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Today's Top News1. Shadow banking shifts to Europe
The financial crisis focused attention on shadow banking, which had been building for decades, and some felt that regulators around the world would move to restrict such activity. But the Financial Stability Board has just released a report showing that shadow banking activity rose $41 trillion between 2002 and 2011 to about $67 trillion. This is not illicit activity. The financial system as a whole would not function without some forms of shadow banking. It would not be wise to somehow require all lending activity to originate with traditional banks. There's an obvious role for hedge funds, private equity funds, SIVs of various stripes, money market funds and so on. What's more interesting to me is the fact that the percentage of shadow banking activity based in the U.S. has declined from 44 percent in 2005 to 35 percent in 2011, as activity shifted to the U.K. and elsewhere in Europe. The regulatory key, in my opinion, is to take a measured approach to all facets of shadow banking. There is not a one-size fits all. There may be need to alter the market for hedge fund lending to small companies for example. But there might be a more compelling case to regulate money market funds more heavily. Indeed, the FSB has taken a hard line on money market funds, suggesting that they provide bright line rules limiting the assets that such funds can invest in, banning them from offering investors guarantees, and requiring minimum capital reserves. For more: Related articles:
Read more about: shadow banking, money market funds
2. Jamie Dimon regains his footing
In the wake of the London Whale fiasco, the conventional wisdom was that JPMorgan CEO Jamie Dimon had damaged his standing as the most influential of the big bank executives. Lloyd Blankfein is the only one who can contest him on this. But since then, it has become clear that Dimon has suffered no real loss of stature. In fact, he seems to have developed Teflon skin. He's back to being the same outspoken personality he always was. As he stumps for his fiscal cliff approach, President Obama saw fit to pay him and other top CEOs a call. MarketWatch says that, "Jamie Dimon has had one of the roughest years in his career, but even under fire, he still comes across as one of the most deft executives on Wall Street." The article notes a symbolic event: The resumption of the bank's stock buyback program was detailed in the same filing that detailed a settlement with the SEC over various mortgage-related charges. "They're both examples of why Dimon earned his reputation as the best CEO on Wall Street. For one, his bank is profitable and sound enough to actually be paying dividends and buying back stock. In addition, Dimon has been turning the tables on regulators by challenging the government actions against Bear Stearns which J.P. Morgan bought in a rescue in 2008. He may be the only bank CEO still brazen enough to publicly fight Washington." For more: Related articles: Read more about: CEO, JPMorgan Chase 3. Despite high profile jobs, women executives still rare
Whenever a woman is promoted to a C-level position at a premiere bank, it is always grounds for congratulations, and its no different for Marianne Lake, the newly minted CFO at JPMorgan Chase. You've got to love CEO Jamie Dimon's comments in the wake of the announcement. He said she is an, "outstanding choice for this critically important role." The fact that she's a woman "wasn't a consideration at all," he added. "We were simply looking for the best person for the job." She would indeed appear to be the most qualified, and yet it is almost impossible not to make a statement on such an occasion about the state of female executives on Wall Street. There remains a dearth of such executives. There are now two women on the operating committee at JPMorgan Chase, which recently lost Ina Drew and Heidi Miller. As for other banks, no women report directly to Citigroup CEO Michael Corbat. Morgan Stanley has one woman in its operating committee. At the other end of the spectrum, Bank of America has four women on its operating committee. At some point, people will no doubt revive the debate about when a woman will be tapped to run a big bulge-bracket bank. Currently, the closest we have is Beth Mooney, chairman and CEO of Keycorp. For many reasons, I wish Lake well and look forward to seeing her on this list soon. I also look forward to the day when a big promotion at this level for a female executive doesn't seem out of the ordinary. For more: Related articles: Read more about: Women Executives 4. Insider trading indictment has SAC angle
The insider trading crackdown continues. In the latest case announced by U.S. Attorney Phreet Bharara, prosecutors are targeting Mathew Martoma. He worked at CR Intrinsic, a unit of SAC Capital and allegedly generated $276 million in illicit profits by trading (or advising on trades) based on insider information gathered in 2008 from a neurology professor in charge of a clinical trial of an Alzheimer's drug in development by Elan Pharmaceuticals and Wyeth. More specifically, the professor leaked results of the trial to Martoma, who then was able to exit his positions of the drug stocks and initiate large short positions that paid off handsomely, according to the complaint. The relationship between the doctor and the trader was apparently facilitated via an expert network, which have figured so prominently in other insider trading cases, notes Forbes. The SAC Capital angle will of course fascinate many. No one currently at the firm, including founder Steven Cohen, has been charged with a crime, but he is without a doubt Portfolio Manager A in the complaint. Martoma is merely the latest in a string of prosecuted insider traders that had roots at the big hedge fund company. Indeed, in the ongoing trial of Anthony Chiasson and Todd Newman, the long shadow of SAC Capital has been present, because the firms at which the men worked, Level Global Investors and Diamondback Capital Management, were formed by former SAC employees. in the case of Martoma, the alleged action strikes quite close to Cohen. "Martoma, 38, is accused of advising Cohen to sell shares of Wyeth LLC (PFE) and Elan Corp. (ELN) before bad news about the drug's prospects was announced," Bloomberg notes. But the complaint is not clear on whether the tippee knew the information was illegally gained. But SAC profited to the tune of $276 million, which makes this one of the egregious incidents of insider trading ever. In the past, the company has expressed outrage over the actions of some of its former employees. But no one doubts that SAC is a target. In many ways, Cohen represents the ultimate Big Fish in the entire multi-year investigation. He would be bigger than Boesky, Milken and all the others. We take a look at the implications of all this on Cohen in another item. For more: Related article: Read more about: insider trading 5. Will Steve Cohen be indicted?
The question of the moment is whether SAC Capital founder, a controversial figure who has been in the cross hairs of investigators, will be indicted for insider trading. No one doubts that the government would love to bring such a case, and to read some media accounts, prosecutors may be getting closer. With the indictment of former SAC Capital portfolio manager Mathew Martoma, DealBook suggests that prosecutors have moved an "inch closer" to indicting Cohen. Others hold that the government is "Closing in on Steve Cohen." But is there really an indictment looming? Based on the trials seen so far, the government would need two things in order to make for the strongest possible case: Wiretap evidence and a cooperating witness who can detail crimes from the inside. That one-two punch has proven devastatingly effective for the prosecution in other cases. In the case of Cohen, it is unknown what kind of wiretap evidence the government has. When it comes to flipped witnesses, it would appear that the government has run into some issues. Martoma would have been a strong candidate on the surface. He was a co-conspirator that could rat out the ultimate target. An effort was likely made to turn him, but he has apparently decided to honor the code of omerta. The punishment will be charges and an effort to put him in jail for a very long time. Given the massive profits his alleged crimes generated, it's possible that he will face a very long prison term. For prosecutors, this has to be disappointing. It's not clear whether they have any other options in terms of alleged co-conspirators. For more: Related articles: Read more about: insider trading, Steve Cohen Also Noted
SPOTLIGHT ON... Bank of America sticks with business model "The model works, the stock has improved. For us it's a matter of getting the legacy issues behind us and have the earnings come back," Bank of America CEO Brian Moynihan said recently in a Bloomberg story. As of now, shareholders seem willing to believe him, and I'm sensing a lot of short-term bullishness about the company. The stock is up a whopping 70 percent in 2012, though it remains below tangible book value per share. I can only hope that continues into the new year. Article
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Wednesday, November 21, 2012
| 11.21.12 | Will Steve Cohen be indicted?
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