Today's Top Stories Editor's Corner: Distressed home mortgage market window closing Also Noted: Spotlight On... More hedge-fund-tracking ETFs emerge
Today's Top News1. Losers in the Bank of America, MBIA bond battle
I noted recently that there's been some interesting skirmishing in the Bank of America vs. MBIA put back war. Bank of America has moved forward with a tender offer, aiming to buy a majority of $329 million in bonds to block MBIA from moving forward with a "cross-default provision" in the bonds. As the bond now allow, 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. The need to protect the parent is acute right now, because various claims (owned by Merrill Lynch) could easily push it into insolvency if the change is not approved. Both companies are playing hardball in this long-running dispute. The New York Times weighs in with a wry look, noting that, "Lawyers are cleaning up.The only people who don't seem to be doing very well are those who are most deserving: the victims of the crisis." It also noted, a "significant part" of the victim's pain "could have been avoided had either Countrywide or MBIA acted responsibly, and made sure that it was not either making or insuring loans that were all but certain to go bad when the property bubble burst. The same can be said for the rating agencies and the institutional investors who bought the securitizations, not to mention the regulators who allowed all that to happen and the press that failed to call enough attention to what was going on. If all this money is going to be spent, it would be nice if some of it could go to the victims rather than the lawyers." That really is asking too much in this day and age. For more: Related articles: Read more about: putbacks
2. Governments will still bail out G-SIFI banks
The Financial Stability Board this month released its list of global systemically important financial institutions (G-SIFIs). The FSB defines SIFIs as "financial institutions whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity." The conventional wisdom holds that banks and other institutions do not want to be on the list, as it implies higher capital requirements and greater regulatory scrutiny. But it also implies government backing. Whether that was the intent or not remains hazy. Fitch recently noted in an update about the securities industry that, "Ratings of major firms are further underpinned by government support in the event of need given their G-SIFI status." This assumption has direct financial consequences. The costs of funding for banks on this list remain significantly lower thanks to the conventional view that the banks will be bailed out if they run into trouble. "In theory, this should be countered by increased capital charges, which will be phased in between 2016 and 2019," notes Alphaville. "But many think this is irrelevant. Some of the G-SIFI banks are likely to be subject to local regulatory regimes that are stricter than Basel III guidelines anyway. Switzerland being the most obvious example." For more: Related articles:
Read more about: Financial Stability Oversight Council 3. Merrill Lynch sales staff to step up client meetings
Bank of America Merrill Lynch is telling its sales staff to get off the trading floor and meet with clients more often. That likely means a lot more after-work activity, like dinners and drinks, which gets old after a while. Bloomberg reports that "salespeople assigned to the world's biggest stock portfolio managers" were given new orders in September, requiring "at least 30 meetings a month with clients, or else. That works out to 1.5 gatherings each business day, which riled the staff and spurred some to exaggerate their meeting logs to avoid missing goals ahead of bonus season." Other sales staff, including those assigned to mutual funds, were given a quote of 20 outside meetings per month. Statistics are apparently being kept and "will be internally listed so equities employees can see where they stand...Those who fail to make the quotas can expect managers to address the shortfalls at year-end meetings." That this internal issue has hit the press will not go over well with Soofian Zuberi, the Merrill Lynch head of global equities distribution, and other executives. No one wants their dirty laundry aired in public. There's obviously been a fairly emotional response internally. It certainly speaks to the competitive nature of the trading business, which isn't exactly thriving right now. Times like this separate the folks who really love their jobs from those who see it as just a paycheck. For more:
Read more about: marketing, Sales and Trading 4. U.S. firms eye U.K.'s new fee system
A new set of regulations, known as the Retail Distribution Review, will usher in a sea change in the wealth management industry in the U.K., which has some companies in the U.S. intrigued about the possibility of new business. The key feature of the new era is ending the practice of charging commissions for investment products. The new rules will "do away with selling products such as mutual fund investments for commissions, and replace it with a system of fees, emulating the model employed by other 'professions' such as the law. Regulators argue this, and higher barriers to entry to the profession such as more rigorous qualifications, will help ensure investors are offered what matches their needs rather than what pays the salesman the best commission," notes Reuters. One expert was quoted saying, "We've had complete misalignment of incentives between advisers who should be working in the interests of the customers but are paid by a product provider." This has been a big issue in the U.S. as well. The focus domestically has been on disclosure as the prime solution. The change in the U.K. has prompted Vanguard to expand its sales effort, as the low-cost fund pioneer thinks a system of well-defined fees will play to its advantage. The end result will likely be that it will be able to distribute products via adivsors for much less. It will be interesting to see if other U.S. companies follow suit. For more:
Read more about: Mutual Funds 5. Managing GSEs as the housing market recovers
One big key to a meaningful economic recovery will be the housing market, and the extent to which it can sustain the momentum that has been so hard won. While many customers are still suffering, the worst seems to have passed. Banks have reserved massively against expected losses, so much so that there may be some reversals in subsequent quarters. More people are working through modifications, and the foreclosure backlog is easing somewhat. Prices have likely hit bottom in many areas, and the evidence on the ground anyway is that purchasing and refi activity are ticking up. All this puts the Obama administration's GSE policies right back in the spotlight. The administration has been clear that it would like to reduce the role of government in the market, and that means scaling back the work of the GSEs, which continue to back the majority of residential mortgages. Taking out that layer of insurance would have serious ramifications for the market. The big issue is whether the momentum will continue if the GSEs were cut back. My guess is that the best policy will be a go-slow policy, as the economic recovery takes precedence. It may be a different story in three years. As for now, DealBook says the predicament presents "second-term headaches" for the President. For more: Related articles: Read more about: Housing Market, GSEs Also NotedSPOTLIGHT ON... More hedge-fund-tracking ETFs emerge The ETF industry is bent on developing products that better track hedge funds. The latest efforts come from two companies that want to replicate hedge fund portfolios for ETFs using 13F public filings about actual portfolio holdings. The demand for hedge fund-tracking ETFs has been strong, though performance so far has been a big issue. Article
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Monday, November 19, 2012
| 11.19.12 | Losers in the Bank of America, MBIA bond battle
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