Today's Top Stories Editor's Corner: Favorable regulatory developments for banks' capital efforts Also Noted: OpenText News From the Fierce Network:
Today's Top News1. Bain Capital thanks investors for support
Few private equity companies have found themselves in the line of fire during a presidential election quite like Bain Capital. It may be tempting to sneer at the Obama campaign for making Mitt Romney's private equity record a big issue, but the most vitriolic attacks were leveled at him by fellow Republicans during the ugly battle for the nomination. Some memorable lines include Newt Gingrich calling his line of work "immoral" and Rick Perry noting the difference between "a vulture capitalist and a venture capitalist." During the general election, outside Super PACs piled on with gusto, but the firm has survived, pretty much unscathed. The Boston Globe notes that the firm has sent a letter to investors, thanking them for their support. "The political hyperbole and distortion that accompanies modern politics, while disappointing, did not change our longstanding, differentiated approach to investing for growth,'' the letter said. Bain's executives said they knew when Romney joined the race that his business record would become an issue. Members of the firm made a conscious decision "not to engage in debates with either campaign,'' they said. They chose to correct the record at times but refused "to be drawn into the give-and-take of the political season." While some partners at the firm supported the president, the firm as a whole remained a firm supporter of Romney in the election. "All of us congratulate each candidate for a hard-fought campaign,'' the letter said. For more: Related articles:
Read more about: Bain Capital, Mitt Romney
2. Election isn't necessarily a loss for Wall Street
The notion that Wall Street lost when it bet big on Mitt Romney has been discussed incessantly since the election. DealBook opined that, "Wall Street…now has to come to terms with an administration it has vilified. What Washington does next will be critically important for the industry, as regulatory agencies work to put their final stamp on financial regulations and as tax increases and spending cuts are set to take effect in the new year unless a deal to avert them is reached. To not have a friend in the White House at this time is one thing, but to have an enemy is quite another." I am not sure that "enemy" is the most apt description of the president. There will be some friction going forward, but that friction has been institutionalized, as lobbyists and regulators have battled for years over the shape of regulation. I do not expect to see a lot of new friction, even with Elizabeth Warren ascending to the Senate. The President might propose to tax carried interest at a higher rate and other reforms, but that's hardly new. Most of the other really contentious battles have already been fought, as I've noted, and we're now in the minutiae of implementing the Volcker Rule, the OTC Derivatives rules and the like. It should be noted that all this, as it looks now, will be implemented on terms favorable to the industry. At this point, given the massive investment in Dodd-Frank compliance, the industry might be worse off if the law were somehow repealed. "At the end of the day, there's a mutual goal between the administration and the markets, which is to have a robust and dynamic financial-services sector," said one lobbyist to TheHill. "Everybody's adults here." For more: Related article:
Read more about: Barack Obama, Presidential Election
Is JPMorgan Chase on the road back after a string of bad news, including on-going fallout from the London Whale episode and various government investigations, including one into Bear Stearns mortgage practices? Well, the bank has won regulatory approval to buy back up to $3 billion in stock, according to a regulatory filing. Recall that in the aftermath of the London Whale "hedging fiasco," the bank halted its buyback program in May as it disclosed that the losses would be huge. Those losses ballooned out to $6 billion, triple what was originally estimated, but the bank now seems confident that the worst is over, and regulators agree in part, as they authorized the buyback. The bank also confirmed that it was on a path toward settling two SEC investigations. This may only be the beginning of a new stock buyback program. As the company's balance sheet mends, it will likely buy back more. Reuters notes the views of analyst David George of Robert W. Baird & Co., who has told clients that he expects the buyback program could hit $12 billion next year. Can the bank afford that? "The current dividend, which is 30 cents a share, costs the company about $4.5 billion a year. If the company were to pay out that much in dividends and spend $12 billion buying its stock, the total return of capital to shareholders of $16.5 billion would amount to about 80 percent of net income that analysts expect the company to earn in 2013," George said. For more:
Read more about: capital, Stock Buyback 4. How was an alleged rogue trader hired by Morgan Stanley?
The allegation that a rogue trader might have been at work at Goldman Sachs was nothing short of stunning. The notion that a single trader could hide an $8.3 billion e-mini position, one that eventually led to a $118 million loss for the firm boggles the mind. Most assume that Goldman Sachs has a stringent compliance and risk management controls associated with traders, such that this sort of gaming could not occur. Matthew Marshall Taylor stands accused by the CFTC of fabricating trades and obstructing the firm's discovery of his position, risk and profits and losses in 2007. Taylor "concealed the position by bypassing the firm's internal system for routing trades to the Chicago Mercantile Exchange and manually entering fabricated futures trades in a different internal system." As noted by Bloomberg, Taylor denies the charges. His lawyers released a statement saying that, "Matt never intentionally entered 'fabricated trades' to conceal any trading activity and Goldman never alleged he did so at the time of his termination or thereafter. Matt, himself, brought the trading losses to the attention of senior managers at Goldman on the day they occurred." One issue here is why Morgan Stanley would hire Taylor after Goldman Sachs said in a filing that he had let go for these reasons. He has since left Morgan Stanley for reasons unclear. The bank isn't talking about the case, but it appears that it might have been some sort of risk management lapse. Most banks would disallow anyone involved in a high-profile regulatory proceeding. For more: Read more about: Goldman Sachs, rogue trader 5. Vikram Pandit losses millions in transition from Citigroup
Citigroup directors have awarded a $6.65 million bonus to ex-CEO of Citigroup Vikram Pandit after ousting from the job last month. He will apparently receive the money as part of an incentive package for his work this year. John Havens, the COO who left at the same time, was given $6.79 million. Forty percent of the awards will be paid immediately in cash. The remaining 60 percent will be paid in deferred cash that will be delivered in four equal installments through 2017. Both men will also continue to collect his deferred cash and stock awards from 2011 (and 2008 in the case of Havens). For Pandit, this is worth $8.8 million. For Havers, this is worth $8.7 million. But they are being forced to sacrifice a retention package, which means Pandit will not receive $24 million that was scheduled to be paid to him, according to media reports. In awarding the bonuses, chairman Michael O'Neill wrote in a statement: "Vikram steered Citi through the financial crisis, realigned its strategy, bolstered its risk management processes and returned it to profitability...Based on the progress this year through the date of separation, the Board determined that an incentive award for their work in 2012 was appropriate and equitable." It's unclear how Pandit feels about this. Most likely, he will accept what has been handed to him. It's hard to see him pursuing any legal action. He and Haven have apparently agreed to a One-year non-compete agreement. For more: Read more about: ceo pay, CEO succession Also Noted
SPOTLIGHT ON... More banks face prosecution for energy manipulation Could energy market manipulation be bigger than the Libor scandal? That's the question raised by Forbes, which notes that "FERC has thus far gone after JPMorgan Chase, Deutsche Bank, and Barclays for alleged manipulation of energy prices – and the stakes are potentially as high, at least in terms of the penalty amounts sought, as any numbers splashed across the front-page stories of recent years." I've noted that Barclays fine exceeds the fine it paid to settle Libor charges. We'll see how other banks will fare. Article Company News:
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Monday, November 12, 2012
| 11.12.12 | Election isn't necessarily a loss for Wall Street
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