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Today's Top News1. FERC suspends JPMorgan unit's power trading ability
The regulatory hits keep coming for JPMorgan Chase. The latest is that the Federal Energy Regulatory Commission (FERC) has slapped a six-moth suspension on JPMorgan Chase's energy trading unit's ability to make market-based trades. This comes after the company was found to have "made factual misrepresentations and omitted material information over the course of several months of communications" with the commission and the California Independent System Operator (California ISO), which operates the energy system. The information was originally requested in connection with bidding activities in the California market. JPMorgan told the media that the case was more about document production than any market misconduct. The bank also says that the FERC action is novel. In fact, it is the first time FERC has issued such a suspension. The six-month suspension does not take effect until April 1, 2013, to give the market time to react and fulfill various contractual obligations. The bank will not disappear from the market while it is suspended. During this six-month time, JPMorgan Ventures will still be allowed to participate in wholesale electricity markets by either scheduling quantities of energy products without an associated price or by specifying a zero-price in its offer as provided in the pertinent tariffs. This is yet another indication that FERC means business. It has already hit several banks and energy companies with fines for market abuses. The move against JPMorgan is no doubt intended to send a message to others. The effect on the bottom line at this point is unclear. For more: Related articles: Read more about: FERC, Power
2. Banks deploy balance sheets less aggressively
Goldman Sachs CEO Lloyd Blankfein recently said that, "For the first time, it's clear that size and complexity come with a higher cost." There's little doubt there are higher costs. If you are considered a G-SIFI, you will be required to meet higher capital ratio standards per Basel III, for example. And the costs of Dodd-Frank fall heavily on larger banks. One could quibble that the implicit quid pro quo here is that all G-SIFIs also enjoy a layer of security in that the world is convinced that such institutions will be given assistance if they run into trouble. It was not supposed to be that way, but the bond market has priced that assumption into prices. All in all, however, the conventional wisdom seems to be that the net costs of doing business will be higher, which necessitates some changes. Blankfein notes up to 70 percent of stock shares are now traded through "low-touch" channels, according to DealBook. "Electronic execution accounts for significant portions of activity in the firm's cash fixed-income business as well," he said. Other banks are latching onto this as well. UBS was said to have replaced human derivatives traders with algorithms as part of its cost-cutting and reorganization drive. In the end, however, it's not pristinely clear that the Volcker Rule, Basel III, the new OTC derivatives rules will curtail business in secular fashion. Most people assume that banks will have to deploy its balance sheet less aggressively. That seems to be true for now, but you can never truly predict the future. Many are convinced that we're seeing a generally cyclical turn in the cycle, with an upswing around the corner. For more: Read more about: banks, balance sheet 3. Eminent domain stalls as mortgage solution
For a look at why the use of eminent domain as a tool to modify mortgages remains a big issue, let's turn to the High Desert Daily Press in California. It reports that a majority of homeowners in the High Desert of San Bernardino County -- one areas hardest hit by the mortgage crisis -- are still reeling, even as other areas in California seem to be improving. The paper reports that, "More than 60 percent of homes in the desert are underwater." Modification and short-sale solutions remain hard to come by in these parts, where many refugees from large cities moved, bidding up real estate prices dramatically. "Owners of these homes either have to keep paying high mortgages or walk away. The latter could trigger another wave of foreclosures, posing a threat to the local economic recovery, which is already slower than the coastal regions." Some people continue to think that eminent domain remains the only solution. Indeed, the idea seemed to really get off the ground in San Bernardino County--and the entire country--about a year ago. But since then, the impetus on the county seems to be stalling. I do not expect this idea to take off anytime soon, even in areas that would benefit greatly from it. The securities implications are just too dire. But once bond problems are out of the equation, people will have much less reason not to embrace eminent domain solutions to clean up the mess. A new Pennsylvania law allows local governments to take control of blighted properties and cancel tax liens and bank foreclosures so the land can be sold to responsible owners or developers. For more: Related articles: Read more about: Eminent Domain, Foreclosures 4. Report blames Corzine for MF Global mess
The political discourse in the U.S. colors just about every public issues these days. A recently released Congressional report paints a damning picture of Jon Corzine's disastrous stewardship of MF Global, and Republicans have been quick to publicize it. Given that Corzine was once a prominent Democrat, it's obvious that a political element is clearly at work in all this, but that doesn't mean that the conclusions of the panel aren't worth exploring. The report essentially holds Corzine responsible for the $1.2 billion in missing customer money. According to the summary report, Corzine blew off warning signs about MF Global's liquidity position and he obstructed attempts by the company to embrace sound risk management policies, including his own loyalists in sensitive risk management positions. All that amounts to a "dereliction of duty" that left the company vulnerable to the kind of disaster that eventually engulfed it. Unfortunately, it appears as though there will be no consequences for any individual executive, apart from possibly Edith O'Brien. Certainly, Jon Corzine himself has escaped without facing personal charges, a fact that frustrates many. In the end, it seems like the prosecutors just couldn't come up with the goods. The full report is coming soon. For more: Related articles: Read more about: Enforcement Action 5. Can a PR employee make partner?
Most Goldman Sachs partners come from revenue-producing business units. It's certainly possible, however, for a PR executive to make the list, or a risk management executive or even an IT executive. Given the critical nature of public relations at Goldman Sachs, which has been in the eye of a media storm for years, the top PR executive is a high-profile platform that will spotlight his or her contributions. That may explain why the New York Post suggested that Richard "Jake" Siewert, the head of corporate communications, "could be among the 70 or so new partners" Goldman Sachs named this year. "While it's still a long shot, Siewert's chances are bolstered by his Washington pedigree — he was a former press secretary for the Clinton administration — and the view that he helped buff the bank's battered image." As it turns out, the speculation was way off base. He was passed over, which can't be seen as a defeat, as he has only been with the bank since March. DealBook notes the internal view that. Siewert "is not a revenue producer and had only recently joined Goldman. Lucas van Praag, Mr. Siewert's predecessor, became a partner in 2006 after almost six years at the firm and during a more profitable period for Goldman." However, "Russell Horwitz, who is chief of staff to firm chief executive officer Lloyd C. Blankfein and secretary to the firm's powerful management committee, did get promoted. He had a hand in hiring Mr. Siewert and plays a role in forming the firm's public relations strategy." Recall that van Praag resigned not too long ago, following an extended period of negative press for the bank. For more: Related articles:
Read more about: Goldman Sachs Partner Also Noted
SPOTLIGHT ON... Goldman Sachs names new MDs A day after it minted a very small class of new partners, Goldman Sachs has minted 266 new MDs, up from 261 last year. The competition to make partner will only intensify in coming years. There would appear to be a lot of MDs vying for future partnership status. If the bank starts to thrive all over again, it may name more partners in future years. In any case, congratulations are in order for the new MDs. Article Company News:
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Friday, November 16, 2012
| 11.16.12 | FERC suspends JPMorgan unit's power trading ability
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