Today's Top Stories Also Noted: OpenText
The 10 highest paid bank CEOs Here, FierceFinance has gathered 10 of the highest paid bank CEOs in the country for 2011, the most recent year for which compensation information has been provided to the U.S.SEC. Feature News From the Fierce Network:
Today's Top News1. High frequency traders in decline
If you are a regular reader of FierceFinanceIT, you are no doubt aware of the travails that have recently beset high-frequency traders. Volume has slowed precipitously, and volume is the lifeblood of the industry. But it hasn't just been any volume. Retail volume in particular sustained this group during the salad days. Now it seems the pull back at the retail level is exacting a measure of revenge. The New York Times takes a high-level look and offers this wonderful quote from an executive: "There was this mythology that you could get 90 computers, some Harvard Ph.D.'s and you would turn on your machines and make money. It's just not the case." More high-frequency firms are scaling back and in some cases, shutting down, as high-frequency trading accounts for less and less of total volume. The article notes data from Tabb Group showing that high-frequency traders account for 51 percent of volume now, down from 61 percent three years ago. What remains to be seen is whether this will have a huge effect on execution costs. The conventional wisdom is that high-frequency trading has added liquidity and lowered costs. Now that this type of trading has declined, will execution costs go up a bit, or was this argument always somewhat suspect? In any case, the rise and partial decline of high frequency trading opened a new chapter in the long book on market structure. The issues that this trading has highlighted remain, and must be grappled with. The ultimate legacy of these traders may be a whole new market structure. For more: Related articles:
Read more about: liquidity, High Frequency Trading
2. Ex-Goldman Sachs employees bring trial and a book
Are a pair of former mid-level executives at Goldman Sachs about to get a measure of revenge? Fabrice "Fab" Tourre was the only individual employee at Goldman Sachs who was charged as part of the much-ballyhooed SEC enforcement action aimed at the bank's infamous ABACUS CDO sales and marketing practices, which was eventually settled for $550 million. After lots of legal skirmishing, Tourre has finally been given a July 2013. While the issues now seem a bit dated, it will be interesting to see what Tourre's defense will be vis-à-vis other Goldman Sachs executives. We may see a few called to testify. Tourre's team may well argue that higher ups at the bank knew exactly what he was doing, and that prosecutors in a sense have the wrong man on trial. In a different vein, Greg Smith, who infamously resigned with a scathing op-ed piece in the New York Times, has penned a book called Why I left Goldman Sachs, which will be on sale starting October 22. The book will no doubt expand Smith's theme that that culture of Goldman Sachs has progressively worsened to the point that customers are now treated cavalierly and scant respect. The Financial Times reports that the bank is already in damage-control mode. It has made clear that it looked into the allegations and statements made by Smith and found them lacking in some cases. For example, "a description of his book says Mr. Smith warned nine Goldman partners that he had concerns about the company's culture. Those reviewing the allegations said they found no evidence that he had reported concerns to any senior manager apart from once, two days before his resignation, after he had already written his opinion article." The bank is also making clear that Smith sought a bigger bonus before he left and was roundly denied, so there may be some sour grapes involved. Smith never made MD. It will be interesting to see how the book is received when it comes out. For more:
Read more about: Goldman Sachs 3. The real cost of JPMorgan's London Whale debacle
Despite JPMorgan Chase's solid third-quarter earnings, some are still talking about the London Whale episode. The bank can take heart in the fact that most of the earnings discussion centered on the big upside surprise that took the market by storm. Fortune notes, however, that the trading loss stemming from the London Whale "hedging" fiasco has risen to $6.2 billion, as the bank added $450 million to the costs for the third quarter. More may be coming for the fourth quarter. While those third-quarter losses were more than offset, the magazine suggests that "in the long-haul the London Whale may have cost the bank more than it appears." The issue is that the CIO unit, before the implosion, had become an important source of revenue. "In 2008 and 2009 alone, the CIO office had profits of $4.8 billion. That's a huge amount. It's five times as much as the bank's retail unit, which includes banking and investment advice, made in the same time. And it's only $2 billion short of what the much larger, and much better known, investment banking division of JPMorgan made in the same time. In the wake of the Whale, JPMorgan has significantly cut back what the CIO does. The bank is already projecting that the unit will lose $300 million in interest in the next quarter, meaning what it is paying for protection is more than what the bank will make back in interest. It's gone ultra safe…In bad times, though, it's not clear gains in the CIO's portfolio will be there to draw on." There's an opportunity cost to shutting the unit, and those costs might be felt when the company can least afford them. For more: Related articles: Read more about: hedging, JPMorgan Chase 4. Goldman Sachs seeks credit fund exemption
Goldman Sachs CEO Lloyd Blankfein has taken an elder statesman approach to regulation, and in a recent speech, he seemed to suggest that his bank has made its peace with Dodd-Frank. "You have to go out and you have to take steps. You have to have different regulation, maybe more regulation in certain respects," he was quoted. "I think it is absurd to talk about just the burdens of regulation without talking about what's driving people to want to regulate." He also said that, "We have to accept the fact that the pendulum may swing a bit far, because of how recent the trauma was." But when it comes to certain credit funds and the Volcker Rule, the bank would like some tweaks. Specifically, it would like these funds to be exempt from the Volcker Rule's limits on bank ownership of alternative investments. The bank is lobbying regulators hard on this, to impress upon them the fact that these funds tends not to take leveraged, speculative short-term risks but instead extent longer term credits to companies, such as those involved in an LBO. According to media reports, the company apparently also has a back-up plan, which would involve closing the funds but then re-opening them in a way that would be legal given the text of Dodd-Frank. Either way, the bank seems bent on maintaining the business. My sense is that regulators will allow the exemption, but with some restrictions on the type of activity the funds are allowed to engage in. For more:
Read more about: Goldman Sachs, Lobbyists 5. Citigroup beats third quarter expectations
All in all, it could've been worse for Citigroup. The market seemed to breathe a sigh of relief in the wake of its report, bidding the stock up nicely. Top line growth is always a good thing, especially these days. Within Citicorp, revenues excluding the net CVA/DVA were $18.4 billion, up 5 percent the third quarter 2011. The growth was driven by 15 percent growth in securities revenues to $5.6 billion; investment banking and fixed income sales and trading activity was strong. Citi revenue growth was also driven by 2 percent growth in consumer banking to $10.2 billion, reflecting strong mortgage activity. These gains were partially offset by a 2 percent decline in transaction services revenues, to $2.7 billion. Excluding the net CVA/DVA, net income grew 20 percent to $4.6 billion, largely reflecting continued positive operating leverage; operating expenses declined 2 percent, and total credit costs fell 14 percent. The bank's net interest margin, a measure of profit on loans that excludes credit losses, rose to 2.86 percent from 2.83 percent year-over-year and 2.81 percent sequentially. Excluding a $4.7 billion writedown before taxes related to the disposal of MSSB, the net CVA/DVA and other items, net income was $1.06 a share, compared with the .96 expected by analysts , according to Thomson Reuters I/B/E/S. This constitutes more good news for the industry, especially those with large consumer operations. For more: Related articles: Read more about: Citigroup, earnings Also Noted
SPOTLIGHT ON... JPMorgan Chase targets lower compensation ratio Reuters notes that JPMorgan Chase set aside $2.07 billion for compensation in the third quarter, or 32 percent of net revenue. That's down from 41 percent a year ago. "Typically JPMorgan aims to pay its bankers anywhere from 35 to 40 percent of revenue, but Chief Executive Jamie Dimon said on Friday that he is now targeting the low end of that range, around 35 percent. That's likely to be a bit lower that Goldman Sachs but perhaps in line or higher than other big consumer banks. In the end, the investment bankers and traders will likely be paid commensurate with top competitors. Article Company News:
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Tuesday, October 16, 2012
| 10.16.12 | The 10 highest paid bank CEOs
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