Today's Top Stories Editor's Corner: Financial district creaks back to life Also Noted: NexJ News From the Fierce Network:
Today's Top News1. ETF price war continues to rage
Asset management executives don't like to admit it--it's as though price competition is below them--but a price war is raging in the ETF industry. Most people would point the finger at Vanguard, which has made terrific progress in the market, prompting competitors to fight back. BlackRock and Charles Schwab are among those who have reduced management fees in recent weeks. "Vanguard insists it is not worried by its competitors but remains focused on cutting costs for its clients. As Vanguard is owned by the investors in its funds and has no external shareholders, it is able to pass on economies of scale by reducing charges as the assets of its funds grow." There has also been a shift as the retail market continues to gather steam. As of now, the management fee reductions seem to play to the buy-and-hold retail crowd, while the institutional crowd by necessity considers the total cost of ownership, factoring in spreads, liquidity, internal costs, index tracking error and so forth. In any case, the market continues to expand and it now manages about $1.65 trillion. That prompts the question of at what point the industry will manage as much as hedge funds, which remain well over $2 trillion. The parity point may not be far off, especially if the main indexes continue to fare well versus hedge funds. The movement says a lot about the current state of active management. For more:
Read more about: ETFs, exchange traded funds
2. Bank of America whistleblower to win big
Bank of America has proven to be quite a gift for internal whistleblowers. Under the False Claims Act, they have alleged criminal activity by the bank in court, and in some cases, the government has joined the suit, with the whistleblowers receiving a generous cut of settlements. A group of six whistleblowers, for example, collected $46.5 million when the nation's top mortgage originators and lenders settled charges with the states, agreeing to pay $5 billion in fines and roughly $20 billion more for mortgage modifications. The latest potential winner has proven to be a reclusive one, so far anyway. According to court records, Edward O'Donnell, of Pennsylvania resident and former executive vice president at Countrywide Home Loans who had worked at the mortgage company between 2003 and 2009 filed a suit under the False Claims Act in February. It was later joined by the United States. The suit seeks triple damages under the act as well as civil penalties. The grand total is $1 billion. The U.S. Attorney's allegations go much farther than O'Donnell's initial suit, "which suggests that the government has been busily investigating in the months since O'Donnell initiated the case," notes Thomson Reuters New & Insights. So far, he has stayed out of the media, but he is clearly in line for a massive payday if this case settles, which I fully expect. For more: Related articles: Read more about: Bank of America, Whistleblowers
Live by FICC, die by FICC. That seems to be where the investment banking industry has arrived. The biggest banks have fared well in large part because of fixed-income, commodity and currency sales and trading activity, which drove the bulk of the gains in the third quarter, collectively accounting for 55 percent of aggregate capital markets revenues. That allowed banks to offset still-weak investment banking revenue growth, which has been held back by slow equity underwriting and a relative lack of deal advisory fees. So what to make of banks that are not making the grade in FICC? Well, they have some big issues to ponder. UBS offers some insight into the dynamic. Breakingviews reports that, "The Swiss wealth manager and investment bank is poised to reveal a radical strategy that could see it pull out of fixed-income trading. Such a plan would be expensive and slow to execute – that's why rivals typically think such moves are impossible. But the decision could prove an industry game-changer. Sergio Ermotti's reported assault on fixed income goes way further than the strategic review he unveiled after being appointed chief executive in November 2011. It's easy to see why. Trading losses have ruined the bank's attempts to bolster risk management. (FICC) has barely contributed to the bottom line in recent years while consuming about half of the group's allocated equity." Winding down could prove costly. "Trading books have credit and derivative exposures that would pose risks – and hog capital – for years. Keeping key personnel like investment banking co-head Carsten Kengeter wouldn't be cheap – and there would be no new business revenue to help out. There would be opportunity cost too if markets recover. The cost-benefit analysis may be favourable only on a very long view." Other banks have also indicated that they would like to diversify a bit, notably Morgan Stanley. For more: Related articles:
Read more about: Ficc 4. FERC, Barclays head toward energy market showdown
It's widely known that the Federal Energy Regulatory Commission (FERC) wants to tame the once wild energy markets, in which the likes of Enron used to run roughshod. The federal agency won enhanced authority to tackle manipulation in the markets back in 2005 after the California power trading scandal and Enron implosion. It has set its sights on some big names since then, not least of which is Barclays, the beleaguered British bank that now stands accused of manipulation in the California power market. The agency has proposed a $470 million fine, which is just a bit more than Barclays paid to settle Libor manipulation charges. "The bank has 30 days to show why it should not be penalized for an alleged scheme of manipulating physical electricity prices at a loss in order to make profits in related positions in the swaps market, a strategy known as a 'loss-leader,' " reports Reuters. "Barclays said it would fight the agency, likely setting up a landmark legal battle that could set a precedent over whether the once-common trading ploy in commodity markets is illegal or simply ill-advised." FERC has a lot riding on this case, as it apparently would like to bring similar charges against other banks and energy companies. Barclays has tried to put all this behind it. Over the past five years, "for reasons unrelated to the investigation, according to a source familiar with the matter. The bank closed its Portland office in 2011 and effectively quit the Western power market this year." To the chagrin of shareholders, these charges will not go away. For more: Related articles:
Read more about: electricity, Enforcement Action 5. Wells Fargo says it's not liable for new charges
When the U.S. Attorney in Manhattan charged Wells Fargo with fraud earlier this month for failing to properly underwrite more than 100,000 mortgages in an effort to make them appear eligible for FHA insurance, it was noted that the charges seemed somewhat derivative. Wells Fargo made clear its view that some of issues had previously been addressed with HUD, and the bank now hopes the derivative nature of the suit will get the charges nixed. It has approached a judge in New York, arguing that its settlement with federal officials and state AGs--the much ballyhooed $25 billion settlement that some touted as a definitive deal to end the mortgage mess--means that it is no longer liable for charges related to the same misconduct. Wells Fargo's filing was submitted to U.S. District Judge Rosemary Collyer, who was the judge who approved the $25 billion agreement back in April between five banks and U.S. and state probes, according to Bloomberg, The article also notes that the U.S. is seeking to recover unspecified damages and civil penalties under the False Claims Act for hundreds of millions in claims already paid by HUD as well as penalties under the 1989 Financial Institutions Reform, Recovery and Enforcement Act. Preet Bharara, the U.S. Attorney in Manhattan, has already sued other banks similarly, including Deutsche Bank and Citigroup. It's unclear to legal laymen whether these new charges against Wells Fargo violate the terms of the previous settlement. We'll know soon enough. For more: Related article: Read more about: Wells Fargo, U.S. Attorney Also Noted
SPOTLIGHT ON... Finra issues brokerage guidance Finra's own continuity plans are being tested by Sandy, as not all employees can access its building in lower Manhattan. But that didn't stop it from issuing some guidance and advice about Sandy. The SRO is "encouraging brokerages unaffected by Sandy to make office space available" to those who have been displaced. Brokerages that relocate are asked to use "best efforts" to notify FINRA, but the SRO has waived formal branch office applications for new offices. Also, the regulator asked all those who cannot meet filing deadlines to request extensions. Article Company News:
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Monday, November 5, 2012
| 11.05.12 | Financial district creaks back to life
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