Kumaresan Selvaraj pillai


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Tuesday, December 4, 2012

| 12.04.12 | Did Morgan Stanley err in hiring Goldman Sachs exec?

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December 4, 2012
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Today's Top Stories
1. Did Morgan Stanley err in hiring Goldman Sachs exec?
2. Smaller hedge funds in vogue
3. Goldman Sachs execs exercise 10-year old options
4. Bank of America embraces social impact bonds
5. Gravy train of Libor settlements

Also Noted: Progress Software
Spotlight On... Newly widowed mortgage holders face challenges
Goldman Sachs cuts Janus rating;Time to buy banks again?; and much more...

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1. Companies may collude to prevent corruption
2. South Carolina points finger at lack of encryption
3. Technology solutions can aid FCPA compliance programs


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Today's Top News

1. Did Morgan Stanley err in hiring Goldman Sachs exec?

By Jim Kim Comment | Forward | Twitter | Facebook | LinkedIn

Morgan Stanley's top bond trader, Glenn Hadden, once again finds himself under a regulatory and compliance cloud.

DealBook reports that regulatory officials are probing the trader over his trading in Treasury futures while at Goldman Sachs, where Hadden was a partner until joining Morgan Stanley last year.

"Specifically, regulators at the CME Group, which runs commodity and futures exchanges, are investigating whether Mr. Hadden's purchases or sales of Treasury futures late in the trading day manipulated closing prices in the market and, in turn, made other of his trades more profitable…Mr. Hadden, who is now the head of the global interest rates desk at Morgan Stanley, has been given formal notice by the CME that an inquiry is under way, meaning that it is at an advanced stage," Dealbook noted.

Hadden has long been known for his aggressive ways apparently. There's nothing to suggest that Morgan Stanley knew about any CME investigations when it brought Hadden on board. But it quite likely knew that Hadden has been on paid leave at Goldman Sachs since October 2009, the result of an inquiry by the New York Fed about some his trading activities.

"Traders at the Fed, according to people briefed on the matter, suspected that Goldman was trying to improperly profit from one of the federal government's bond-buying programs, which are aimed at stimulating economic growth," according to the Dealbook report.

No charges ever resulted. In bringing on such a controversial trader, the bank may end up with some explaining to do. Still, the situation is fluid and as of now, no charges have been filed.

For more:
- here's the article

 

Read more about: Enforcement Action, Bond Traders
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2. Smaller hedge funds in vogue

By Jim Kim Comment | Forward | Twitter | Facebook | LinkedIn

Ernst & Young's 2012 Global Survey Hedge Fund and Investor Survey has found that a significant number of investors may be boosting their allocations to emerging and start-up funds.

Forty-five percent of the investors believe that emerging and start-up hedge funds could generate better returns and might offer better negotiated terms, as noted by Value Walk. This moves against the grain of conventional wisdom just a bit in that many people thought that large, established hedge funds had an advantage in the market place and that small funds would struggle. Indeed, more than a few small funds have really been hit hard as of late.

"A rising number of small hedge funds are shutting their doors, with houses run by former investment bank proprietary traders being particularly badly hit by rising costs and difficulty in attracting assets. The mounting burden of regulatory compliance is proving particularly damaging to smaller hedge funds," notes the Financial Times.

The reality is that longevity will be hard to come by as a small fund, especially now. Those that manage to attract assets will do so by performance. The trick then is to build an infrastructure in terms of compliance and investor relations that can make the fund seem like a big fund, even as it offers the returns of a small nimble firm. So it makes sense that investors are boosting allocations to small funds, even as more of those funds go out of business.

For more:
- here's the FT article

Related articles:
Some small funds fare well this year
Survey: Mid-sized hedge funds show fast growth

Read more about: Small Hedge Funds
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3. Goldman Sachs execs exercise 10-year old options

By Jim Kim Comment | Forward | Twitter | Facebook | LinkedIn

It pays to be a long-time employee of Goldman Sachs.

In this era, many have lamented the lack of loyalty by employees, who seem to be all too willing to switch jobs at the mere whiff of a "better opportunity." In the banking industry, boards have long been using options to incent executives to stick it out over the long haul, setting vesting periods over several years. If you work at a place where the stock price fares well over the long-term, these options can pay off.

