Today's Top Stories Also Noted: Spotlight On... Silver Lake close to Dell financing News From the Fierce Network:
Today's Top News1. CFPB targets mortgage industry compensation
The new CFPB rules aimed at curbing the excesses of mortgage lenders may have come way too late. After all, the financial crisis crested years ago and seems to be in the midst of a limited revival, sans the controversial practices of the past. The new rules from the Consumer Financial Protection Bureau are certainly not objectionable. Compliance will not likely prove onerous, as many of the loans that are now outlawed have fallen out of favor any. ' Still, it's worth mentioning one of the most recent sets of rules to be handed down, which deals directly with broker compensation, an area that consumer advocates have long considered ripe for reform. The bureau says that, "Prior to the crisis, training and qualification standards for loan originators varied widely, and compensation was frequently structured to give loan originators strong incentives to steer consumers into more expensive loans. Often, consumers paid loan originators an upfront fee without realizing that the creditors in the transactions also were paying the loan originators commissions that increased with the interest rate or other terms." Dodd-Frank originally sought to sever the tie between proprietary, high-earning products and compensation, leaving it to the CFPB to implement. It is now doing so mainly by codifying what was already in Reg Z and Dodd-Frank, disallowing payments based on transaction terms and dual payments and the like. For more: Related articles: Read more about: Bank Mortgage, CFPB 2. Conditions strong for a Blankfein transition
The financial crisis is finally over for Lloyd Blankfein. The bank's back in the pole position relative to its peers, and the main government enforcement actions are behind it. The crown on top of this recovery from a truly company-altering experience is the $13.3 million in restricted stock the board's compensation committee has handed to its CEO for a job well done in 2012. The value of the newly granted restricted stock, which vests over three years, was nearly double the value of last year's award. The board was generous with all the top executives, as the bank handed out $99.8 million in restricted shares to the 12 executives this week, compared with $51.8 million last year. For Blankfein, the big grant comes on top of his $2 million salary. The exact size of his bonus will be revealed with the proxy statement in a few months, but media reports peg it at about $6 million. That means his total take for services in 2012 will come out to $21 million. Last year, JPMorgan Chase CEO Jamie Dimon ended up being the highest paid CEO in the industry, making $23.1 million. He's on track to make much less, as the board has decided to cut his pay in half. So Blankfein once again finds himself on top. That raises the question about what he will do in the near-future. It looks like a high-profile public service position may not materialize for him. In any case, the conditions for a transition are favorable right now. For more: Related articles: Read more about: CEO, ceo pay 3. Could JP Morgan split chairman/CEO jobs?
A 129-page report issued by JPMorgan on the London Whale trading fiasco was meant to be the final word on the subject, a definitive account of what happened and how the company responded. But in the mind of one pundit anyway, it has renewed the issue of whether JPMorgan would be better off splitting the Chairman and CEO jobs. The board, which is led by Chairman and CEO Jamie Dimon, did reduce Dimon's compensation by $11.6 million from the 2011 levels. But a split of the chairmain/CEO position would certainly make a statement. A Breakingviews columnist writes that, "When a big risk management failure occurs, directors need to consider options more radical than the mostly procedural and reporting changes that have already been made. One could be to split the roles of chairman and CEO. A well-chosen chairman provides a check on a chief executive's powers. In one indication that this can work, GMI Ratings last year concluded that an executive pulling double duty can earn 50 percent more than the total pay of two people performing the top jobs separately. An independent chairman could galvanize and maybe refresh JPMorgan's board. Perhaps most important at a complex bank, a chairman could also share the load as the bank's figurehead, allowing Mr. Dimon to spend more time making sure the next whale trade doesn't fall through the cracks." There have certainly been calls along these lines before. It hasn't happened yet, and there's no reason to think it will soon. For more: Read more about: corporate governance, JPMorgan Chase 4. Banks might shift asset allocation in face of NIM compression
If the Wells Fargo earnings report earlier this week did anything, it riveted attention on net interest margins (NIMs). NIMs have been percolating along as an issue. But the Federal Reserve's QE3 has given the issue new urgency. So what to expect? Most assume that margins will be under pressure at JPMorgan Chase, Bank of America and Citigroup. The Financial Times reports that, "The average of analysts' estimates for the four biggest banks' net interest margin is 2.8 per cent, down from about 4 per cent 10 years ago. Longer-term industry data from the Federal Deposit Insurance Corporation shows the current low level was last reached more than 50 years ago." One huge issue is what banks should do in the face of such compression. Many will be tempted to change the composition of their assets. The reality is that they are desperate for yield right now. As they face the accelerating expiration of higher yielding securities, they will have little choice but to embrace riskier fare, including higher-yielding corporate bonds and asset-backed securities of all stripes. Of course, banks could also boost their loans significantly, and find ways to charge higher rates. As of now, that seems less likely than a shift in the investment portfolio. For more: Related articles: Read more about: banks, Net Interest Margins 5. The awkward truth about a Dell buyout
Details continue to trickle out about the negotiations to take Dell private. The latest is that TPG has dropped out of the running, which means that Silver Lake remains all alone in the driver's seat. To get the massive deal done, it has approached select limited partners about investing alongside in such a deal. The Financial Times notes that Temasek and the Canadian Pension Plan Investment Board are among those who are considering the deal. Dell has also tapped Barclays, Credit Suisse, Bank of America and RBC to finance the deal, while JPMorgan has been serving as the computer maker's main advisor. Whether CEO and top shareholder Michael Dell can pull this off remains unclear. He has a lot on the line, as the company has fallen 40 percent or so from its 52-week high. The pressure has been intense for him to remake the company, a goal that has proven hard to execute. Given that he owns 15-16 percent of the company and is in strong position to make an additional equity investment, he remains the key player. But there's a critical issue at play here that advisors will perhaps only tiptoe around. Fortune states it bluntly: "While the market and analysts have endorsed the idea of a buyout, it's hard to understand how the move will actually improve Dell, particularly since Michael Dell himself seems poised to retain control over the company. Dell...would contribute a significant amount of equity to the deal. It's hard to imagine that he would do so and not retain control. One person with knowledge of the buyout negotiations notes that Michael Dell was keenly interested in continuing to lead, even after his company was taken private. Therein lies the core problem: Michael Dell has been trying to fix his troubled company ever since he returned as chief executive in 2007, and he has never come up with an effective plan." The extent to which this is a deal breaker with outside investors is unclear. For more: Related articles: Read more about: Leveraged Buyout, Dell Also NotedSPOTLIGHT ON... Silver Lake close to Dell financing Bloomberg reports that private equity firm Silver Lake is closing in on about $15 billion in financing for the deal to take Dell private. Lenders included Credit Suisse, RBC, Barclays and Bank of America, who are said to be in ardent negotiations with investors. It's still possible that other private equity firms could join the effort. Silver Lake limited partners are also pondering participation in the deal directly. Article Company News:
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Tuesday, January 22, 2013
| 01.22.13 | CFPB targets mortgage industry compensation
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