Today's Top Stories Also Noted: Opal Financial Group News From the Fierce Network: Today's Top News1. Goldman Sachs reports strong Q4 results
Goldman Sachs is back to being the Goldman Sachs of old. It hit on all cylinders in the fourth quarter of 2012, which resulted in a stellar earnings report. The top line result suggests that the bank is getting back to its growth days. Net revenues were $9.2 billion, a 53 percent rise year-over-year. As for earnings, the bank reported $5.60 in diluted earnings per share, which trounced analysts' expectations of about $3.80 a share. The resu lts were solid across the board. In FICC activity, net revenues were $2.04 billion for, up 50 percent year over year; strong net revenues in credit products and mortgages were offset partly by commodities and interest rate products. In investment banking, net revenues were up 64 percent year over year, powered by strong advisory activity, reflecting more mergers and acquisition activity. Underwriting was also strong. Returning to a past strength, the bank reported some merchant-banking-like gains, notably a gain of $334 million from the firm's investment in ICBC and net gains of $789 million from other investments. On top of all this, the bank was able to hold the line on compensation expenses. Goldman set aside 37.9 percent of 2012 annual revenue for compensation, compared with 42.4 percent in 2011. Unsurprisingly, Mr. Market liked what it saw and bid the stock up on the news. For more: Related articles: Read more about: Goldman Sachs, earnings
2. Banks struggle with net interest margin compression
Net interest margins about the banking industry intensified late last year. Accommoding monetary policy was pushing rates lower, posing all manner of balance sheet issues. Wells Fargo was one of the banks that was seen as vulnerable. Those fears were borne out by the bank's fourth quarter results, which showed that the bank's now closely watched net interest margin fell more than expected, to 3.56 percent from 3.89 percent a year ago and 3.66 percent in the third quarter. A five basis point sequential decline would have been good news, but 10 points is just too much. Late last year, the big issues were the imminent run-off of higher-yielding securities and a relative slowdown in write-ups of once-toxic assets. Right now, the bigger issue for Wells Fargo and the entire industry is the slow growth of lending. Wells Fargo loan-to-deposit ratio stands at about 80 percent, which historically low. The ratio has declined to about 72 percent from 95 percent in 2007 industry-wide. At the same time, the recent mortgage activity gains that powered earnings may dry up just a bit, which would be more bad news for the industry. It would be nice if the industry found ways to put the flow of deposits to work, but thatt's not going to happen immediately. For more: Related articles: Read more about: banks, Wells Fargo 3. Dell tries to save private equity market
Michael Dell has found himself under enormous pressure to raise the value of his shares, and he has been open in the past to taking the company public. Given that he owns more than 15 percent of the company, you have to take the rumors that he will take the company private seriously. It strikes me as a trial balloon. Dell has apparently opened talks with private equity firms Silver Lake and TPG about a transaction that would get the year off to a fabulous start for the private equity industry. "Based on Dell's market value as of Jan. 11, a deal could be at least the largest buyout of a technology company since 2007, when KKR & Co. bought First Data Corp. for more than $25 billion, according to data compiled by Bloomberg. It could also be the largest acquisition in the computer industry since Hewlett-Packard bought Compaq Computer Corp. for about $19 billion in 2002, the data show," notes Bloomberg. All computer makers rallied on the news. The notion that Dell would consider a leveraged buyout has undergirded the stock for a while now. For some, it has been the single best reason to own the stock. The big question is whether the firms could get a deal that could be valued at more than $20 billion actually consummated. That's not a given right now. Fortune suggests that it may take three firms, at least. For more:
Read more about: Leveraged Buyout 4. Banker's stake in Armstrong doping scandal
Lance Armstrong may be about to come clean about his doping allegations. And that has enormous implications for financier Thomas Weisel, who has been among his biggest supporters. Weisel was an owner of the United States Postal Service Pro Cycling Team and "could be subject along with his partners to lawsuits from corporate sponsors seeking millions of dollars. Already, there is a False Claims Act case contending that Mr. Armstrong and the team defrauded the Postal Service," notes DealBook. But the more salacious issue involves the actual doping. The media have reported that Armstrong, as part of his bid to return to legitimacy, will not only cop to using the performance-enhancing drugs. In addition, he is in negotiations with the Justice Department "to possibly testify in a federal whistle-blower case against several team officials and owners, including Mr. Weisel." He was quoted years ago by the Wall Street Journal on the issue of doping saying that, "Handle the problem below the surface and keep the image of the sport clean. In the U.S. sports — baseball, basketball, football — most fans couldn't care less." Weisel was certainly passionate about the team, and the sport. It could end in ignominy. Weisel has a lot riding on what Armstrong says and does over the next year. For more:
Read more about: Thomas Weisel, Lance Armstrong 5. JPMorgan struggles to forget the London Whale
It's been about eight months since JPMorgan Chase CEO was forced to admit that a "hedging" ploy went horribly wrong, ultimately costing the bank $6.2 billion. The bank booked the losses and consumed humble pie in public. Jamie Dimon seemed eventually regained his grove as an arch-influential banker and CEO. But the consequences of those ill-fated trades are still being felt. The OCC has just issued an expected cease-and-desist order that will force the bank to redouble its compliance and risk management efforts to ensure that such "hedging" lapses do not recur. Some see this as little more than a slap on the wrist. In addition, the bank will also release a report this week, most likely Wednesday, that it hopes will be the definitive word on the issue. I noted recently that the Dimon himself faces clawbacks due to the incident, one that threatens his status as the top-paid banker on Wall Street. Other executive have already faced clawbacks. I can only hope that all this blows over again quickly. The fourth-quarter results may well represent an opportunity to switch the subject. Lost in the London Whale discussion, the bank was also hit with a cease and desist order that forces it to beef up its AML compliance initiatives, yet another area in which the bank's reputation has been sullied. For more: Related articles: Read more about: CEO Also Noted
SPOTLIGHT ON... Bond funds embrace longer durations In an extremely low-rate environment, the bond buy-side will be tempted to invest in risker fare. Banksand some bond funds are alerady doing that, notes Fortune. "The average duration of intermediate bond funds is four and a half years, which is up slightly from two years ago. For long-term bond funds it's nine years, up from just over seven and a half two years ago." There's a lot of debate as to what constitutes "overly risky" in this environment. Article Company News:
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Wednesday, January 16, 2013
| 01.16.13 | Goldman Sachs reports strong Q4 results
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