Today's Top Stories Also Noted: Spotlight On... How the PE industry might directly tap retail investors News From the Fierce Network: Today's Top News1. Morgan Stanley brokerage drops John Paulson
What does it take for people to turn on a well-known hedge fund manager? A lot. Scandal will hardly do the job. SAC Capital has done an amazing job keeping its limited partners in the truck, given all the enforcement issues swirling around it. What pushes people out the door fairly quickly is pretty simple: Crappy performance. It's one think when the tiny 92nd Street Y redeems its funds. But when Morgan Stanley Wealth management decides to stop recommending the funds and in fact recommends that clients get out now, it's another ball game. The recommendation applies at least to the flagship Advantage Fund and the leveraged Advantage Plus fund. Smith Barney, when it was owned by Citigroup, dropped the hedge funds in August, notes CNBC. All in all, it's been a tough stretch for Paulson. After the flagship fund was down more than 50 percent in 2011, it looks like 2012 will be another losing year. Through November, the fund was down about 17 percent. Given his track record in the late 2000s, his investors have been remarkably patient. He has other funds, not all of which have fared so poorly. Then again, some of his other funds have fared even worse. I can only hope that he's primed to rebound in 2013, but surely he knows he is far from high water mark. I wouldn't be surprised if he were to take some aggressive steps to start fresh. For more: Related article: Read more about: John Paulson, Limited Partners 2. Goldman Sachs makes loan to NYC bike program
Goldman Sachs has committed to investing in New York City, in large part because it wants to maintain an image as a bank interested in the greater social good. At the same time, since it's now a registered commercial bank, it is also CRA-bound to invest locally. The best example of a socially conscious local investment--certainly one that generated massive media coverage--was its move to issue $10 million in social impact bonds in the form of a loan to a city agency. The proceeds will be used to reduce recidivism by former prison inmates. The bank has just launched another civic program, a $41 million loan to finance the start of a bike-sharing program. The loan will support a program that Citigroup is also involved with. Goldman Sachs has also pledged millions to get the Citibike program up and running. Goldman Sachs' loan will be used as seed money, according to the Financial Times. The plans call for "10,000 rental bicycles at hundreds of docking stations in Manhattan, Brooklyn and Queens, which would make it one of the largest schemes of its type." Superstorm Sandy has pushed back the start date to around May. The loan from Goldman Sachs will be repaid by operating revenue from the program, which will include sponsorship payments from Citi. "Goldman's UIG, which aims to profit at the same time as doing good, has already poured money into projects ranging from single-family housing in hurricane-ravaged New Orleans to solar panel installations on the roofs of not-for-profit organisations in New Jersey," FT notes. For more: Related articles: Read more about: Goldman Sachs, Social Impact Bonds 3. Morgan Stanley seeks clawbacks from Jennings
Morgan Stanley bond executive William Bryan Jennings suffered utter humiliation when he allowed himself to become embroiled in a tabloid-worthy scandal that ended up with his arrest on charges of second-degree assault and "intimidation of bias." The dispute involved cab driver and an argument over the proper taxi fare from Manhattan to Jennings' home in Darien, Conn. The disagreement escalated into an in-taxi altercation during which Jennings was alleged to have used small knife. The cab driver ended up with six stitches. The charges were eventually dropped, and Jennings claimed victory. But remains much less than a victor in the eyes of Morgan Stanley. There was a day when fellow executives might have rallied around one of their own, but not in this case. Not when you end up in the tabloids for silly reasons. According to media reports, Jennings's office belongings were delivered to his driveway in boxes and now the banks would like to inflict more humiliation by clawing back around $5 million in funds that had been amassed as part of Jenning's deferred compensation plan. New York magazine thinks the company is treating him unfairly. "I have no doubt that Morgan Stanley was well within its legal rights to fire Jennings — he's an at-will employee, like everyone else. But clawing back his bonus reeks of selective punishment," the magazine notes. I agree with that sentiment. Morgan Stanley is no doubt sending a message to its executive that it's not going to sit back and let them embarrass them company with sophomoric after-hours shenanigans. Jennings has contested the clawback legally. It will be interesting to see how it plays out in court. Some sort of settlement may be in order, as the bank will not want to see this in the headlines much longer. For more: Related articles: Read more about: Morgan Stanley, clawbacks 4. Jefferies as an early warning system
Jefferies, which due to it's odd fiscal year is traditionally considered an early warning system for the bulge bracket banks, reported strong earnings for the three months that ended in November. Net income bested expectations, driven by a strong performance in sales and trading. Sales and trading revenue rose 64 percent from a year earlier. Fixed-income trading revenue more than doubled, while equities revenue rose 42 percent. These results bode well for other banks. Richard Bove, who is no longer affiliated with Rochdale Securities, says that bank earnings could hit a record in the fourth quarter. "There's a good chance the fourth quarter of this year will be the highest earnings period ever in the history of the American banking industry. And when you take a look at the $38 billion relative to the $25 billion earned in the fourth quarter last year, it'll be a 50 percent increase," he told CNBC. And who's in the sweet spot? Banks with brokerage operations. "Broadly speaking, if you think about the fact that there's been this huge increase in money supply over the last couple of years by virtually every major central bank in the world and that the brokerage-oriented banking companies — Goldman Sachs, Morgan Stanley, Bank of America, Citigroup and JPMorgan — have not benefited yet by the huge increase in supply," he said. "You have to assume that that money will get converted into securities, that trading activity will pick up dramatically, that investment banking opportunities right now are probably greater than they've been in decades." For more: Related articles: Read more about: Jefferies, bank earnings 5. NYSE Euronext to be bought by ICE
The venerable New York Stock Exchange has aggred to be bought by Atlanta-based ICE for $8.2 billion. ICE was most interested in the NYSE's Liffe derivatives operations. Indeed, it will likely sell off various overseas stock exchanges after the deal closes. The merger shows clearly how the securities business has changed over the past decade. Stock trading matters much less than derivatives trading, which continues to shift to exchange-based markets and central clearinghouses. In this shifting universe, the ICE has emerged as derivatives powerhouse with a strong streak of ambition. It has failed in bids to buy the NYSE (in a joint deal with Nasdaq), the CBOT and the LME. But it has been successful in buying numerous smaller exchanges. As for NYSE Euronext, it apparently sees the need to do something transformative for shareholders. After its disastrous attempts to merge with Deutsche Bourse, many thought it would opt to remain independent, but management had other ideas. That they are willing to sell to a derivatives exchange speaks volumes about where they think the industry is heading. The really interesting news has yet to be released. Who will run the combined entity? Will it be Duncan Niederauer, who some think has been tarnished a bit by his rocky tenure at NYSE Euronext? Or will it be Jeffery Sprecher, the founder of the company, whose roots are in engineering? He's hardly a household name, but he just might assume command of an important exchange company. UPDATE: Sprecher will assume the CEO spot of the combined company, while Niederauer will become president. For more:
Read more about: Nyse Euronext Also NotedSPOTLIGHT ON... How the PE industry might directly tap retail investors Fortune ponders the thorny question of whether the private equity industry will need to tap retail investors in the future. Lots of ordinary folks are invested now via public pensions, whether they want to be or not. But that source of capital may dry up, making it at least possible that private equity funds will market directly to individuals at some point. Lots of rules will have to change. This is a long way in the future. One indicator of current demand is the retail products, mainly ETFs, that have cropped up to provide returns linked to the industry. They remain niche products. Article Company News:
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Friday, December 21, 2012
| 12.21.12 | Morgan Stanley brokerage drops John Paulson
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