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Today's Top News1. Citigroup to slash 11,000 jobs
It's not necessarily a surprise that Citigroup has announced a renewed effort to cut costs, in the form of 11,000 layoffs, of 4 percent of the current work staff. About 6,200 positions will be cut from Citi's global consumer banking businesses, with about 40 percent of those layoffs coming in the back-office operations and technology areas. The costs will be immense, totaling $1 billion in the fourth quarter. The savings, however, should start $1 billion annually starting in 2014. The aggressive moves had been pitched as CEO Michael Corbat's bid to quickly put his stamp on the company after taking over for deposed CEO Vikram Pandit. But inevitably you have to wonder if this is really Michael O'Neill putting his stamp on the bank. It was not secret that O'Neill was at one point in the running to lead Citigroup. Corbat was his hand-picked successor. O'Neill's plans, according to the New York Times, "typically involve ruthless cost-cutting, often resulting in bank branches being closed. In its announcement on Wednesday, the bank said 84 branches worldwide would be closed…When Mr. O'Neill joined the board in 2009, he was intent on reducing costs in the bank's vast operations. Mr. O'Neill has had practice turning around an underperforming bank, having steered Bank of Hawaii to profitability earlier in his career." If the expense reductions succeed in getting the stock price moving higher, no one will care. But if the bank continues to list, we might hear a little more about leadership in general. For more: - here's the Times article Read more about: Layoffs, expenses
2. Rajat Gupta to remain free on bail
In what might be seen as disconcerting sign for federal prosecutors, a U.S. district judge in Manhattan has ruled that Rajat Gupta, the former Goldman Sachs director who was convicted of insider trading fraud, can remain free on bail while he appeals the verdict. As noted by DealBook, Gupta was to report to prison on January 8 to begin serving a two-year sentence. The "ruling suggests that Mr. Gupta persuaded the judges that he has legitimate issues to argue on appeal. The same federal appeals court had denied a request by Mr. Rajaratnam to remain free on bail pending his appeal. Mr. Rajaratnam is serving an 11-year prison term. Mr. Gupta's lawyers are expected to make several arguments in pushing for his conviction to be overturned. The most significant issue on appeal is expected to be the government's use of the wiretaps during the trial. Judge Jed S. Rakoff, the trial-court judge, allowed the jury to hear incriminating wiretapped conversations involving Mr. Rajaratnam and his traders that suggested he had a source inside of Goldman." The wiretaps did not include Gupta, only Rajaratnam talking to others. So some may consider the evidence quite circumstantial. It's an open question if the wiretap of Rajaratnam was decisive in the minds of the jury. In any case, prosecutors certainly do not want to retry the defendant without the tap. For more: Related articles: Read more about: insider trading, Rajat Gupta 3. Markets not fazed by fiscal cliff
While the rhetoric about jumping off the fiscal cliff has been heating up, Wall Street isn't that worried. We're not seeing any market pyrotechnics or a lot of budget angst. One could argue that the market has priced in the uncertainty over the fiscal cliff negotiations already. But another explanation is that the smart money is savvy enough to know that all the rhetoric is simply that--a lot of talk. Both sides have to play a certain game, right now. It's all about sticking to their principles and reassuring their party bases, that they are standing firm on the principles that got them elected. In the end, there will be a deal, even if it's only a deal to essentially kick the can down the road. Neither side is willing to risk what would undoubtedly be an economic disaster. The Washington Post raises yet another explanation worth mentioning: "another argument for why there is no need for huge concern is that a short-term voyage off the cliff would do no lasting damage to the economy. Even if there is no deal on Dec. 31, Treasury Secretary Timothy F. Geithner could order that income tax withholding tables not be adjusted to reflect higher tax rates on Jan. 1, which would mean that Americans would not immediately see smaller paychecks. The government could adjust the timing of payments to defense contractors and others to take the sting out of automatic budget cuts in the initial days of 2013." This may be true, but I still expect a deal, even though the negotiations will go down to the wire. Washington has grown accustomed to this, for better or worse. For more: Read more about: Fiscal Cliff 4. WaMu victimized by short sellers
The death of Washington Mutual seems like old news now. Remember that it suffered essentially a run on the consumer bank unit, the OTS seized Washington Mutual Bank from Washington Mutual, and proceeded to place it in receivership under the auspices of the FDIC. Only then were the bank units sold to JPMorgan for just $1.9 billion. The deal has been controversial ever since. The court of public opinion no longer cares to adjudicate the issue and whether JPMorgan got an inappropriate sweetheart deal. But a group of creditors have been fighting for years to get a better shake. Part of their case includes allegations that WaMu was victimized by naked short sellers in the months leading up to its failure. Creditors in particular want to know if "if long-time investment banker Goldman Sachs was involved in abnormally high levels of short selling of Washington Mutual's stock," according to Dow Jones. The gist here is that as investment bankers, Goldman Sachs was tasked with shoring up market confidence in the thrift and finding a suitable buyer. "Instead of providing this promised support to [Washington Mutual], it appears that Goldman Sachs may have decided it could make more money by betraying its client," court papers allege. "If they get proof, creditors believe they can hit Goldman Sachs with a suit for damages over breach of its contract as investment banker for Washington Mutual." This seems like a Hail Mary at this point. That said, it would be interesting to see any evidence that Goldman Sachs-driven naked short selling was behind the WaMu implosion. It's not hard to believe that a lot of shorting was going on. Lehman Brothers and Morgan Stanley can attest to that, but it will be hard to show that the activity was illegal or inspired by a single bank. For more:
Read more about: short sellers, Wamu Mortgage 5. Rochdale Securities struggles to survive
Rochdale Securities was a somewhat well-known brokerage for one reason: It employed Richard Bove, the bank stock analyst who enjoys a high degree of media visibility. He put the brokerage on the map. Now, a mid-level trader named David Miller is on the verge of the taking the firm off the radar. He has been arrested and charged with fraudulently buying 1.625 million shares of Apple in a blazing bid for glory, according to prosecutors. The massive purchase was characterized by Miller, when confronted by compliance employee, as a fat-finger sort of mistake, saying that a client wanted to buy 1,625 shares. Prosecutors contend that there's much more to the story. They say he planned the unauthorized purchase for personal gain, seeking all the upside, but leaving the firm to shoulder the downside, which was became massive when the stock began falling. Miller was also consorting with another broker dealer to take a large short position, perhaps to hedge his losses if the trade did not work out. In any case, Rochdale was left holding the bag, and it is scrambling to survive. As of now, it is on life support. Due to the capital shortfall, Rochdale has been unable to trade or even issue research, which must be driving Bove crazy. Finra data shows that at least 14 Rochdale employees have deregistered with the firm, including the co-heads of its trading operations. For more: Read more about: trader Also Noted
SPOTLIGHT ON... Bank profits fare well in Q3 We're grown accustomed to thinking about banks as a beleaguered bunch. That's certainly true when discussing the bulge-bracket banks that dominate the headlines. But the banking industry as a whole has fared decently as of late. FDIC-insured commercial banks and savings institutions reported $37.6 billion in third quarter earnings, up from $35.2 billion a year ago. This marks the highest quarterly net income reported by the industry since the third quarter of 2006, according to Zack's. Article Company News:
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Thursday, December 6, 2012
| 12.06.12 | Citigroup to slash 11,000 jobs
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