Today's Top Stories Also Noted: Spotlight On... Big pension makes statement on guns News From the Fierce Network:
Today's Top News1. Profile: Goldman Sachs' Multi-Strategy Investing group
Most Wall Street banks will tell you that they've taken steps to comply with the still not-finalized Volcker Rule, which aims to curtail risky proprietary trading by banks. So what constitutes prop trading for this purpose? Bloomberg offers an interesting article about Goldman Sachs' Multi-Strategy Investing group, which makes proprietary bets and has no clients. So is this activity banned Volcker Rule? Not yet, anyway. Relying on a 2011 proposal for implementing the Volcker rule, the bank uses a 60-day cutoff to classify short-term trades. Long-term trades are allowed. The unit, housed in the Special Situations Group, "has bet against companies through short selling, or the sale of borrowed securities, and while investments are supposed to last for months, they sometimes end early." One former employee said it was "very much like a hedge fund." These words make executives wince, as they fought hard to combat the notion that the firm is a giant hedge fund. "Goldman Sachs, the fifth-biggest U.S. bank by assets, doesn't report on the holdings or performance of MSI, or of the Special Situations Group in which it's housed. That parent group, which uses the firm's funds to profit from distressed and middle-market companies, has been a major profit center at the bank, sometimes the biggest." It remains to be seen whether this will cause any controversy as the Volcker Rule is finalized. But if there were to be significant losses in the long-term investing units, it might erupt as a London Whale-like media issue. For more: Read more about: proprietary trading, Volcker Rule 2. AIG board decides against suit
In the end, the idea that AIG would sue the U.S. government for bailing it out at the height of the financial crisis was so preposterous that it almost seemed like an item in The Onion. But Maurice Greenberg, the former AIG CEO, remains dead serious about the fact that he's hired super litigator David Boise to press the case that shareholders were given short shrift by the terms of an unconstitutional bailout. He vows to continue his fight for $25 billion. But the company itself will not be joining his suit, which was filed last year. The board has meet and come to really the only tenable position, which is that it cannot join such a suit. It said it will not only decline to pursue the suit but it will seek to prevent Greenberg's investment firm from pursuing the suit in the name of AIG. "In considering and ultimately refusing the demand before us, the board of directors properly and fully executed our fiduciary and legal obligations to AIG and its shareholders," said the company in a statement. "To date, AIG has returned $205 billion to America, including a profit of $22.7 billion. We continue to thank America for its support." The company hopes to quell the mounting furor over the suit. Politico noted a furious backlash building in Washington. One former senior administration official who worked on the AIG bailout joked to the paper: "To paraphrase Churchill, the Board did the right thing after having exhausted every other alternative." For more: Related articles: Read more about: AIG, Bailouts 3. Financial advisory industry's image problem
DealBook offers a sobering conclusion when it comes to the issue of advisor fraud, noting a "persistent problem" with policing the industry, "even after the wave of rules enacted since the collapse of Bernard L. Madoff's giant Ponzi scheme in 2008." The financial advisory industry indeed has something of an image problem that doesn't seem to be getting better. The article notes that, "The challenge of oversight is not becoming any easier, with the ranks of financial advisers swelling. As new regulations crimp profits, big banks like Wells Fargo are ramping up their brokerage businesses in an effort to make up for lost revenue. Amid the renewed focus, banks have spent millions of dollars to beef up their compliance systems and improve their oversight. Regulators, too, have bolstered their efforts, increasing enforcement and adopting new measures. Every month, the Financial Industry Regulatory Authority, a Wall Street watchdog, penalizes more than 100 brokers for various actions, including unauthorized trading and fraudulent activities, as well as smaller violations." The article highlights an interesting scheme where a broker made trades for clients, cancelling winning ones after the fact. He then pocketed the profits, unbeknownst to the client.. The silver lining here is that internal systems at Wells Fargo caught the scam. The broker will be sentenced soon. For more: Read more about: wealth management, brokers 4. A change in mindset on bank rules
Banks have notched some big settlements this week. Bank of America settled with Fannie Mae for $10.3 billion. Ten banks again settled with federal regulators over shoddy mortgage practices. And many big banks cheered when global regulators offered a reprieve on the Basel III on the liquidity coverage ratio (LCR). They'll now have four more years to meet key targets, and they'll be able to use a longer list of assets that will satisfy the requirement, including mortgage-backed securities. So once again, the pundits are saying that the worst of the post-financial crisis malaise is behind us. This isn't anything new. Analsysts said the same thing last February, when the top five mortgage banks and servicers inked a deal with state attorneys general. Perhaps the better way to view all this is as a rolling process to recover from the near-death experiences in 2008. The mindset from the regulatory side has morphed quite a bit over the past few years. The goal has moved from outright retribution and punishment to a more conciliatory approach that aims to prod banks to become economic engines at a time when the country needs them most. Some might see this as a sign of regulatory and enforcement capitulation, merely slapping banks on the wrist for significant crimes. But others would argue the economy takes precedent. A Washington Post editorial reflects this new attitude: "With the five-year anniversary of the financial crisis approaching and large chunks of the world economy still in dismal shape, the banks are winning. Now we just have to hope that they use those victories to support growth." For more: Read more about: regulation, Capital Ratio 5. Investigation shakes up Herbalife battle
The Daniel Loeb vs. William Ackman battle over Herbalife was fascinating enough, even before the SEC launched an investigation into the company. The focus of the probe is unclear, but most people will assume that sales practices will be at least an issue. The bullish case that Daniel Loeb has articulated is predicated on the idea that government investigators are not likely to find that Herbalife is a big fraud and shut it down. He finds the suggestion so preposterous that he was willing to take an 8 percent stake in the company. Most people have assumed that the FTC would be the regulatory entity most likely to take such action. But what about the SEC? The investigation comes as a surprise, one that might be favorable to Ackman, who is betting against the company. But longer term, the issues are basically the same. For the shorts to win big, Herbalife at some point will have to be seen widely as a fraud, and it would really help if prosecutors were to allege as much formally. It could be the SEC, or it could be the FTC. They might attempt a joint investigation. At this point, it doesn't appear as though the impasse will be resolved anytime soon. These investigations take time. For more: Related articles: Read more about: shorts, Hedge Fund Managers Also NotedSPOTLIGHT ON... Big pension makes statement on guns The California State Teachers' Retirement System (CalSTRS) board has voted to divest itself of investments in gun and ammo makers if they product is illegal to purchase or own in the state of California. Recall that the pension came under fire when it was revealed that it owned a stake in the Freedom Group, a gun maker, in the wake of the Sandy Hook tragedy. Other big institutions are likely weighing their policies. This may be the start of a trend. Article Company News:
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Friday, January 11, 2013
| 01.11.13 | Profile: Goldman Sachs' Multi-Strategy Investing group
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