Today's Top Stories Also Noted: OpenText News From the Fierce Network:
Today's Top News1. Bank of America, MBIA, skirmish over bonds covenants
There's been some interesting skirmishing going on in the increasingly heated Bank of America-MBIA war over put backs. The latest is an attempt by Bank of America to buy a majority of about $329 million in bonds to block MBIA from moving forward with a "cross-default provision" in the bonds. As the covenants now stand, creditors can demand payment from the parent company if the MBIA Insurance unit is seized by regulators. MBIA would rather such demands be made of its municipal unit, National Public Finance Guarantee Corp. So this is a way of protecting the main company. Sensing weakness, Bank of America is aiming to keep the pressure on the parent by buying up all the bonds in order to block the change in covenants. Bank of America is offering a 22 percentage point premium on the bonds in question, according to Bloomberg. That followed an attempt by MBIA to incent bondholders to approve the change by offering to pay $10 per $1,000 of notes to those who agree. Who has the upper hand in this? The MBIA stock sold off earlier this week, as Mr. Market seemed to give Bank of America the advantage in this high profile putback battle. But even if Bank of America prevails on this "cross-default" issue, MBIA is still fighting from some strength. One analyst, who has a buy rating on MBIA, believes "the selloff was unwarranted. He (along with credit ratings agency Standard & Poor's) continues to believe MBIA's structured products unit has sufficient liquidity to last well into 2013, which should be enough time to force a settlement with Bank of America," notes TheStreet.com. For more: Related articles: Read more about: Bank of America, bonds
2. Wall Street's obscure middle class
The "crème de la crème" of Wall Street will be on display when Goldman Sachs announces its 2012 partner class. These are the "Masters of the Universe", though that universe is smaller and less wealthy than in the pre-crisis era. It also includes a lot of middle-class strivers who seem to be losing ground. As Breakingviews describes them, "Tens of thousands of aspiring bankers and traders who flocked to securities firms like Goldman Sachs and Morgan Stanley over the past decade are coming to realize that the big bonanzas they toiled toward may never come their way. Compensation is down – and will stay there – at the same time as their bosses aren't going anywhere. Share a tear – if only just one – for the middle class of investment banking." The essay looks at a hypothetical employee who joined Goldman Sachs in 2000. "At the end of that year, Goldman employed 22,627 workers and paid out compensation and benefits of $7.8 billion. Do the crude arithmetic, and that works out to around $343,000 of average pay for each employee." In 2007, Goldman Sachs employed 30,522 people, who collectively received $20.2 billion in compensation, an average of $661,000 over seven years. As for his year, the firm has 32,600 employees, and it "can be reasonably expected to pay out compensation and benefits in the order of $14.6 billion, or $449,000 a head. That's down a third from the 2007 boom year." In the end, the fervent hope is that the glory days return, and compensation picks back up. That's what sustains the middle class. For more: Related articles: Read more about: banker pay, Compensation 3. FSOC flexes muscles on money market funds
The Securities and Exchange Commission is in a tough spot when it comes to money market fund regulation. It was a crushing blow when the agency failed to pass much-needed money market fund reform, something that many have called for since the incident with the Reserve Primary Fund. The agency faced criticism for reform advocates, which was expected. but now the Financial Stability Oversight Council has decided to flex its muscles on the issue. The Dodd-Frank created regulatory entity, which comprises 10 other regulatory agencies, has basically issued an ultimatum to the SEC to pass reform rules, or FSOC will do it itself. As noted by the New York Times, "If the S.E.C. does not follow through on the council's proposals, officials said, the council could draw on other powers to impose its own tougher oversight on the mutual fund companies and banks that sell money market funds publicly or on the funds themselves." The nuclear option would be that the FSOC could designate individual fund companies as "systemically important," which would bring them under more direct supervision. The proposed options by the FSOC are not new and basically rehashes of earlier SEC proposals. The options include a floating net asset value and higher capital requirements. For more: Related articles: Read more about: regulation, money market funds 4. How the Jefferies deal impacts bigger investment banks
Many big banks remain mired well-below tangible book value, which made Leucadia National Corporation's deal to buy mid-market powerhouse Jefferies for $3.6 billion all the more noteworthy.That a buyer would value an investment bank at 1.2 times tangible book value has some big implications for bigger banks, notes DealBook. So why should a strategic buyer value a smaller bank so richly compared to the like of Goldman Sachs and Morgan Stanley? "One theory is that the market is unduly pessimistic about the health of Morgan Stanley and Goldman. The companies' valuations have actually improved as their stock prices have risen. That could continue until they trade about tangible book, especially if global markets continue to stabilize, economic growth strengthens and the uncertainty surrounding new Wall Street regulations lifts. The alternative view is that the market doesn't like the size and complexity of Goldman and Morgan Stanley, which also have higher leverage than smaller investment banks. With their 'too big to fail' status, firms like Goldman and Morgan Stanley have had to hold more capital since the financial crisis of 2008. That depresses metrics like 'return on equity,' which investors track when deciding whether to buy stock in investment banks," the article notes. I have a hard time believing that either of the two big banks will downsize significantly in a bid to become more Jefferies-like. They'll likely continue to muddle at or below book value for some time. For more: Related articles: Read more about: Investment Banks 5. Lloyd Blankfein a sound choice for public service
Many of you likely read--or at least saw--Goldman Sachs CEO Lloyd Blankfein's editorial published in the Wall Street Journal. It was a reasonable, clear-eyed call to sound economic policies in order to work cooperatively to deal with the fiscal cliff, deal with the budget deficit, keep marginal tax rates low while broadening the base and develop sound domestic energy policies. So, what's the real import of the editorial? It seems inescapable that Blankfein is laying the groundwork for life after Goldman Sachs. As of now, one could argue that he has left the ship in decent shape, one that will sail once the economy picks up. Much of what he has been done lately could be seen as positioning for a transition, from his reasonable words on regulation, to his work to help Hurricane Sandy victims, to this editorial. My sense is that he has put out lots of feelers and is doing what has to be done to secure a Cabinet-level public service job. Will he follow in the steps of another ex-CEO of Goldman Sachs, Henry Paulson, and become Treasury Secretary? He's not generally mentioned as a leading candidate, but some have suggested that the next secretary should have some banking experience. He would excel in this job once people got over the "optics" of appointing the CEO of such a controversial bank. Frankly, Blankfein seems like a more plausible candidate than Sheryl Sandberg of Facebook, who has been mentioned in the discussion. Another option for Blankfein could be Commerce Secretary. For more: Related articles: Read more about: Goldman Sachs, CEO Also Noted
SPOTLIGHT ON... Small banks wary about Basel III When discussing Basel III, it is usually in the context of big systemically important banks. According to Bloomberg, U.S. regulators received more than 1,500 comment letters including from community banks that argued they shouldn't be subject to the same capital requirements of larger banks under Basel III. Regulators will likely try to assure community bankers that they understand what it a stake for them. Article Company News:
©2012 FierceMarkets This email was sent to kumaresan.selva.blogger@gmail.com as part of the FierceFinance email list which is administered by FierceMarkets, 1900 L Street NW, Suite 400, Washington, DC 20036, (202) 628-8778. Contact Us Editor: Jim Kim Advertise Advertising: Jack Fordi or call 202.824.5040 Email Management Unsubscribe from FierceFinance Explore our network of publications: | ||||||||||||||||||||||||||||||||||||||||||
Thursday, November 15, 2012
| 11.15.12 | Bank of America, MBIA skirmish over bonds covenants
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment