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Today's Top News1. "New era" of private equity is old news
The "Golden Era" of private equity may have ended years ago, but there was still time for the New York Times to put a definitive final nail in the coffin. "Over the last five years, the biggest private equity firms have made a gradual transformation that is now complete. Once known for their swashbuckling leveraged buyouts — like K.K.R.'s noted 1980s-era takeover of RJR Nabisco — these firms have changed into global, diversified investment companies with very public profiles," it notes. Blackstone has $205 billion in assets under management, with just 25 percent in private equity funds. The move toward greater diversification began years ago, as did the movement for these companies to list publicly. A great symbol of the new era of private equity may well be the Carlyle Group, and its splashy new web site. As public companies, the biggest of these companies are more open than they in the Golden Era. They have been open about the need to find new sources of revenue. Most would agree that as a driver of revenue, private equity operations will continue be a smaller contributor. Certainly, the power pendulum has swung away from the general partners. Limited partners now have the upper hand in negotiations. CalPERS reportedly has used its heft to demand fee reductions. The ultimate ignominy may ultimately be future changes to the tax code that will tax their portfolio gains as ordinary income, not at the much more generous capital gains rate. The irony may be that this change comes at a time when the industry is placing less value on financial wizardry and more on organic growth-oriented managers. There may yet come a day when private equity earns a new respectability for growing companies the old fashioned way. For more:
Read more about: Private Equity
2. Analyst: Banks loom as dividend plays
I noted recently that Goldman Sachs has made big banks its number one investment idea for 2013. The premise was built in large part on the idea that the housing market was poised to surge, which would lift banks significantly. To add to the bullishness, I point to a recent report from KBW. The report concludes that banks are in a nice zone in that dividends, which will likely go higher soon, will lead to some very nice yields, as stock prices currently remain depressed. The analyst notes that JPMorgan Chase, which carries an attractive dividend yield of 2.82 percent now, could see its dividend yield climb to a fat 3.76 percent in 2013, as noted by CNBC. Citigroup, which pays a penny, now will likely raise its payout to about 25 cents, for a yield of 2.7 percent, note the analysts. One big issue of course is the fiscal cliff, which could lift taxes on dividends massively. But beyond the cliff, which I think will be avoided, it's entirely possible that dividends will once again be taxed as ordinary income instead of 15 percent. KBW suggests that higher tax rates will not sink dividend-play stocks because many of the buyers are in tax deferred funds. For more: Related articles: Read more about: Bank Stocks, Dividends 3. Private banking booming amid tough times
The need to expand profit margins is acute right now in the banking industry. Banks understand that they can't subsist on low-margin services, they need to be selling big-ticket services. At the retail level, that means turning away services for the smallest accounts and aiming to expand their revenue reach with the largest account. Ideally, they would like these customers to turn to them for all their financial needs. It seems that private banking is in the midst of a mini-boom. The Boston Globe reports that "Bank of America, one of the nation's biggest banks, has outlined plans to eliminate 750 branches over the next few years and eliminate tens of thousands of jobs, but still decided to add hundreds of jobs to its private banking unit. Rival JPMorgan Chase's private bank is also expanding, hiring 200 advisers across country this year and 25 more in Boston over the past two years." Smaller, banks are also active, but these banks may be picker than ever. In the U.K. and U.S. anyway, many banks have been culling customers that weren't quite up to snuff. Others have been focused on instituting new fee structures to maximize their gains. And while private banking remains profitable, the industry has suffered since the financial crisis. The headcount still hasn't recovered in many private banking units. In some ways, they continue to have trouble underscoring their value to customers. Banks will be challenged on this for years to come. For more: Related articles:
Read more about: private banking 4. Bank of America lags, JPMorgan soars in customer service
Has Bank of America recovered from the multiple public image hits it has suffered over the last few years, epitomized by its botched attempt to impose debit card fees in retail customers? It still has a lot of ground to make up, according to the latest results of the American Customer Satisfaction Index, published by ACSI. Bank of America's scored 66--an 11 year low--compared with 68 a year ago. Citigroup fell 3 points to 70. Wells Fargo fell 2 points to 71. JPMorgan Chase rose 4 points to 74, to take the top spot among big banks. Small banks as a group scored a 79, beating banks' overall score of 77. Credit unions as a group scored 82. That has allowed smaller banks to gain market share, ACSI said. "As more customers move from large banks to smaller banks and credit unions, the overall customer satisfaction level for banks goes up as a matter of mathematics. As the smaller banks do a better job with customers and therefore attract more of them, customer satisfaction for banks on the whole gets a boost." Given these results, Bank of America was wise not to proceed with a fee hike this year. It's clear that the fallout from the bank protests a year ago is clearly sticking around. Bank of America would be wise not to risk a repeat. It's unclear what Bank of America can do at this point. People might say they should emulate JPMorgan Chase, but how? That's much easier said than done. For more:
Read more about: JPMorgan Chase, Bank of America 5. President reaches out to Wall Street execs about fiscal cliff
The Obama Administration is pursuing an interesting strategy when it comes to drumming up support for his plan to avoid the fiscal cliff, according to the New York Times. On the one hand, the President is busy lining up increasingly vocal support from the CEOs of Fortune 500 companies. But even as these CEOs shift toward supporting a hike in taxes on the wealthiest taxpayers, "the White House continued to work behind the scenes to woo some of Wall Street's most powerful financiers — a group that had largely abandoned President Obama in his bid for a second term after supporting him in 2008." A high-profile train of Wall Street executives are making the trip Washington to hear the pitch. The group includes several hedge fund managers, such as Daniel Och, of Och-Ziff Capital Management. White House officials also "sat down with a more than half a dozen top bankers and financiers, including Gary D. Cohn, president of Goldman Sachs, and Greg Fleming, head of wealth management at Morgan Stanley." Among the most supportive of the president's agenda is Goldman Sachs CEO Lloyd Blankfein. "The political symbolism of some of the wealthiest Americans' saying they support higher taxes on the rich takes a bit of the sting out of the idea of raising rates, for both Democrats and Republicans. Indeed, by appealing to both camps and enlisting their support, President Obama hopes to neutralize potential critics, according to allies of the president on Wall Street," the article notes. This is an interesting alliance that's shaping up. While many on Wall Street opposed the general rhetoric coming from the administration during the election, they fear the consequences that will flow from the cliff and an impassive on the debt ceiling. They would rather swallow their distaste for the president and urge a deal sooner rather than later. Ultimately, they have a lot to lose. For more: Related articles: Read more about: Fiscal Cliff Also NotedSPOTLIGHT ON... JPMorgan expands disclosures The SEC's Division of Corporation Finance was apparently not pleased with JPMorgan's disclosures in its 10-K annual report for 2010 and its 10-Q report for the first quarter of 2011. It demanded changes, challenging the bank on its "descriptions of its risk factors, its possible losses on home equity mortgages, its exposure to European debtors, and its accounts of its executive compensation criteria," according to Reuters. "In the majority of cases, JPMorgan said it would disclose more information or add clarifying statements in future filings. In other cases, the SEC let stand JPMorgan's explanation that the information being asked about was not available or was not material to the company." Article Company News:
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Thursday, December 13, 2012
| 12.13.12 | "New Era" of private equity is old news
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