Today's Top Stories Also Noted: Spotlight On... GAO to look at too big to fail News From the Fierce Network: Today's Top News1. Analyst: Citigroup should dispose of bad bank assets
The "bad bank" concept seems to have worked at several banks. Consider Citigroup, which created a bad bank known as Citi Holdings four years ago to serve as a container for toxic assets and other non-core units that it saw as ripe for disposal. The Financial Times notes that, "Citi executives say the strategy worked, allowing investors to understand the core business better. An additional benefit: staff were not left looking over their shoulder, worried about which businesses were being prepared for sale – it was out in the open. Into Citi Holdings went a diverse range of assets, including CitiFinancial, a consumer finance company with 3,000 branches catering to US customers but these were distinct from the urban, international customers that the bank sees as its base. Private-label credit cards went into the 'bad bank' too but this business was later given a reprieve – the only example so far of Citi bringing a business back into the fold of its core operations. Citi's stake in Smith Barney, the retail brokerage, also went into Holdings." The unit still holds about $100 billion in mortgage assets. Overall, assets have fallen from more than $600 billion in 2008 to $171 million last quarter. So, what can be done about the rest of the bad bank assets? Mike Mayo, analyst at CLSA, has argued that the bank should work to sell off more assets in the bad bank. My sense is that the bank would love to sell the majority of the bad bank's assets, but that's far easier said than done. For more: Related articles: Read more about: Citigroup, bad bank 2. Teach for America recruits would-be Wall Streeters
You have to feel at least wistful for the many young people who dreamed of a career on Wall Street, only to run into trouble landing a job. The economy has been anything but accommodating. Indeed, the gravy train that previous graduates took for granted has stalled out. But DealBook notes a silver lining, writing that, "In the last several years, hundreds of such would-be finance professionals and management consultants have taken their high-powered ambitions and spreadsheet modeling skills to the classroom. Teach for America, the 22-year-old nonprofit organization that recruits high-achieving college graduates to teach in some of the nation's poorest schools for two years, in particular has garnered renewed interest among the business-oriented set. Teach for America says that its 2012 class contained about 400 recent graduates with a major in business or economics. Of those with professional experience, about 175 worked in finance." You have to applaud those who open their eyes to other experiences while they are so young. I certainly hope many of these folks end up with the career on Wall Street if that is what they truly want and that perhaps they gain experience that may lead them down a whole different path. For some, the weak hiring market may well prove a long-term blessing in disguise. For more:
Read more about: Layoffs, jobs 3. SAC Capital's success raised red flag
Over the past few years, conventional wisdom in the hedge fund industry has been that limited investors are wielding more influence, and increasingly want to see strong compliance measures. If you can't demonstrate solid risk management controls and processes, you end up "off the shelf," meaning investors won't consider you for investment purposes. But is it possible that such thinking is a little overblown? Is a little too much credit being given to limited partners? I raise the issue as the SAC Capital insider trading investigation continues to unfold. Twelve former employees have been implicated in some form of insider trading scandal, though neither SAC Capital founder Steven Cohen nor the firm has been charged. Some would argue that if the government secures cooperation from accused insider trader and former SAC Capital manager Mathew Martoma, the chances of charges against the firm go much higher. In any case, should all the investigatory smoke be a warning sign for SAC Capital investors? "Astonishingly, investors don't seem to mind terribly," notes ProPublica. They added as much as $1.6 billion in new capital to SAC's flagship fund from 2010 to the end of 2011, when the insider trading investigation was in full bloom, according to Absolute Return data. Some big institutions have been rethinking their investments, and we may see some decide to exit. But there certainly hasn't been a flood. Perhaps this owes to the unusually successful investing record at SAC Capital. But now, Cohen's unusual success has raised some red flags. "You have to wonder whether his returns have been generated not only through his trading brilliance but also through a culture of cutting corners and pushing employees to the point where they break the law. In the United States, you are innocent until proved guilty, and nowhere can that be seen more than for a man who can generate amazing investment returns." This saga is far from over. For more: Related articles:
Read more about: Hedge Funds 4. Markets disagree with credit rating companies
Do bond ratings really serve a purpose? Still smarting from the controversy over all the AAA ratings of highly risky credit products, credit rating companies will uniformly argue that their single objective is to deliver a measure of creditworthiness. Credit ratings are not intended to be an investment aid, but the market often reacts to news of credit rating changes, especially when it comes to sovereign debt. A Bloomberg study shows that "yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of the 32 upgrades, downgrades and changes in credit outlook.That's worse than the longer-term average of 47 percent, based on more than 300 changes since 1974." The conclusion suggests that the market increasingly tends to see a credit rating change as confirmation of something it already knows. If some debt is upgraded, the market may take that as confirmation of a sense of rising creditworthiness, hence, the market may sell on the news, the opposite of what one might expect. In many cases, a change in rating is a non-event. Perhaps that's how it should be. For more: Read more about: Credit Rating Agency 5. Abby Johnson's greatest career challenge
Bloomberg Businessweek pronounces Abby Johnson the "most powerful woman in finance." The crown is heavy, as more than a few felt the crown topple not long after they donned it. Abby Johnson, the president of massive but troubled Fidelity Investments since August, has certainly earned the title, though she probably cares little for it. In her 24 years at Fidelity, she has done everything she needed to do to successfully run the company. That includes a bout with a serious illness in 2007 that remains a mystery. She now faces her biggest challenges of reinvigorating a faltering brand and reviving a company that has made huge strategic mistakes, like ignoring the ETF trend. As a private company, outsiders have always yearned for more information about the Johnston family. She will not likely change her private ways, but she no doubt had a hand in the preparation of the profile in Bloomberg Businessweek, which sheds light on her management style (more collaborative than you would think) and her long preparation period (she's now savvy speaking in public). How she goes about reinventing the company will be one of the great industry stories going forward. I can only hope her gender proves to be a huge advantage as the company courts more women as customers. The issue of when she will completely take over may be decided soon. "Fidelity has said Ned Johnson has no plans to retire, making it hard to predict how long his lion-in-winter phase will last. It won't last forever. In April, the Greater Boston Chamber of Commerce dinner honored the Johnson family for their contribution to the city. It was a rare public appearance for Ned Johnson, who looked frail." Abby accepted the award for the family. For more:
Read more about: Fidelity Also NotedSPOTLIGHT ON... GAO to look at too big to fail It's been years since the financial crisis ended, and there's relief in sight to the too big to fail debate. The GAO will now take a look at the "economic benefit" banks such as JPMorgan Chase, Bank of America and Citigroup enjoy as result of their de facto too big to fail status. While there are new provisions in place to wind banks down without taxpayer assistance, there are many skeptics who think that government aid would be inevitable all over again. Article Company News:
©2012 FierceMarkets This email was sent to kumaresan.selva.blogger@gmail.com as part of the FierceFinance email list which is administered by FierceMarkets, 1900 L Street NW, Suite 400, Washington, DC 20036, (202) 628-8778. Contact Us Editor: Jim Kim Advertise Advertising: Jack Fordi or call 202.824.5040 Email Management Unsubscribe from FierceFinance Explore our network of publications: | ||||||||||||||||||||||||||||||
Friday, January 4, 2013
| 01.04.13 | A look at Citigroup's bad assets
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment