Today's Top Stories Also Noted: Spotlight On... The future of funds of hedge funds News From the Fierce Network:
Today's Top News1. Bank of America CEO's top priority
I've voiced concern that the onerous effort to grapple with the foreclosure fiasco has left Bank of America poorly positioned to take advantage of the revival we're now seeing in the consumer mortgage market. The sheer number of employees necessary to do right by all those broken mortgages is mind-numbing, and shifting that army to process fresh mortgages in a new era of compliance will not be easy. Reuters notes that, "Even if the bank is moving past its worst home loan troubles, it still needs to figure out how to grow." Unfortunately for Moynihan, there are plenty of skeptics. "Analysts, investors and some in the industry are beginning to wonder if Moynihan is up to the task. Two executives who have worked with Moynihan said he has little experience growing revenues in the units he has fixed over the years." This is a huge issue for the board, which has to ponder the possibility that while Moynihan fared decently in near-crisis conditions, he may not be the ideal candidate to lead a multi-year revenue growth program. The board is not likely to make a dramatic change, as Citigroup recently did. The article notes that, "Moynihan still has time to prove he can boost revenue as well as fix problems. He is hardly experiencing a shareholder revolt, and many investors support him." This is especially true after the more than 100 percent gain in the stock last year. But if the stock starts to flag again, people will revisit this issue. For more: Related articles: Read more about: Brian Moynihan, Bank of America 2. Bankers less defensive at Davos
The chief executives of big banks once strode into the World Economic Forum at Davos as rock stars. The financial crisis ended all that. For a few years, bankers were almost pariahs, forced to keep and apologetic, low-key profile. Some skipped the event all together. But the economic environment has changed considerably over the last two years, and bankers definitely have some mojo back. Bankers will have their heads a little higher as the event opens. They'll also have their eyes open on possible opportunities. Bloomberg Businessweek notes that, "Bankers are inveterate dealmakers, and Davos is prime hunting ground. JPMorgan Chase CEO Jamie Dimon is back this year, although the bank's multibillion-dollar trading loss may take some of the customary swagger out of his step. Goldman Sachs CEO Lloyd Blankfein is coming, too, along with the heads or board members of Bank of America, Blackstone Group, Banco Santander, etc., etc. Journalists will be on the lookout for interesting pairings, but anything cooked up in Davos won't become public for months." There will be plenty of protests, but the intensity of anti-bank sentiment is expected to be weaker than in some years past. "There are signs that the officials who set the tone for global regulation of banks have become more worried about a credit squeeze in Europe than about the risk of another banking crisis," according to DealBook. Central bankers may well be the new source of big controversy this year. For more: Related articles: Read more about: bankers, Davos 3. Jeffery Sprecher emerges as new exchange power
A New York Times article notes that, "It sounds preposterous. A businessman from Atlanta blows into New York and walks off with the colonnaded high temple of American capitalism." But that is exactly what Jeffrey Sprecher, CEO of the IntercontinentalExchange, has pulled off. ICE and the NYSE have agreed to an $8.2 billion merger, one that will leave Sprecher as CEO of the combined company. Get ready for a bevy of laudatory profiles, as the ICE and NYSE have every reason to get the CEO off to a good start. The New York Times gets the party started, noting that "Sprecher (pronounced SPRECK-er) has probably done more than anyone else to dismantle the trading floors of old and replace human brokers with machines. Along the way, he and ICE have traced an arc through some of the defining business stories of our time — from the rise and fall of Enron, to the transformation of old-school investment banks into vast trading operations, to the Wall Street excesses that not long ago helped derail the entire economy. Now, after a series of bold acquisitions, he is about to become the big boss of the Big Board." This will not meaningfully change the trading business overnight, but the symbolism is apt. For decades, people have been predicting the demise of the NYSE. We're witnessing the end of the end now, at least symbolically. "It is perhaps unsurprising that some of the people who make their living on the Big Board's floor are a bit nervous about the exchange's new boss. But Mr. Sprecher says they have nothing to fear. His friends and business associates say he could actually turn out to be the best hope for restoring trust in the stock market." That's the plan anyway. Sprecher is a known expert on market structure. We'll see how he chooses to influence the debate. For more: Related articles: Read more about: ICE, Nyse Euronext 4. Goldman Sachs leads the way on lower pay
More banks are coming around to the view that compensation must be cut in this era of extreme cost-cutting. Shareholders are aligned against employees for scarce resources (profits), and ultimately shareholders have to win. There's no way around that. Goldman Sachs seems to be leading the way forward. Reuters notes that the influential bank "cut the percentage of revenues it pays to employees in half to 21 percent. That brings the ratio for the entire year to its second-lowest level since the bank went public in 1999. With less money going to employees, more was available for shareholders." The bank's annualized return on equity jumped to 16.5 percent in the fourth quarter from 5.8 percent a year earlier. Of course the ROE remains far below the levels achieved in the pre-2008 golden days. One top analyst was quoted saying that, "Arguably for the first time, Wall Street's shareholders are getting the lion's share of the profitability." The winning formula seems to be to slash jobs in a way that leads to more compensation per employee, even if the bank is setting aside less in absolute terms. At some point, the industry may well get to the point where employees make progressively less every year given the same level of performance. For more: Read more about: Goldman Sachs, Compensation 5. New macro hedge funds optimistic
It was big news this summer when Moore Capital Management founder Louis Bacon decided to return $2 billion to limited partners. The decision was grounded in the notion that macro hedge funds will struggle mightily going forward. The conventional wisdom now is central banks responding to crises drive the markets, and little else. This means that macro funds will struggle. I'm not sure I buy the premise. In any case, the hedge fund industry right now is not completely bereft of optimism. There's a new crop of fund managers who are coming up, bent on proving that this is in fact a great time to be a macro fund manager. Institutional Investor takes a look at some of these managers, noting that they don't all agree on how to conquer the massive challenges that have proven insurmountable for the likes of Bacon. In some ways, this is classic hedge fund hubris. They wouldn't be in the macro business if they didn't think they could ride world economic trends to great gains. If you are going to be in macro funds, these are the kind of guys that you'll want to go with. But realistically, there's plenty of reason to be skeptical that anyone will emerge as the next Soros. Plenty of new funds will fare well, for a year or maybe two or three. From a long-term perspective, it takes a special manager to post big (or any gains) year after year after year. But you've got to love the confidence. For more: Related articles: Read more about: Macro Hedge Funds Also NotedSPOTLIGHT ON... The future of funds of hedge funds People have been lamenting the demise of funds of hedge funds for some time now, as the concept seems to be losing appeal with every passing year. So what is the future? Increasingly, these funds are looking to retail investors. More are seeking mutual fund regulatory status to accomplish this tricky transition. The retail "hedge fund mutual fund" trend has been underway for years, but the funds of funds are just now seeing the potential. Article Company News:
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Wednesday, January 23, 2013
| 01.23.13 | Bank of America CEO's top priority
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