A group of top execs have just exercised options that were granted 10 years ago, generating a nice profit. Bloomberg notes that, "Eight executives at Goldman Sachs, including Blankfein, Cohn and Viniar, have collected more than $47.7 million by selling shares and exercising options that were granted 10 years ago at a strike price of $78.87 this month and last. Shares obtained by exercising options this week were sold at prices ranging from $116.65 to $121.29."

Not all bank executives are in such enviable positions. Some bank stocks prices are currently below what they were 10 years ago, meaning they're worthless for the executives. In some cases, boards have been known to rejigger the strike prices of such options, essentially using board fiat to make them suddenly "in the money." I can't imagine that happening now. The uproar would not be worth it. Even beholden boards have their limits.

For more:
- here's the article



 

Read more about: Bank Bonuses, executive compensation
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4. Bank of America embraces social impact bonds

By Jim Kim Comment | Forward | Twitter | Facebook | LinkedIn

Goldman Sachs put social impact bonds on the front burner earlier this year when it announced the one of the nation's first social-impact bond program.

It will work with New York City to provide a $10 million loan to a nonprofit that will implement an education and counseling program at the Rikers Island jail. If recidivism falls by 10 percent, the New York City government will pay the non-profit, which will in turn pay back Goldman. If recidivism falls further, the bond investors would make a profit.

The announcement puts Goldman Sachs in a position to do what it can to bring down recidivism. Massachusetts is also moving toward use of social impact bonds. Other banks may be thinking about jumping on the bandwagon.

The Charlotte Observer notes that Bank of America "has applied for a trademark on the phrase 'Anything a Society Truly Wants Can be Financed and Achieved.' Its trademark application goes on to say that it pertains to social impact bonds or 'project financing for socially beneficial programs.' "

As of right now, the U.K has embraced the concept to greater degree and Canada also has plans to develop the idea. In the U.S., the federal government has indicated its desire to expand such programs greatly in the near-term, though nothing concrete has been established. 

For more:
- here's the article

Related articles:
Goldman Sachs to issue "social bonds" for NYC
 

 

 

Read more about: Social Impact Bonds
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5. Gravy train of Libor settlements

By Jim Kim Comment | Forward | Twitter | Facebook | LinkedIn

Barclays was first out of the gate with a deal to settle charges that it manipulated the process that set the Libor rate.

It inked a deal to pay $450 million this summer to U.S. and British authorities. It got off light in some respects, because it was cooperating with investigators and had conducted an extensive internal investigation. Next up to settle is UBS, which will likely be asked to pay much more than $450 million even though it has limited immunity agreements in place. It has also been cooperating with the probe.

The settlement negotiations have been on-going for at least six months, but they have reached the point where media leaks are taking place. A settlement announcement could come as early as this week, or it could be coming next month. More settlements will follow, as just about all major banks that participated in the Libor process are pondering settlements.

RBS may be the third bank to settle with regulators. It recently said it hopes to begin the dialogue soon. Reuters notes that Morgan Stanley has estimated that 11 global banks linked to the Libor scandal could face up to $14 billion in regulatory and legal settlement costs through 2014. More banks will start reserving against this fairly soon.

For more:
- here's the article
- here's a Financial Times article

Related articles:
HSBC boosts reserves for litigation expenses
LIBOR scandal is marketing moment for GRC firms

Read more about: LIBOR, Enforcement Action
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SPOTLIGHT ON... Newly widowed mortgage holders face challenges

The New York Times reports on the plight of some newly widowed mortgage holders, who need help lowering their her payments but can't add their names to mortgage notes because they are not current on payments. There are more people falling into this trap apparently, and banks are moving to grapple with the issues, as regulators from the CFPB also take a close look. Article

Company News: 
> Ex-Goldman Sachs trader says he's not guilty. Article
> Goldman Sachs cuts Janus rating. Article
> Citi cuts tech exec in Europe. Article
> Fitch warns on munis. Article
> Bank of America delays fee hikes. Article
> More on UBS settlement. Article
> Moody's on bank bond risks. Article
Industry News:
> Banks lead financial sector. Article
> Hedge funds bet on commodities. Article
> Time to buy banks again? Article
Regulatory News:
> French bank law at issue. Article
> SEC charges China affiliates of audit firms. Article
And Finally…Fortune's blue-ribbon companies. Article

 


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Events


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> ABA Wealth Management and Trust Conference 2013 - March 3-5 - New Orleans, LA

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