Today's Top Stories Editor's Corner: Are banks ready for Project Blitzkrieg? Also Noted: OpenText News From the Fierce Network:
Today's Top News1. Big hedge fund shut down may spread
Octavian Advisors, a hedge fund that focused on distressed investments, has decided to shutter its operations following some big losses. "While we have significantly outperformed the international equity markets we focus on over a multi-year period, we have not generated attractive absolute returns in an exceptionally difficult environment. The last eighteen months have been particularly difficult," the firm wrote to clients, as reported by Reuters, which also reported that the fund was down 11 percent through August. Is an 11 percent loss enough to cause most $1 billion hedge funds to shut down, and return funds to limited partners? Lots of funds have suffered worse. Just look at John Paulson, his flagship funds have been hit with even bigger losses. While the two funds have fared well recently, they are still down for the year, and after a disastrous 2011, it will be a long time before they get back to their high water marks. So is Octavian pulling the trigger a bit early? Shouldn't they be willing to stick it out? It's hard to know what went into the decision-making process. One could argue that the managers looked into the future and just couldn't see a path to outsized gains, though once-toxic assets seem to be faring better now. Management might have decided that trying to get back to even would take forever, so why not throw in the towel and avoid the chance of bigger losses for investors later. It's also possible that the funds' losses are bigger than publicly known, and perhaps extend for a longer time horizon. In any case, more funds have been shuttering this year, compared with last year. Each no doubt has a different story to tell. For more: Read more about: Hedge Funds, Hedge Fund Redemptions
2. Jamie Dimon is back as industry leader
It's become vogue recently to suggest that JPMorgan Chase CEO Jamie Dimon has taken some big hits to credibility as of late, thanks the London Whale fiasco that has proven so costly to the bank. I've suggested that Goldman Sachs CEO Lloyd Blankfein seemed like a prime candidate to take over (again) as the industry's leading spokesman and public face, but a recent appearance in Washington, DC, makes clear that the old Jamie Dimon never really went anywhere. He is the same feisty, outspoken executive he always was, judging by his words at an event staged by the Council on Foreign Relations. As quoted by the Washington Post, "When people make mistakes, they're attacked by 17 different agencies as opposed to the old days it would be just the one that's responsible" for oversight of the company. We need good policy: clarity, simplicity." On the current climate: Taxes and fiscal cliff uncertainty amounts to a "wet blanket" on the economy. "We have this constant anti-business, not just sentiment, but regulatory, attorney generals...We're shooting ourselves in the foot," he said. "Get rid of that wet blanket and this thing will take off," he said. And on the London Whale episode he noted that, "We made a stupid error. Businesses make mistakes, they learn from it and get better. Only when I come to Washington do people act like making a mistake should never happen. Only with academics and politicians is it not allowed." For more: Related articles: Read more about: Jamie Dimon, CEO 3. Bank of America loses market share in MA
One lingering issue in the wake of Bank of America's debit card fee fiasco last year was the extent to which it and other large consumer banks were susceptible to the movement to prod rank-and-file customers to switch to smaller institutions. The movement seemed to have built some momentum, but the question all along was how long that momentum would last. For a microcosmic glimpse of how all this is playing out, we turn to the Boston Business Journal, which reports that Bank of America "lost market share in Massachusetts despite a near $2 billion increase in total deposits over the past year, as customers gravitated toward smaller competitors throughout the commonwealth, according to new data published by the Federal Deposit Insurance Corp. In fact, most of the biggest banks in the state reported market-share decreases in the year ended June 30, while many smaller local banks made significant gains, including some that notched deposit increases of more than $100 million." For the 12 months ending on June 30, Bank of America's share of the market was 20.2 percent, down from 22.8 percent a year earlier. During the year, the bank closed 13 of its 277 offices in the state. There are many reasons for this, and it would be hard to isolate just one. This isn't necessarily a disaster for Bank of America, which struggles to make money on small accounts. For more: Read more about: Bank of America, market share 4. Wells Fargo misses revenue estimates
Wells Fargo, the largest residential mortgage lender, reported earnings per share for the third quarter of 88 cents, slightly above what analysts were predicting. However, the top line numbers gave some people pause. Revenue rose to $21.2 billion, which was slightly below the Thomson Reuters consensus estimate of $21.47 billion. The revenue miss sent the stock downward initially. As expected, the mortgage picture was bright, year over year. Mortgage banking revenue came in at 2.8 billion, up more than 50 percent from a year ago but down slightly from the second quarter. The bank made $139 billion in mortgages versus $89 billion a year ago but up only slightly from $131 billion the second quarter. One area of concern remains the bank's NIMs. The bank's net interest margin, the spread between what it pays on deposits and makes on loans, was 3.66 percent in the third quarter, down from 3.91 percent in the second quarter. Net interest income was $10.7 billion in third quarter, down from $11.0 billion in second quarter 2012. The decline in net interest income was largely driven by lower income from variable sources, such as fee income and purchased credit-impaired (PCI) loan resolutions which were elevated in the second quarter. In addition, the bank replaced a large portion of run-off holdings with lower yielding, but shorter duration securities. On a linked-quarter basis, NIM declined 25 basis points to 3.66 percent. For more:
Read more about: Wells Fargo, bank earnings 5. JPMorgan posts a Q3 surprise
JPMorgan beat the estimates for third quarter earnings, reporting earnings per share of $1.40, compared with the average $1.21 expected by analysts. Just as importantly, the bank was able to show strong top-line growth. Revenue rose to $25.1 billion, beating expectations of $24.4 billion. Revenues for the third quarter were up 6 percent year over year and a whopping 13 percent sequentially. Noninterest revenue was $14.7 billion, up 18 percent year over year, due to higher mortgage fees and related income, higher principal transactions and higher investment banking fees. A strong mortgage-related revenue hike was expected, and indeed hoped for; the bank did not disappoint. Mortgage production-related revenue, excluding repurchase losses, was a record $1.8 billion, up 36 percent from the prior year. The investment banking results were a welcome mild surprise. Net income from investment banking was down from a year ago, but if you were to exclude the effects of a DVA, net income was $1.7 billion, up $1.2 billion from the prior year, and net revenue was $6.5 billion, up $2.0 billion from the prior year. As for revenue, excluding the DVA, fixed income and equity combined revenue was $4.8 billion, up 24 percent year over year, driven by fixed income businesses. All in all, this is a fine start to the third quarter reporting season, boding well for consumer banks (due to the mortgage market) and investment banks active in fixed income. For more: Read more about: bank earnings, JP Morgan Also Noted
SPOTLIGHT ON... New "presence exams" for hedge funds FINAlternatives reports that the SEC has devised new type of exam for hedge funds, many of which now fall under its regulatory umbrella thanks to Dodd-Frank. Under new "presence exams," the SEC is planning to hold "meetings and seminars with chief compliance officers. The tests will have three phases, engagement, examination and reporting. They are expected to deal with conflicts of interest, marketing, portfolio management, the safety of client assets and valuation." Article Company News:
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Monday, October 15, 2012
| 10.15.12 | Big hedge fund shut down may spread
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