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Today's Top News1. More high profile hedge funds shut down
Goldman Sachs employees are not guaranteed they will retain anything resembling a Midas Touch after they leave the bank. Consider the fate of former Goldman Sachs proprietary trader Pierre-Henri Flamand, who left the company to start his own hedge fund. The launch of Edoma Partners was in fact one of the highest profile hedge fund launches of 2010, and Flamand raised a whopping $2 billion. But after posting a series of poor returns, seeing more investors demand redemptions and watching two partners defect, Flamand decided the best thing to do was to shut the fund. He is hardly alone in exiting the business amid a tough year for the industry. CNBC notes some others: "Greg Coffey, one of the industry's best known figures, decided to retire early and liquidate one of his funds at Moore Capital, sources said earlier this month. That followed Driss Ben-Brahim's decision to retire from GLG, the hedge fund he joined in 2008 and now owned by Man Group." I noted earlier that Octavian Advisors has decided to shut down. Others will likely follow suit at some point, even though one could argue that the fundamentals in the industry look strong. But such trends favor the strong only. Weak performance will spell doom for many. So far this year, hedge fund on average have generated 4.86 percent this year, compared with roughly 12 for the S&P 500. For more: Read more about: Hedge Fund Closures
2. Bank of America waiving more fees automatically
Bank of America has come to its PR senses and decided to join other large banks in extending automatic waivers for certain fees in Sandy-hit areas. The bank previously generated some negative headlines, to which it has become somewhat accustomed, for its insistence that Bank of America retail customers call in to customer service representatives if they wanted a fee waiver for hardship. Most other banks proactively waived fees, including the fee a customer pays when they use an ATM provided by another institution. Some Bank of America customers took the bank to task via social media. The Wall Street Journal notes that one woman called the move "petty and classless." Another said she called the bank for help with waiving her fee, and the "customer service had no idea what she was talking about." One commentator noted, that "Of course, for those who have no electricity, phone, or Internet -- or cannot get around because of storm damage -- these requirements make assistance impossible." It was probably a wise move to waive the fees, which will not likely have a meaningful effect on the bottom line, though it held the potential to sully the bank's reputation, which it has struggled to revive in recent years. Through all of this, Bank of America was not completely tone deaf. It contributed $1 million to support relief efforts, including $500,000 to the American Red Cross Hurricanes 2012 fund. For more: Related articles: Read more about: fees, Disasters 3. Bonuses, total pay average falls in 2012
A Johnson Associates survey released Tuesday shows that when it comes to Wall Street pay, "it has been a slow recovery, just like the economy. Following a year when year-end incentives declined by as much as 30 percent, the fact that many firms are able to keep this year's bonuses flat or slightly larger is notable," notes DealBook. Investment bankers will likely fare about the same as last year. Commercial bankers and asset management employees will be in slightly better position to boost their pay. The same goes for employees in hedge fund and private equity fund units. The big winners will likely be in FICC, led by fixed-income traders, who suffered some of the biggest declines in 2011. They will likely see pay increases of up to 20 percent, according to the survey, which has become closely watched in the industry. As for the very top line, the total pay including all incentives and salaries will likely be about the same. All in all, this is about what we would expect given the ups and downs 2012. What's more, pay these days will come with a lot more conditions than a few years ago. Much of it will be deferred, and less of it will come in raw cash. The big question for many is when the industry will get back to the high pay days of 2006 and 2007. For more: Related articles: Read more about: pay, bonuses 4. Wells Fargo aims for big trading gains
I noted recently that Wells Fargo, perhaps the biggest fish in the consumer banking ocean, has designs on more sales and trading capital markets activity. You can't blame management. The Wachovia deal gave it a platform that it could work with, and it's hard not to be swayed by the revenue boost that such activity has given other banks in the third quarter. It makes sense to diversify the revenue composition a bit, reducing the bank's dependence on consumer and commercial banking. While some may be skeptical, a Deutsche Bank analyst says that the Wells Fargo Securities unit, based in Charlotte, North Carolina, could double its share of the firm's revenue--moving toward an estimated 10 percent compared to its current 5 percent. For JPMorgan Chase, Bank of America and Citigroup, the comparable percentages are closer to 20 to 25 percent. Reuters notes that "Wachovia was in the process of building a new headquarters in its hometown of Charlotte, when it was bought. The building was completed and is now known as the Duke Energy Center, but Wells did not decide to build the trading floor until last year. About 1,500 traders, bankers and support staff will start moving into the building from a nearby location in December." The new unit will not be an instant Goldman Sachs. It will likely attack selective opportunities, perhaps as a SEF, and it recently bought prime brokerage Merlin Securities. It will be interesting to see how fast it can ramp up. For more: Read more about: Capital Markets, Wells Fargo 5. Dodd-Frank is election year non-issue
As the 2012 election storms toward a conclusion, it's fair to say that Dodd-Frank and the need to fix the "too big to fail" problem never quite ignited as issues. In this era of poll-driven campaigning, it's likely that big banks just weren't resonating with the public in a way that would produce tangible campaign benefits for either side. There was no real upside to running on such issues. But "too big to fail" is alive and well as a pressing public policy concern. A New York Times commentary notes that, "Many Americans probably think the Dodd-Frank financial reform law will protect taxpayers from future bailouts. Wrong. In fact, Dodd-Frank actually widened the federal safety net for big institutions. Under that law, eight more giants were granted the right to tap the Federal Reserve for funding when the next crisis hits. At the same time, those eight may avoid Dodd-Frank measures that govern how we're supposed to wind down institutions that get into trouble. In other words, these lucky eight got the best of both worlds: access to the Fed's money and no penalty for failure." There are other beneficiaries as well. The central clearinghouses, to which the law is pushing vast amounts of OTC derivatives trading, also get access to the window. As for banks, it hasn't been a complete cakewalk. The Financial Stability Board released recently its annual list of global systemically important banks, which include Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo. As of now, this puts them in line for higher capital ratio requirements as per Basel III. For more: Read more about: Dodd Frank Also Noted
SPOTLIGHT ON... Living well through Sandy Not all areas of the New York metro area were devastated by Hurricane Sandy. For Wall Street executives in less hard-hit areas, the storm was a moment to hunker down. Notes Bloomberg, "JPMorgan, which sent out more than a dozen hurricane updates to its employees featuring detailed weather maps, kept parts of its 270 Park Ave. cafeteria open yesterday. Danishes and scones were available near the salad bar, and the bank's deli had sandwiches with grilled vegetables. The dumpling bar was closed." Article
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Tuesday, November 6, 2012
| 11.06.12 | More high profile hedge funds shut down
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