Today's Top Stories Editor's Corner: Settlement announcement said to be imminent Also Noted: Spotlight On... Vatican shuts down card payments News From the Fierce Network:
Today's Top News1. Citigroup could be the next Bank of America
It's hard to believe, but Bank of America had a stellar 2012 in terms of stock price appreciation. The stock nearly doubled, which is quite an achievement. The Street.com notes that, "Heading into the New Year, however, some analysts expect 2013 will be the year that Citigroup's stock outperforms competitors. The difference between the two is that while investors now value Bank of America at just a small discount to its total assets, they don't give Citigroup the credit it deserves for resolving crisis issues and its improving earnings outlook, which could drive share repurchases or dividends in the New Year. According to Marty Mosby, a banking sector analyst with Guggenheim Partners, the compelling value of Citigroup relative to Bank of America follows a multi-year recovery process for both bailed out lenders. While Bank of America saw its stock jump over 100% as its balance sheet was shored up in 2012, Citigroup may credit for expense cuts that will drive meaningful earnings growth in 2013." So is Citigroup in the early phases of a credit work-out driven recovery, which means it is in place for a big Bank of America-like surge? Mosby thinks so. He also thinks the bank's not getting credit for what will likely be a strong earnings year. Others are more than willing to make a similar bull case. For more: Related articles: Read more about: Citigroup, Bank of America 2. Why Mathew Martoma pleaded not guilty
Mathew Martoma can't look back now. The window of opportunity to reverse track and cooperate with prosecutors had been slightly open. But with his decision to formally plead not guilty to criminal insider trading, that window has firmly closed, barring something dramatic. He's heading toward a trial, which carries the risk of significant jail time if he's convicted. Forbes calls it the riskiest trade of his life. So why did Martoma plead not guilty? One could speculate endlessly. Perhaps he fears the prospect of jail time less than the prospect of testifying against a powerful figure like Steven Cohen. Maybe his lawyers convinced him can win at trial. He likes his chances apparently, though recent cases in which prosecutors did not have wiretap evidence make clear that the government can prevail. Anthony Chiasson and Todd Newman were both convicted of fraud and conspiracy related to insider trading and will be sentenced in April. The Martoma trial will essentially come down to the key witness, 80-year old Dr. Sid Gilman, who is said to have provided inside information to Martoma. If the defense can impeach his testimony, they have a strong chance at winning. It will be interesting to see how they treat him. They could take a direct approach, trying to destroy him emphatically. But that might backfire with the jury. They might take the gentle approach, painting him as an elderly naïve doctor and academic who is being used by the government. In any case, it will be exciting. At this point, you'd have to give the government the edge. For more: Related articles: Read more about: insider trading 3. Metacapital Management named top-performing hedge fund
Metacapital Management founder Deepak Narula might be the latest upstart in the hedge fund industry. Bloomberg Markets has pronounced him the top performing large hedge fund manager for 2012. "Narula, 49, has used Fannie and Freddie to build the world's most-successful hedge fund. His Metacapital Mortgage Opportunities Fund, which invests heavily in agency mortgages, returned 37.8 percent in the first 10 months of 2012, putting it at the top of the Bloomberg Markets list of the 100 best- performing hedge funds managing $1 billion or more…That comes on top of a 23.6 percent return in 2011. The Mortgage Opportunities fund is up 520 percent since it started trading in July 2008." Narula and others correctly bet that agency-backed mortgages were primed for a rebound. He was not alone on that, as three of the top five funds on the biggest winners list also were heavily invested in agency-backed mortgages. Nevertheless, congratulations are definitely in order. These sorts of accolades are cause for nervousness as well as celebration, however. The pressure is now on to continue to deliver outsized results, or at least avoid massive declines. John Paulson, among others, knows all too well that staying on top can be difficult and costly. For more: Related articles: Read more about: Hedge Fund Performance 4. Wells Fargo hit with scathing criticism
The Atlantic offers a scathing indictment of the banking industry, arguing that sophisticated investors now regard banks as little more than black boxes. "More and more, the people in the know don't trust big banks either," it notes. One expert was quoted saying, "There is no major financial institution today whose financial statements provide a meaningful clue" about its risks." A recent survey by Barclays Capital in fact found that more than half of institutional investors "did not trust how banks measure the riskiness of their assets." To prove its point, the authors took a look at the Wells Fargo annual report--and came away somewhat alarmed. "These disclosures wouldn't earn anyone's trust. They are littered with language that says nothing, at length. The report is riddled with progressively more opaque footnotes—the financial equivalent of Dante's descent into hell. Indeed, after the friendly introduction, the report ought to bear a warning to the inquisitive reader intent on truly understanding the bank's financial positions: 'Abandon all hope, ye who enter here.' " The bank did tell the authors that it devotes great resources to fulfilling all reporting requirements, a statement that generates little doubt with me. It no doubt fulfills the letter of the law, though that may less than a direct tell-all. All in all, it may be little unfair to pick on Wells Fargo when it does little different than other big banks. The issue may be one of packaging. Most companies today see the annual report as a marketing exercise, and the information is presented accordingly. Still, you can't argue with the main point: The industry still suffers from a lack of transparency. Undercutting the argument to a degree is the fact that stocks are rallying. Some might marshal this fact as support for the proposition that investors are growing more confident in banks, and de facto, their disclosures. For more: Read more about: Wells Fargo, Transparency 5. Brian Moynihan's job status improves
Even as the stock was rallying, there was lots of talk last year about Brian Moynihan's tenure as CEO of Bank of America. More than a few wondered if his days were numbered, but as of now, he would appear to have given himself a reprieve. The past 12 months are in the books, and Moynihan can proudly point to the bank's stock price, which more than doubled. The stock price remains below tangible book value per share, but that matter's little. Moynihan has got the ball rolling and the board would have a tough time explaining a CEO switch now. One analyst told the Financial Times that, "I think [Moynihan] definitely has some runway now because they've built credibility. He's got some time to show the earnings inflection. Over the next year or two that's the next benchmark he'll be measured against." Moynihan cannot afford to sit on his laurels. The bank's capital position is strong, and all expect Federal Reserve approval of some sort of capital return activity in 2013. On top of that, the economic cycle has moved to the point that the bank has accelerated into growth mode. After two years of focusing mainly on expenses, the bank is now aiming to really ramp up its lending growth, at the retail and wholesale level. We'll see if 2013 ends up being another breakout year. The analysts remain optimistic. For more: Related articles: Read more about: Bank of America, CEO Also NotedSPOTLIGHT ON... Vatican shuts down card payments On January 1, the Bank of Italy ordered Deutsche Bank Italia, which handles bank card payments on Vatican territory, to deactivate its terminals because of authorization problem. Local press reported big issues between the Vatican and banks seeking to implement AML policies. Various reports "quoted Italian central bank sources saying the Vatican does not respect international anti money laundering norms and an Italian-registered bank such as Deutsche Bank Italia can therefore not operate on its territory." Article Company News:
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Monday, January 7, 2013
| 01.07.13 | Citigroup could be the next Bank of America
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