Today's Top Stories Also Noted: Spotlight On... Fed report details banks' compensation conundrum News From the Fierce Network:
Today's Top News1. Goldman Sachs wins Dragon case
Goldman Sachs has taken some lumps in high-profile legal actions as of late, but it has just racked up a big win in its case against former client Dragon Systems. A federal jury this week sided with Goldman Sachs, agreeing with the bank that it was not negligent in arranging a deal for Dragon that collapsed 13 years ago. Goldman Sachs was also cleared of claims of intentional misrepresentation and breach of fiduciary duty. Goldman Sachs investment bankers arranged the sale of the pioneering speech recognition software company in 2000 sale to Lernout & Hauspie, based in Belgium. That company soon collapsed amid an accounting scandal, and the founders and employees ended up with worthless stock. The husband-and-wife founders and two early employees subsequently sued the bank for several hundred million dollars in damages. The contention all along was the Goldman Sachs should have done its homework to ferret out that the acquiring company was a fraud. But as Thomson Reuters News & Insights notes, "lawyers for Goldman said it was not the investment bank's job to sniff out the accounting fraud that ultimately doomed Lernout & Hauspie and made the remaining stock held by the Bakers worthless. In fact, Goldman said Dragon rushed into the sale and brushed aside advice to hire outside accountants to examine Lernout & Hauspie's books in more detail
Read more about: investment bankers 2. Davos pits Jamie Dimon vs. Paul Singer
So much for banks being less controversial at this year's World Economic Forum. JPMorgan Chase CEO Jamie Dimon once again found some controversy. In an early session, he clashed openly with Paul Singer, the head of hedge fund Elliott Capital Management, and others. Singer accused big banks of "completely opaque" disclosures, which makes it hard to judge which banks are risky and which are sound, reports the Financial Times. Dimon responded that "JPMorgan's accounts were clear, adding: 'With all due respect hedge funds are pretty opaque too.' However, Mr. Singer's points have become a common criticism among both hedge fund and institutional investors and they add to pressure on banks to disclose better quality information about their balance sheets. Mr Singer noted that derivatives positions, in particular, were difficult for outside investors to parse and worried that banks did not always collateralize their positions. Mr Dimon said the bank did for all 'major' clients. Mr Singer retorted: 'Well, we're a minor client then.'" This debate has grown a little tiresome, though it remains important. After all the regulation passed in the wake of the financial crisis, it would appear that banks might be a less opaque but not dramatically so. I can only hope Dodd-Frank has allowed regulators to have a better window into market-wide financial risk, which was so lacking in 2008. For more: Related articles: Read more about: banks 3. No fallout from European trading tax
The idea of a transaction tax on securities transactions has been off-and-on in U.S. for years now. While it has never gained significant traction, it has moved to the cusp of reality in Europe. Reuters reports that, "Germany, France and nine other countries are pushing ahead with the tax on trades in stocks, bonds and derivatives, keen to show voters they can claw back some of the taxpayers' money used to bail out banks during the 2007-2009 financial crisis. However, bankers and finance industry experts are skeptical about a tax that will not be imposed even in all 17 euro zone members, let alone in Europe's biggest financial center, London." The problem with such an unevenly imposed tax is that it will be easy to evade. The drafters of the law understood that this would be the case, and they structured the tax so that it would encompass both buyers and sellers, if either is in a country that is party to the tax. Reuters also notes that, "Britain and Switzerland will remain on the outside its scope. Major banks such as Deutsche Bank, BNP Paribas and Unicredit already have big London legal entities and operations that handle much of their wholesale operations and could shift more to them if it proved cheaper." So who loses? One group is smaller trading and investing operations that are not pan-European in nature, and thus might not be readily able to shift their transactions. Also, it's still possible that the rule might extend to "securities issued by a company within a participating country. If this were included, trading houses in Asia and the United States would have to pay a tax on bonds and stocks issued by companies and governments in the participating countries." So what are the chances the U.S. follows suit? At this point, the chances are low. But revenue will be a key issue in Washington over the next few months. For more: Related articles:
