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Today's Top News1. Jefferies paying cash bonuses
Big banks have been forced to cut back drastically on cash bonuses over the past few years, requiring more employees to accept bonuses in stock grants that vests over time and various deferred compensation arrangements. That's a big negative in the eyes of most. The fact is that while most are willing to hold stock as a long-term bet, cash is king. That's not lost on Jefferies, which is making it known that it will pay year-end bonuses immediately in cash. As CEO Richard Handler and executive committee Chairman Brian Friedman wrote in a memo employees, as noted by Bloomberg: "It is no secret that virtually every one of our bank holding company competitors is forcing onto their employees extremely high levels of non-cash compensation with long vesting periods or compensation in the form of cash to be received well into the future. You can't spend non-cash compensation or unpaid cash to buy a home, purchase groceries, invest in your life or help out friends and family." Jefferies isn't constrained by the same regulations that big banks are. Small banks and boutiques have not been encouraged to limit cash compensation the way the big banks have. The fact that a bonus will be paid in cash doesn't necessarily mean it will be larger than it was last year. All in all, employees at big banks are taking stock options right now with a favorable strike price. In the long-run, they may end up the big winners. But given a choice, people would rather have cash. For more: Related articles: Read more about: banker pay, bonuses
2. Pay for performance policies lead to greater gains for limited partners
Private equity investors tend to generate higher returns if they have linked their internal pay policies to performance, according to a new study from Coller Capital. The research found that 55 percent of limited partners with performance-related pay policies in place have achieved net annual returns of more than 11 percent over the last five year. Only 19 percent of limited partners who have not linked pay to play have achieved the same returns. So the message here is that pay for performance can work wonders up and down the fund selection chain. The fact is that big investors want the best possible return, which means they need to select the best performing funds. To incent that, linking pay to the fund selection process seems like a bright idea. The CIO of Coller Capital said in a statement that, "Private equity is all about alignment…(the findings) on performance-related pay show this is just as important for Limited Partners as it is for General Partners. Take a pension plan: it can only achieve strong returns from private equity by consistently selecting the right managers – and to do that you need talented, experienced and motivated people doing the selecting. To underpay the people investing their pensions simply isn't in the interests of pensioners!" For more: Read more about: Hedge Funds, Pay for Performance 3. Is there a substitute for the Libor?
A recent Washington Post article notes that, "No one knows precisely how widely the world uses Libor, officially called the London interbank offered rate. But most analysts estimate it determines rates for hundreds of trillions of dollars' worth of derivatives as well as tens of trillions in lending to businesses and consumers from Madrid to Manhattan." The report laments that the real issue here is the fact that anyone continues to use the Libor at all. Even the Treasury uses it. The reality is that there isn't a quick substitute. UBS and Nomura have tested the GCF Repo index, from the DTCC, which is based on actual rates paid for repos. Some have suggested the federal funds rate and T-bill rates as substitutes. Most likely none of these alternatives will replace the rate, so banks and regulators have every reason to proceed with reform measures. So what we're likely to get is a new process by which Libor will be set, not a movement to replace the Libor, despite the scandals that continue to swirl. A council of U.S. regulators met this month to discuss reform measures, including a proposal that would "anchor" Libor rates "to real transactions, instead of rates at which panel banks believe they could borrow." This is going to be a slow process. Until then, Libor will have to do, despite its flaws. For more: Related articles: Read more about: LIBOR, Short-term Interest Rates 4. Lloyd Blankfein not stepping down just yet
The rumor mill seems to run on perpetual energy when it comes to predicting when Goldman Sachs CEO Lloyd Blankfein will step down. People love to talk about it. Blankfein himself provided little grist for the mill at a recent conference when he essentially said he had no plans to step down anytime soon. He was quoted saying, "I come in every day and I'm happy to be with the people I work with, it's exciting. Would I like it better if I were at home just watching you on TV all day? I don't think I'd like that very much." There's no doubt he'd rather be working, but the issue is where. All in all, I think that the idea that he would like to serve in a high-profile public sector job is one worth exploring. The CEO has been in statesman mode as of late, publishing reasonable editorials and offering his public support for the administration. There will no doubt be some opportunities once the current administration turns to staffing out its cabinet for the second administration. Blankfein would be a formidable candidate for any number of jobs. He did throw a small bone to those who love to watch (and even stir) the tea leaves about CEO succession at the gilded bank. He said at the conference that he's sure his successor will come from within the bank. Of course, people knew that already. For more: Related articles: Read more about: Lloyd Blankfein, CEO succession 5. UBS to pay $1 billion in Libor charges
This is a golden era of regulatory fines. The sums have been staggering as of late, and HSBC recently got in on the act, agreeing to pay a whopping $1.9 billion to settle accusations multiple AML abuses. Now insiders are letting it be known that UBS has agreed to pay $1 billion to settle charges that it fraudulently sought to manipulate the Libor rate-setting process. That compares with the $450 million Barclays settlement over Libor manipulation charges. According to media reports, an announcement is on track for perhaps as early as Monday. UBS's settlement will likely resolve investigations by the Department of Justice, the Commodity Futures Trading Commission, the UK Financial Services Authority and the Swiss regulator Finma. The CFTC took the lead in this investigation, according to the Financial Times. There's likely to be a lot of Libor settlement-related news soon. RBS has said it is actively in negotiations, and a settlement announcement could be in the near future. Several U.S. banks, including Bank of America, Citigroup and JPMorgan Chase, are under investigation as well. The probe involves ten regulatory authorities around the globe and about 20 banks and interdealer brokers. With the arrest of three former Barclays traders recently, the probes took a criminal turn. The private litigation looms as immense as well. We'll most likely continue to see some huge settlements. UBS was hit with a massive settlement, even though it was cooperating with authorities, which makes the $1 billion even more ominous. For more: Related articles: Read more about: LIBOR, settlement Also Noted
SPOTLIGHT ON... Tiger Asia pleads guilty Sung Kook "Bill" Hwang was well-known as a Tiger Cub, that is, as a protege of sorts for Julian Robertson. Hwang's firm, Tiger Asia, unfortunately has been undone by federal prosecutors, who charged him with insider trading. He pleaded guilty this week on behalf of Tiger Asia Management. The firm was placed on one year's probation. Hwang himself was spared charges, but he agreed to settle parallel SEC charges for $44 million. He will be banned from the industry for five years. Article Company News:
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Friday, December 14, 2012
| 12.14.12 | Jefferies paying cash bonuses
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