Today's Top Stories Editor's Corner: Is Greenlight closer to winning its war with Apple? Also Noted: Spotlight On... Are banks really safer now? News From the Fierce Network:
Today's Top News1. Citigroup even less likely to break up after all
Off and on since 2007, people have cried for big banks to break themselves up in order to unlock shareholder value and to end the "too big to fail" controversy once and for all. Last year saw a spate of calls to break up the banking conglomerates, including a few from surprising sources. That Sandy Weill, the builder of modern Citigroup (NYSE:C), would agree publicly that big banks should break up was treated as major news. But it's not likely to happen. The fact is that the stock prices of the biggest banks have been on a tear, led by Bank of America. As long as that trend remains intact, the calls will subside. In addition, Dow Jones points out that Citigroup chairman Michael O'Neill has changed his tune a bit, deciding that a break up wouldn't be a good idea after all. O'Neill "was among a small group of directors who after the financial crisis urged the company to weigh splitting up the third-largest U.S. bank, said people familiar with the deliberations. Mr. O'Neill, now chairman, has reshaped the New York company over the past year, overseeing a management shake-up and backing a broad cost-cutting plan. But exploring a breakup is no longer among his top priorities." You have to wonder if a true break-up was ever seriously considered at the bank. The challenges would be significant. "Deciding which entities would retain the banking licenses is one complication. Other deterrents include the large amount of money that would be required to fund units such as the investment bank as stand-alone enterprises and unwinding unwieldy legal structures that include thousands of entities. Citigroup is also hesitant to break up a global network that would be hard to replicate." All that said, if the stocks ever retrace their recent gains, we'll no doubt hear the "break up" chorus all over again. For more: Related articles: Read more about: banks, Bank break ups
2. Citigroup pays CEO handsomely
Michael Corbat has only been CEO of Citigroup (NYSE:C) since October, but he's already being paid like a veteran CEO of a big bank. CNBC notes that the board has awarded him $11.5 million for work rendered in 2012, which puts him in the same pay league as JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon, who made $11.5 million, and Bank of America (NYSE:BAC) CEO Brian Moynihan, who made $12.1 million. Citigroup has been in thick of an executive compensation mess that stems from last year's say-on-pay vote at the annual meeting, at which shareholders gave a resounding thumbs-down to then CEO Vikram Pandit's pay package. Citigroup chairman Michael O'Neill says he took the vote seriously and has reached out to shareholders about their compensation concerns. The result is that new performance shares account for about 27 percent of Corbat's package. Performance shares are hardly a revolutionary tool, but they would be welcome in the banking industry as a way to better align performance with pay. The shares will vest only if Citigroup meets certain return on asset targets and stock appreciation targets. This would appear to be a step in the right direction, and on the surface anyway, it would appear to reduce the chances of another embarrassing thumbs-down vote on pay at the upcoming meeting. The board after all scrapped a previous profit sharing plan, which had generated controversy as critics suggested that the board set targets that were easy to hit. It remains to be seen if boosting the bank's return on assets to 0.85 percent, which would allow all the units to vest, will be easy. All in all, what governance activists really want are tight linkages to objective legitimate performance targets that are sustainable over the long-term. It remains to be seen if the new plan will be a huge hit at the upcoming annual meeting. Not everyone is impressed. One shareholder rights advocate told the New York Times that new approach was "far from perfect, or even good, but it's less terrible than it used to be." For more: Related articles: Read more about: Bonus, Performance Shares 3. More investors oppose Einhorn in Apple fight
Is a backlash brewing against David Einhorn? Has he made a tactical mistake in suing Apple in his quest to force it to issue high-yielding preferred shares? These questions are timely after a recent letter sent to Einhorn by one of his former limited partners. As noted by the Financial Times, the Nathan Cummings Foundation wrote that "By threatening to disenfranchise Apple shareholders, Greenlight Capital has acted in a manner that is not consistent with our understanding of Greenlight Capital's own orientation and investment philosophy." At the same time, CalPERS, the hugely influential pension, has surveyed other large investors and found that the "overwhelming majority" support Apple management in its bid to get rid of the company's right to issue preferred shares without approval from common shareholders. Einhorn has gone to court to block the move, thinking that it will make it harder for him to force the company to issue preferred shares. There are two separate issues here. The corporate governance issue, on which shareholders seem to support management, and the preferred shares issue, which investors may or may not support. These issues have been unfortunately conflated, posing some risks for Greenlight Capital. It certainly does not want to open itself up to charges that it self-serving and all too willing to sacrifice agreed-upon good corporate governance practices in pursuit of its narrow interests. That said, Apple is keenly aware that its growing cash hoard represents a mountain of controversy, especially with the stock flagging. For more: Related articles: Read more about: activist hedge fund managers, Apple 4. Wells Fargo eyes merchant banking
