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Today's Top News1. Insider trading trial offers glimpse of hedge fund trenches
The hedge fund trenches are not a pleasant place to be. That would appear to be the message so far in the trial of Todd Newman, formerly of Diamondback, and Anthony Chiasson, the co-founder of the hedge fund Level Global. As of now, the trial of Newman has proven to be anything but a run-of-the-mill insider trading trial (there have been so many). At times, it has instead offered a compelling human drama featuring Jesse Tortora, once an underling to Newman. He's the government's key witness against Newman, and has provided some interesting details about trench warfare at some hedge funds. Should we be surprised about allegations that Newman arranged $175,000 in payments to the wife of a stock analyst who was providing insider information about Dell? Tortora, who has already pled guilty to insider trading, painted a picture of a classic boss from hell, with whom he fell out. The defense has tried to portray his motive as one of revenge against a boss he hated. "There was testimony about a nasty phone exchange between Mr. Tortora and Mr. Newman around his departure date. Mr. Tortora acknowledged that he told Mr. Newman during the call, 'You're going to have to see me at conferences.'" Newman's lawyer "suggested that Mr. Tortora meant that as a physical threat, but Mr. Tortora denied that he meant it in that way," according to DealBook. We'll see if the jury buys the defense's "revenge" idea. There's a message to us all here: In the general scheme of office relationships, you don't want to alienate your underlings for lots of reasons, one of which is that you never know if they'll end up in a position to get back at you. I'm not saying that's what Newman is doing, but what goes around, comes around, as they say. For more: Related articles: Read more about: insider trading
2. Even institutional buyers ignore the disclosure
Most people would agree that no one really reads the fine print. Someone might glance at it, noting all the risk factors of a certain offering, and conclude that it all a bunch of regulatory boilerplate. People don't tend to take it seriously, assuming it is there little more than compliance reasons. That happens with IPOs all the time. The risk factors are often quite notable, but retail investors buy anyway. This holds true at the institutional level to an even more troubling degree apparently. The Deal Professor has conducted a study for which he and a colleague reviewed the disclosure for a lot of CDO deals. They found that, "When you actually look at the documents from some of the troubled investments during the financial crisis, in many cases the disclosure was copious. There were warnings of the risks; investors just failed to heed the warning signs that should have led them to further investigation. In other words, the disclosure failed to work." Even in the ill-fated ABACUS deal, the focus of the SEC's suit against Goldman Sachs, the disclosure was plentiful. The disclosure even called on buyers to do additional investigation. The upshot of all this might be that more disclosure is doomed to fail. No one takes it seriously, no matter how voluminous or ominous. In the wake of the financial crisis, I can only hope that changes, and it might for a while. But in a mania, such reasonableness goes out the window. For more:
Read more about: disclosure, Institutional Investors 3. Banks cautious on fiscal cliff
Hopefully, we will not move any closer to the precipice of the fiscal cliff. Banks are carefully monitoring the process, and remain generally hopeful that a deal to avert the cliff will materialize, though they continue to pressure politicians to get a deal in place. Bank of America CEO Brian Moynihan said at investor conference that, "That uncertainty continues to hold back the recovery." Many CEOs would agree. Goldman Sachs CEO Lloyd Blankfein urged the corporate community and the Obama administration to compromise. Some Wall Street firms are taking a harder line. Duncan Niederauer, CEO of NYSE Euronext, told Reuters that, "We simply won't be investing in the United States. We will be investing elsewhere where we have more certainty of the outcome." At JPMorgan Chase, CEO Jamie Dimon has taken a more optimistic tone. On CNBC, he said that, "The foundation of business is actually pretty strong. Businesses are in great shape with lots of cash. Housing looks like it's turning. Consumers are still spending, so business itself looks pretty good." Of course, the fiscal cliff possibility has the potential to really change the economic dynamic. It's small wonder then that at JPMorgan Chase, executives have set up a war room to deal with any fallout as we approach the cliff. I continue to believe that despite all the political drama, the chances are high that we'll get a deal to make immediate cliff concerns go away. Washington isn't going to let us go over. But the danger that a long-term deal fails to materialize is still pressing. There's a lot less optimism on that score. For more: Related articles: Read more about: Fiscal Cliff 4. Banks ponder rise of retail shadow banking
I've noted over the years the efforts of big retailers such as Target, Home Depot and Walmart to offer more financial services in competition with banks. Just recently, Walmart's move to release its Bluebird pre-paid card garnered lots of attention, but that's really just a continuation of the trend to offer more financial services by non-financial firms in general. The New York Times weighs in on this as, "the nation's largest banks stay stingy with credit and a growing portion of the population has no bank at all, major retailers are stepping into the void. Customers can now withdraw cash at an ATM with a prepaid card from Walmart, take out a loan at Home Depot for a kitchen renovation or kick-start a new venture with a small-business loan from Sam's Club. This year, Walmart even started to test selling a life insurance policy." Big retailers aren't the only new-ear competitors. Other companies have sprouted up to offer, for example, easier credit to small businesses at super-high rates. All this is a form of shadow banking. The regulatory situation is much less cut-and-dried, and at some point the CFPB will likely take an interest. Still, banks would be wise to figure out what all this means to them. Do they want to give up the low-end of the retail business spectrum? If not, how can they compete? Some banks have moved into the murky market for direct deposit loans, which represents a new revenue source, though critics deride the service as dressed-up payday loans. That reflects the tricky issues, even philosophical issues, that loom for bank boards to mull. For more:
Read more about: shadow banking 5. Bank of America quick to comply with mortgage settlement
When the top five mortgage originators and servicers agreed to the landmark $25 billion settlement in February, they were required to report on the progress toward fulfilling the terms of the deal at regular intervals. All have filed their first annual reports, with Bank of America winning praise for its aggressive compliance steps. As one analyst notes, "By February 2013, Bank of America will have spent $15.8 billion as part of the settlement.The bulk of the relief, around $7.4 billion, will come from short sales or deeds-in-lieu of foreclosure…The remaining balance of the settlement will comes from various sources including: $4.75 billion in principal reductions for 30,000 borrowers, modification or elimination of $2.5 billion in home equity loans or lines of credit for 45,000 borrowers, $617 million in relocation assistance, and $250 million in interest rate reductions. For the $4.75 billion in principal reductions, the average writedown was $150,000, which would drastically help any homeowner facing foreclosure." It looks now as if Bank of America will fulfill its financial obligation in just one year, even thought it was given three years by the settlement. Banks get more credit (determined by formula) toward their obligation if the relief is given in the first year. Other banks may be leaving much on the table by not moving as quickly. For more: Read more about: Compliance, Mortgage Settlement Also Noted
SPOTLIGHT ON... More investment banking job cuts coming The global investment banking industry stands on the cusp of a major realignment. A new report holds that 40,000 more jobs will be lost over the next few years, on top of the cuts already announcements. The industry has cut 15,000 of 500,000 jobs since mid-2011, according to Roland Berger Strategy. What's more, more banks will likely "give up their global ambitions." Indeed, the number of truly global banks will shrink to about ten or even less. Article Company News:
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Tuesday, November 20, 2012
| 11.20.12 | Insider trading trial offers glimpse of hedge fund trenches
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