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Today's Top News1. Sink or swim at SAC Capital
There's been a lot of talk about the "ruthless" culture of SAC Capital, so why would anyone want to work there? Bloomberg weighs in, noting that "an internal recruiting team scours the investing landscape for promising portfolio managers Cohen might hire. The firm may track these people for years as their careers develop, awaiting the right moment to approach them. Those deemed talented enough are offered a tantalizing deal: Cohen will give you a couple hundred million dollars to manage independently, and you will sink or swim, based on your investing decisions." The firm is able to charge a massive 50 percent performance fee, with 30 percent going to the manager and 20 percent going to Cohen. "The catch is that Cohen, who simultaneously manages a separate multibillion dollar portfolio of his own, constantly mines his portfolio managers for their best ideas so he can trade on them himself, says the former employee. The arrangement provides Cohen with a built-in, highly motivated research staff that's aggressively searching for profitable ideas. And because Cohen is the only one who knows exactly what each portfolio manager is holding, he can pick and choose from the best opportunities across a broad array of options." The other catch is that if you do not perform, you will be quickly terminated. That was the fate of Mathew Martoma, who was given a $9.3 million bonus in 2008 only to be terminated a year later for non-performance. Several of the former SAC Capital employees who were nabbed for insider trading were similarly let go after short stints. The pressure is enormous and you have to wonder if the incentives to cross the lines are too powerful. For more: Related articles:
Read more about: insider trading, SAC Capital
2. Sandy puts banks in a tough spot on mortgages
Does it sometimes seem that banks are caught in the middle these days? Consider the mortgage market in states hit hard by Sandy. On one hand, officials including New York Governor Andrew Cuomo have issued warnings that make clear that banks should not even think about delaying the mortgage modification requests that were in the pipeline when the storm hit. Cuomo said any delays will likely result in various violations of the $25 billion settlement that the top five banks reached with regulators in February. At the same time, the big housing GSEs and federal agencies are mandating more time for foreclosure activities to wind through the system. Fannie Mae and Freddie Mac have suspended foreclosure sales and evictions for 90 days for guaranteed borrowers in areas hit by Sandy. The GSEs will also allow mortgage servicers to provide additional payment relief for some up to one year. The latest news is that HUD is getting in on the act. It has also placed a 90 moratorium on foreclosure activity in some areas. As fate would have it, foreclosure activity in three Sandy-hit states--New York, New Jersey and Connecticut--had soared just before the storm hit. The bottom line is that foreclosure activity will stall for some time, and that will drag out the economic recovery. As for banks, they'll need to do what it takes to keep the modification efforts humming. For more: Related articles: Read more about: Foreclosures, mortgages 3. Could Krawcheck head the SEC?
Would Sallie Krawcheck make a good SEC chairwoman? Ever since Mary Schapiro announced her intention to step down as chair of the SEC, the hunt has been intensifying, with quite a bit of jockeying going on. Elisse Walter, an SEC commissioner since 2008, is willing to jump into the job full-time but only until next year. Mary Miller, a senior Treasury Department official and a top candidate, has already removed herself from consideration for the job. So the field as of now would appear to be wide open. One of the more intriguing candidates is Sallie Krawcheck, the former Fortune cover executive and a well-known figure in the banking world. Since stepping down from Bank of America, where she never quite jelled with CEO Brian Moynihan, she has been biding her time, looking for the right opportunity. She has had her eye on public service for a while now, going so far as to hire advisors to help her navigate the political waters. Would she be right for the SEC job? She'd be ideal in the sense that she's knows the wealth management side of the industry as well as anyone, and she's been known as someone aiming to do right by the retail consumers that her company pitched. I do not think her time in the industry disqualifies her at all, as some have suggested. No one would call her the poster executive for the financial crisis. In contrast, Lloyd Blankfein, fairly or not, would not have much of a chance at running the agency. It will be interesting to see how high the trial balloon rises. One downside is Krawcheck's lack of experience as a regulator, buts ots of former executives make the leap. Regulatory work is not for every former big-time ex-executive, however. Eileen Rominger, a former Goldman Sachs executive, lasted only 16 months at the SEC as the Director of Investment Management. Perhaps she could counsel Krawcheck on what it's really like. For more:
Read more about: Krawcheck, SEC Chairman 4. Cohen might be hit with civil charges
It appears that the SEC stands ready to indict SAC Capital on civil fraud charges. One big issue is whether those charges will be leveled against founder Steven Cohen personally as well. A Bloomberg scoop holds that the SEC is indeed considering such a move. The Wells notice sent to SAC Capital cited fraud and control-person liability over its management of CR Intrinsic Investors, a unit of SAC. But "investigators are considering extending the claims to Cohen, who wasn't named in the Wells notice." That suggests that the SEC has some interesting, to say the least, evidence up its sleeve. The SEC would not be likely to pursue control-person claims against Cohen personally without being able to show that he deliberately circumvented SAC Capital's safeguards or directed Martoma to make illegal trades, according to one former SEC attorney. He noted that, "As a matter of policy, the agency has typically avoided cases that second-guess supervisors without evidence they were acting in bad faith." Civil cases are more prosecutor friendly than criminal cases. As of now, the civil charges levied against Cohen personally may be the best that law enforcement officers can do. Without the cooperation of Mathew Martoma, it does not appear that a criminal indictment will be forthcoming, unless the prosecutors have some evidence or another witness that no one yet knows about. For more: Related articles: Read more about: insider trading, SAC Capital 5. Repo market "reform" slow to emerge
The recent report by the Financial Stability Board, a group of global regulators, generated headlines for its conclusion that the shadow banking system continues to grow. The growth derives to some degree on that fact that, despite the financial crisis and the severe aftermath, the shadow banking system remains pretty much the same as always. To some folks in the industry, that's not necessarily a bad thing, as a rush to regulate after a crisis is often counterproductive. For others, it marks the triumph of the lobbyists. For still others, it's a bit of both. A great example of the staying power of the status quo is the money market fund industry. Since the Reserve Primary Fund broke the buck, the industry has changed little, despite a lot of angst at the regulatory level. Another example was the global repo market, highlighted recently by Dow Jones. It reported that, "After the crisis, the Fed commissioned a 23-member task force of repo market participants--including primary dealer banks, institutional investors and hedge funds--to come up with a self-regulatory overhaul of the market's infrastructure. But after the group released a report in February of this year, the New York Fed expressed its disappointment with the task force's lack of progress and said that it would need to take on a more active oversight role in the market." We're seeing some interesting ideas to deal with the risk management aspects of counterparty risk, but it seems doubtful that a regulatory re-do is coming. For more: Read more about: Repo Market Also Noted
SPOTLIGHT ON... Tough year for quantitative funds Quant funds have been gnashing their teeth since the credit crunch of 2008. The pain has intensified, as the sector is facing one of its worst years ever. Renaissance Technologies Futures Fund, for example, was down 6.1 percent as of mid-November, and the Highbridge quantitative commodities fund was down 10 percent as of the end of October, notes the FT. Overall, these funds are lagging other funds. Article Company News:
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Friday, November 30, 2012
| 11.30.12 | Sink or swim at SAC Capital
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