats to the rosy view of mortgages. Banks are not necessarily well positioned to capitalize on a big surge in mortgage activity. Some of them remained hampered by their need to work through foreclosures and infrastructure is a real concern. The other big worry stems from the big GSEs. The relationship between big lenders and Fannie Mae and Freddie Mac is exactly warm and cuddly right now. The GSEs are no doubt demanding more in terms of documentation and assurances that some activity may be stifled or at least delayed. The need for more paperwork will eventually filter down to potential mortgage consumers, but t for now, it does seem like the market is percolating. For more: Related articles:
Read more about: mortgages
2. New CFO expected at JPMorgan
The London Whale "hedging" fiasco has led to several rounds of executive shuffling at JPMorgan Chase, and more is on the way. Douglas Braunstein, who was tapped for the CFO job in June 2010, is expected to step down within a few months, according to media reports. "The finance chief had reported to Chief Executive Officer Jamie Dimon until July, when Matt Zames, 41, became his boss and co-chief operating officer amid management changes in the wake of a $5.8 billion trading loss," notes Bloomberg, which also reports that Braunstein "may seek a role in the firm's investment bank, where he previously led dealmaking." As CFO, Braunstein was drawn into the London Whale debacle, as he initially tried to reassure shareholders that the losses manageable and that the bank was comfortable with the positions. Braunstein's move seems somewhat anti-climactic in the wake of the departure of Ina Drew as head of the CIO officer. Other second-tier changes includes Irene Tse, the CIO for North America under Drew, who intends to leave to start a hedge fund. Former Chief Risk Officer Barry Zubrow, who runs head up lobbying, has said he will retire at year end. In general, the executive pinwheel has been spinning fast for the last several years at the bank. DealBook notes that "during Mr. Dimon's nearly six-year reign, the bank has undergone a number of management shuffles. Few of the executives who made up Mr. Dimon's inner circle during the financial crisis – including Bill Winters, Steve Black and Heidi Miller – remain." The board would not doubt like to get to a steady state in which the top executives remain in place for a long stretch. For more:
Read more about: CFO, JPMorgan Chase 3. Prosecutors seek criminal charges in London Whale fiasco
On the eve of JPMorgan's third quarter earnings report, DealBook offers an interesting story that suggests investigators have made great progress in their efforts to bring criminal charges against various employees of the bank. The probe centers on four employees: "Javier Martin-Artajo, a manager who oversaw the trading strategy from the bank's London offices; Bruno Iksil, the trader known as the London Whale for placing the outsize bet; Achilles Macris, the executive in charge of the international chief investment office; and a low-level trader, Julien Grout, who worked for Mr. Iksil and was responsible for marking the trading book." Ina Drew, former head of the office, does not appear to be in the line of inquiry, which is good news for CEO Jamie Dimon. The interests of the four employees and the bank have obviously diverged. Indeed, the interests of the four have also diverged from one another It's unclear if formal indictments will materialize, though the article leaks note that the FBI could make some arrests within a few months. "Complicating matters, some of the JPMorgan employees are from France, which does not extradite its citizens," the article notes. Iksil has apparently is now in France. Grout, also a French citizen, remains in London. Macris will be interviewed in Greece soon. As they scour emails, IMs, voice messages--all of which were turned over by the company--prosecutors are looking for clear evidence, which will not be easy to find. The context of specific discussions will be important. It will perhaps be even more beneficial to find someone willing to turn on the others. In any case, there's a reason why the news was leaked. Prosecutors seem to like their chances as of now. For more: Related articles:
Read more about: prosecutors, Enforcement Action 4. Asset-backed securities prove big winners for funds
So far, it's been a middling, albeit eventful year for hedge funds. One glaring bright spot has been funds that invest in what some might be tempted to still call toxic assets. Asset-backed securities of all kinds, especially residential mortgage-backed varieties, have been on fire as of late, giving rise to some hedge fund winners. The Financial Times reports that Tilden Park, a $1 billion hedge fund run by Goldman Sachs' former mortgage-backed securities employees, was up 30 per cent as of the 12-months up to end of September. Pine River, also run by a Goldman alumnus, was up over 24 percent. In addition, Obsidian, one of the flagship fixed income hedge funds run by, was up 25 percent as of the end of August. The reality of the fixed-income market right now is that yield is increasingly hard to come by. The Fed's move to QE3 in many ways was the perfect entry point, as it highlighted the scarcity of decent yields anywhere expect in riskier asset-backed securities. One could also argue that the housing market is on the mend, which makes RMBSs even more attractive. Many securities trade at steep discounts to face value, making them all the more enticing if a bull market is to get underway. Supply is short as of now, and that may provide an added boost. For more: Related articles: Read more about: Hedge Funds 5. New picture of Facebook disclosure efforts before IPO
Bloomberg offers a fascinating look at the ramp-up to the Facebook IPO, as company officials dueled with SEC officials over disclosure issues. The article describes a "two-and-a-half-month volley of messages among SEC officials, (CFO David) Ebersman and Facebook's law firm Fenwick & West LLP. A dozen letters, published a month after the May 17 IPO on the SEC's website, depict a management team hesitant to disclose information and still guessing at even rudimentary aspects of its business just weeks before the company held the largest-ever technology initial public offering. Many of the issues raised by the SEC and now unnerving investors were foreshadowed in the then-private correspondence between the SEC and Facebook." The big issue, as you might guess, was the potential earnings from mobile services. "The letters show executives holding back crucial details until the SEC pushed for further disclosure. Noting that Facebook was counting some mobile users twice, (an SEC official) wrote on March 22: 'Please explain to us how you determined that your metrics are not overstated.' Only eight days before the IPO, on May 9, did Facebook make clear in a filing that that daily mobile customers were increasing faster than advertising growth, potentially hurting revenue and profits. It was the strongest public signal that the IPO could fall short of its high expectations." Kudos to the SEC for demanding changes. In the wake of the fiasco, some have concluded that the correspondence should have been made public before the IPO. That's not likely to ever happen, but the issue of how changes in registration material are made public is on the table. For more: Related articles: Read more about: SEC, Facebook IPO Also Noted
SPOTLIGHT ON... Large funds fare better in tough times PerTrac has come out with a new study that looks at hedge funds returns data since 1996 and concludes that in down years, large hedge funds tends to suffer smaller losses than smaller funds. More specifically, the analysis shows that large funds outperformed small funds in 2008 and 2011. And during the 41 months since 1996 in which hedge funds of all sizes posted negative performance results, the average large fund lost less than the average small fund in 61 pecent of these monthly periods. Article Company News:
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Friday, October 12, 2012
| 10.12.12 | New CFO expected at JPMorgan
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