Today's Top Stories Also Noted: Spotlight On... Bank of America shifts PR firm News From the Fierce Network:
Today's Top News1. Retail investors shifting back to stocks
So are we on the verge of a historic rotation into stocks from bonds? In recent years, it's been hard for equities to compete as interest rates plunged, but we may be hitting an inflection point. For evidence, supporters of this view have been touting the strong inflows that equity funds are experiencing these days. Investors delivered $3.75 billion into stock mutual funds in the latest week, which followed a truly extraordinary week, during which $7.53 billion arrived in new stock funds---the most new cash since 2001, according to Reuters. "The two sums combined, however, amount to $11.3 billion, which is the biggest two-week gain since April 2000," according to Lipper data. Bond funds saw inflows as well, but the conventional wisdom right now is that we're on the verge of a big rotation. Bank of America Merrill Lynch Chief Investment Strategist Michael Hartnett, for example, "has been out in front of the rest touting the 'Great Rotation' theme for 2013 – and he says it's already begun. Even though the public data don't show investors shifting out of bonds and into stocks yet, Hartnett says BofA's data on client position does show exactly that," reports Business Insider. He wrote to clients: "The past seven years have seen a Great Divergence in terms of fund flows. Investors have poured $800 billion into bond funds and redeemed $600 billion from long-only equity funds. But recent data show the first genuine signs of equity-belief in years. The past 13 days have seen $35 billion come back into equity funds ($19 billion of which is via long-only)." For all this to work, retail investors will have to get over their recent fears of stocks, which shouldn't be too hard. People liked to play up the notion that the retail sector was afraid of what it saw as rigged markets, but good performance, we suggested, would bring them back. That may be happening now. For more:
Read more about: Retail Clients 2. New global shock test scenarios
The Federal Reserve's annual stress tests has become a high-drama news event, one that has vexed and embarrassed companies like Bank of America and Citigroup in previous years. Since the tests began in 2009, there have been times when both banks were optimistic about getting the green light to deliver capital back to shareholders, only to have those expectations shattered, leaving management humiliated. Banks have since learned to play the game a bit better. Only a foolish bank will allow itself to get too ambitious in requests to return capital. Hopefully, this year's tests will not dash any ambitions. Banks would be wise to keep expectations in check and their requests modest. The Fed will announce test results at 4:30 PM on March 7. Information about banks' capital plans, the Comprehensive Capital Analysis and Review, will be released at 4:30 PM on March 14. Bloomberg reports that the Fed has released the economic shock scenarios that will be used to gauge the strength of the banks. "The scenarios released today contain data on global equity markets in dozens of countries and how much they might decline from an adverse shock. Banks must test, for example, against a 33 percent drop in equities in China, a 60 percent decline in Spain, and a 75 percent decline in Ireland. The central bank previously released the economic scenarios in November. The worst of those parameters would test the bank against a recession in which U.S. gross domestic product declines by 6.1 percent and the unemployment rate climbs as high as 12.1 percent." For more: Read more about: Stress Tests 3. Wells Fargo bankers get soft skills training
Wells Fargo aims to make a splash in investment banking, building on the remnants of a unit leftover from the Wachovia purchase. In some ways, they are building from the ground up. One indication of that is the recent move to hire corporate trainers to help with the "soft skills" bankers need to make it rain. Bloomberg reports, "Wells Fargo began a pilot program last year with Kingstree Group, a London consultant that trains senior bankers in skills they need to secure more advisory and underwriting business… Kingstree's website says the firm conducts one-on-one sessions, group workshops and provides online learning to give bankers more confidence and better presentation skills." This is one of those training opportunities that might generate some internal skepticism. Some might see it as the equivalent of anger management training that might be forced on temperamental employees. One expert tells the news service: "To bring in a consultant to teach you how to be a better banker strikes me as something you want to keep as a deep-dark secret. I think a consultant can be very useful but it ought to be kept very quiet and it ought to be very focused." That said, investment bankers need every edge. They need to understand the role that body language and non-verbal communications play. In the end, impressions count for a lot. One problem, for example, is the death-vise handshake a lot of younger people go with. In their mind, they want to make a "firm" hand shake, to make a good impression, but they tend to go overboard. A little practice may help. For more: Read more about: Wells Fargo 4. Banks to change assumption on living wills
"Living wills" are designed to facilitate the orderly wind down of big banks that run into Lehman Brothers-like liquidity issues. The point is to put these banks out of their misery without a costly TARP-like effort. That is, without keeping taxpayers on the hook for the banks' mistakes. The fact that TARP turned a profit on many "investments" is irrelevant. The latest round of living wills submissions is due to regulators this summer, but regulators are warning that banks need to take a different approach on a key assumption. Until now, banks had assumed that regulators around the world would work in concert in the face of global market shocks. But the Financial Times reports that the Federal Reserve and the FDIC are advising banks not to count on such cooperation as they file their plans. Several bank executives told the paper the guidance was "shocking" and "left them believing regulators were losing confidence in their ability to improve on 2008 when countries either failed to co-operate, or even fought over assets, in banks." Hopefully, when push comes to shove, we'll see a level of cooperation that gives banks what they need from regulators in a timely fashion. While many smaller jurisdictions will always go their own way, often for political reasons, there's reason to hope that U.S. and U.K. regulators as a whole will come up with a coordinated response. The last thing anyone wants is a messy wind down that craters the markets and puts other banks at risk. The problem is there is no real-world test of these living wills. When the global shock comes, I can only hope they work as designed. For more: Read more about: TARP 5. Goldman Sachs to sell ICBC stake
A big principal gain for Goldman Sachs might be in the offing, allowing it to book a big one-time, earnings-goosing gain. This tactic has been a specialty of the bank over the years. The principal gains slowed a bit in the aftermath of the financial crisis, but we may be seeing a return. Bloomberg reports Goldman Sachs is seeking to sell a $1 billion stake in Industrial & Commercial Bank of China Ltd. "after the world's biggest lender by market value rebounded almost 50 percent from last year's low…The Wall Street firm is selling down an investment first made in January 2006 when Goldman Sachs and client funds it manages agreed to invest $2.58 billion in Beijing-based ICBC. The bank and the funds have offloaded ICBC shares at least four times prior to today's effort." It's unclear how much of a gain this will generate, but it does appear the time to sell is ripe. Goldman Sachs is not the only bank that has benefited from large principal investments in China. "Global financial firms including Temasek, Bank of America Corp. and Citigroup Inc. invested a combined $33 billion in Chinese banks from 2001 to 2009, according to data compiled by the China Banking Regulatory Commission. Their profits from reducing those stakes overshadow the $10 billion that global banks have jointly earned over the past decade from their own franchises in China," says Bloomberg. For more: Read more about: Goldman Sachs Also NotedSPOTLIGHT ON... Bank of America shifts PR firm Bank of America has decided to consolidate much of its massive PR business with Burson-Marsteller, part of the WPP empire, according to Ad Age. "The move comes almost a year after the company conducted a holding company review and shifted its ad business to WPP from Omnicom. At the time, PR was not part of the review." The biggest loser would appear to be Omnicom's Emanate, which had previously owned the account across significant business lines, such as wealth management and the consumer bank. Article Company News: And Finally… Make or break time for Blackberry 10. Article
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Wednesday, January 30, 2013
| 01.30.13 | Retail investors shifting back to stocks
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