Wells Fargo (NYSE:WFC) is primarily known as a consumer banking powerhouse, with a national franchise in the mortgage industry. It has stepped up in this market, as Bank of America has stepped down, and now can boast about its industry-leading market share of roughly one-third. But management is smart enough to heed the lessons of recent history. You do not want to be seen as a pure play on retail mortgages. To diversify, the San Francisco-based bank is pushing into new institutional markets. Its efforts to expand in investment banking have been noted. Now it appears to be making a push in merchant banking. Lots of proprietary investing and trading has been curtailed by the Volcker Rule, which has yet to be finalized, but merchant banking has apparently survived, and banks are going to great lengths to make sure that the really profitable proprietary investing and trading activity is compliant. That doesn't sit well with some, especially when it comes to conservative Wells Fargo. Reuters opines that, "Wells Fargo's private equity investments show how even button-down, staid banks are looking for loopholes in financial regulations as they seek to boost their profits. Their decisions may run counter to rulemakers' efforts to make the financial system safer. The merchant banking that Wells Fargo is embracing is riskier than investing in private equity funds with outside investors, where a bank shares any losses with others. Some critics warn that the Volcker Rule is banning the safer of the two activities, and allowing the one that could lead to bigger losses for a bank." That said, the Volcker Rule isn't going to be changed dramatically at this point. I can only hope that bank exercises discipline--in the mold of Goldman Sachs--as it develops more merchant banking business. For more: Related articles:
Read more about: Wells Fargo, Merchant Banking 5. Hedge fund managers now comfortable in spotlight
There once was a day when hedge funds managers preferred privacy to public renown. In fact, seeking the limelight was seen as somewhat tacky. But that has changed in a big way over the past few years. These days, hedge fund managers seem to relish the spotlight. Some have become adept at using that spotlight to maximum advantage. "The shrill and sometimes nasty public battle waged on CNBC's air between Bill Ackman and Carl Icahn over the merits and demerits of the once-obscure Herbalife Ltd. has, of course, been the most attention-getting public display of private investors 'talking their book' in public," notes Unexpected Returns. "Yet well before this clash surfaced, an increasing number of once-camera-shy investors had begun making more of a habit of opining for a broad audience." The article notes some examples, such as David Tepper, founder of the $16 billion Appaloosa Management, David Einhorn, of Greenlight Capital, Kyle Bass, of Hayman Capital, and even Ray Dalio, who it notes as "something of a cult figure as head of Bridgewater Associates, the world's largest hedge-fund firm. In recent months he has "laid out his macroeconomic outlook in magazines and on TV for an eager investing populace." There are a host of reasons for the trend, including the desire to publicly brand their funds and themselves, the need to make a case for their positions and the need for more transparency, to avoid being seen in the same ilk as the once-incredibly-secretive Steven Cohen of SAC Capital. His shadowy image may have created an aura of mistrust around him and his firm. Even he had opened up a bit before the investigations started to hit closer to home. My sense is that hedge funds need to take PR and brand-building much more seriously. You can't run a businesses without having these angles covered these days. For more: Related articles: Read more about: Pr, Hedge Fund Managers Also NotedSPOTLIGHT ON... Are banks really safer now? Stanford economist Anat Admati warns in a new book that our financial system is just as vulnerable as ever to shocks that could send our economy right back over the ledge. Debt, which big banks are "addicted" to, is likely to be the catalyst. "From putting in a safety net in order to have a safer system, we ended up enabling more borrowing," Admati tells CBS. "As a result, equity levels declined almost continuously from 25 percent down to the single digits over the 20th century. And then, in the last 20 or 30 years, banks have found clever ways to borrow through derivatives markets and other innovations. That allowed more borrowing and also more hiding of leverage." Article Company news:
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Monday, February 25, 2013
| 02.25.13 | Is Greenlight closer to winning its war with Apple?
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