Read more about: Securities transaction tax 4. Morgan Stanley CDO is object of lawsuit
It's a familiar narrative: A bank puts together a CDO--or a synthetic CDO--fully aware that the potential for the value of the investment to tank is quite high. So high, in fact, that the bank is aiming to short the securities, even as its salespeople market the deal to unsuspecting banks. The bank may hold a small sliver of the equity but they chances for a massive investment gain are higher if they short. Goldman Sachs, Citigroup and JPMorgan have all been accused of such behavior by other companies, government prosecutors, or both. Now it's Morgan Stanley's turn. The lawsuit is noteworthy in part because the discovery process uncovered an email trail in which Morgan Stanley employees seek to find a suitable name for the CDO. As noted by ProPublica, the suggestions ranged from "Subprime Meltdown," to "Hitman," to "Nuclear Holocaust" and to "Mike Tyson's Punchout," as well "a simple yet direct reference to a bag of excrement." The case suggests "a pattern of behavior larger than this one deal: people across the bank understood that the American housing market was in trouble. They took advantage of that knowledge to create and then bet against securities and then also to unload garbage investments on unsuspecting buyers." The buyers of the securities were professionals and should've known better. Morgan Stanley notes also that in this case it disclosed that it might short the securities in the CDO. If it did, it fared well. ProPublica notes that, "In the end, of the $500 million of assets backing the deal, $415 million ended up worthless." For more: Related articles: Read more about: Morgan Stanley, CDOs 5. Mary Jo White faces little pushback in SEC chief nomination
Mary Jo White built a reputation as a tough prosecutor over her career, which included nine years as a U.S. Attorney in Manhattan and a host of tough cases involving terrorism, organized crime and financial crime. She's a walking symbol of enforcement competence, which makes her an ideal candidate to head the Securities and Exchange Commission, and organization buffeted by criticism that it stumbled when it came to the financial crisis and the Bernard Madoff scandal. There will likely be little resistance to her nomination. That she defended the likes of Ken Lewis once she transitioned into private practice will likely be seen as a positive, as she has experience on both sides of the bar. "The selection of Ms. White can only be seen as a clear message to Wall Street and Main Street that there is a new, tough sheriff in town. Ms. White is a very experienced and talented former U.S. Attorney and white collar practitioner. She differs significantly from her immediate predecessors who were career securities regulators," says Thomas Gorman, a partner at Dorsey Whitney. He added that, "Selecting Ms. White is a message to the markets that the SEC is going to be increasing aggressive in its approach and bringing and resolving enforcement actions. The challenge for Ms. White will be to balance the fact that the SEC is first and foremost a regulatory agency with her prosecutorial background to achieve the right posture and tone going forward for an agency which has moved past is prior difficulties and is moving forward in a positive direction." She'll hopefully be savvy enough to hire adroitly to fill gaps in her knowledge. I have said for a while now that market structure is an issue crying out for attention by regulators. It will be interesting to hear what she has to say in her confirmation hearings about that and about financial reform in general. For more: Related articles: Read more about: Mary Jo White Also NotedSPOTLIGHT ON... Fed report details banks' compensation conundrum Regulators have tried to cut down on excessive banker pay since the financial crisis. The regulatory effort has borne fruit to some extent, though shareholder angst has probably had more to do with recent trend toward reduced payouts. A recent Fed report noted some of the challenges banks face, in terms of monitoring employee behavior for the purposes of clawbacks and paying employees in non-traditional securities. Article Company News:
©2013 FierceMarkets This email was sent to kumaresan.selva.blogger@gmail.com as part of the FierceFinance email list which is administered by FierceMarkets, 1900 L Street NW, Suite 400, Washington, DC 20036, (202) 628-8778. Contact Us Editor: Jim Kim Advertise Advertising: Jack Fordi or call 202.824.5040 Email Management Unsubscribe from FierceFinance Explore our network of publications: | ||||||||||||||||||||||||||||||||||
Friday, January 25, 2013
| 01.25.13 | Davos pits Jamie Dimon vs. Paul Singer
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment