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2. Banks to backtrack on payday loan withdrawals

Bank of America (NYSE:BAC) CEO Brian Moynihan can bask in the glow of a good, one in which the company's stock rose more than 100 percent and firmly moved him off the hot seat with shareholders. He is no longer seen as an executive fighting for his job.

The media narrative has shifted somewhat, as evidenced by a Bloomberg Markets piece that notes: "For an executive whose performance prompted doubts that he could hold on to his job, Moynihan has staged a remarkable recovery. The bank's board agreed, giving him a raise of more than 70 percent, to $12 million, for the job he did in 2012."

For support, the article turns to no less than Warren Buffett, who invested $5 billion in August 2011, when things weren't quite as rosy: "He (Moynihan) walked into a situation where not only was capital on the low side, it was exposed to deterioration in a way that they couldn't afford. You get beaten up in the press, you get beaten up by regulators. You know you're not going to see results in a week, a month or a year. It takes some guts to take on a job like that."

While the bank may be on firm footing regarding its capital ratios and expenses and in better shape regarding the multiple waves of litigation that has hit the bank, there are plenty of challenges ahead. The biggest will be whether Moynihan can return the bank to top-line growth. You can only cut expenses so much before you have to start thinking about organic growth or new markets, and so far, he has yet to come up with any magic.

The biggest revenue engine now, somewhat ironically, is the consumer mortgage market. Unfortunately, all the cost-cutting at Bank of America has left it at somewhat of a disadvantage in terms of riding that wave. It's no longer the No. 1 mortgage company. That title belongs to Wells Fargo (NYSE:WFC), which will not cede it easily.

Finding another growth engine to make up for all those lost interchange fees will be difficult. But it's in those sorts of situations that special executives rise.

For more:
- here's the article

Read more about: CEO succession, Bank of America
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By Jim Kim

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3. Tepper hauls in $2.2 billion in 2012

When the issue of big consumer banks and payday loan payment withdrawals emerged this week, I suggested that the issue held some potential landmines for large banks. One lesson of the financial crisis aftermath was that broad consumer anger cannot be taken lightly. Banks will find themselves on the defensive if the furor over these loans continues.

It's way too premature to say that any sort of populist anger is building over payday loans and the fact that the top banks all allow these lenders to make automatic withdrawals from customer accounts, even in contravention of state law in some cases.

But the issue has been put on the map, and there are some seeds of anger. Congress has taken up the issue and the Sacramento Bee has penned an editorial headlined: "Big banks aid unscrupulous payday lenders." The article argues that "regulators should aggressively pursue banks that allow unlicensed online payday lenders to plunder customer bank accounts."

The last thing that the industry wants is another backlash like the one that engulfed Bank of America (NYSE:BAC) for its debit card fee hike, forcing it to back down in late 2011. So it's hardly surprising that JPMorgan Chase (NYSE:JPM) is already moving it head off any controversy.

CEO Jamie Dimon, at the annual shareholder meeting, pledged to make some changes, calling the bank's practices "terrible." It remains unclear what the bank will do in regard to Internet-based payday lenders. It also remains unclear whether Bank of America, Wells Fargo (NYSE:WFC) and others will follow suit. You can bet they will be asked about their practices at their annual meetings. They need to work out their answers now.

For more:
- here's the editorial

Read more about: Payday Loans, Bank of America, Wells Fargo
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By Jim Kim

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4. Lessons in New York's transaction tax experience

Yet another end-of-year hedge fund list has come out, and this one is from Forbes. It ranks the hedge fund managers who made the most money in 2012.

At the very top is David Tepper of Appaloosa Management, which made $2.2 billion. The rest of the top 10 includes Carl Icahn, Steven Cohen, James Simmons, George Soros, Ken Griffin, Ray Dalio, David Shaw, Leon Cooperman and Daniel Loeb. The personal earnings ranged from Tepper's take down to Loeb's take of $425 million.

Coming in at a respectable No. 17 was none other than John Paulson. That might surprise some as he was pilloried all year for the poor performance of his flagship funds. Indeed, they finished the year in the red.

Bloomberg reports that Paulson's other funds, "like Paulson Credit Opportunities and Paulson Partners, were up. According to an investor letter, the weighted average performance of all of Paulson's funds for 2012 was up 1% net of management fees (his funds could not charge performance fees in 2012) and more than 65% of the firm's assets were in positive territory last year. Because Paulson has such a huge personal stake in his funds, he made money with such a performance."

All in all, despite the big personal winnings at the top of the industry, it was a lackluster year for most hedge funds. The HFN Hedge Fund Aggregate Index rose 6.7 percent in 2012 vs. 16 percent for the Standard & Poor's 500. Despite the middling performance figures, the industry's AUM hit $2.6 trillion.

For more:
- here's the list

Read more about: John Paulson, Hedge Fund Performance
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By Jim Kim

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5. Bonuses are bigger for those still employed

The financial transaction tax is one of those ideas that generates an enormous amount of controversy. This comes even as it languishes as a policy proposal that, no matter what its merits, has yet to generate critical mass at the congressional level. Plenty of people have proposed a tax, but it has never gained enough momentum to actually become the law of the land.

That said, the idea has to be taken seriously, as it is becoming a reality elsewhere in the world. Europe for example has generated the momentum to make the tax a reality, and Italy is moving forward on imposing such a tax, in part to better grapple with high frequency traders. France is another example.

The European experiment will no doubt be closely watched. But the U.S. has had its own experiment of sorts, in the form of a transaction tax that was imposed by the state of New York.

The Deal Professor notes that New York State has had such a tax since 1905.

"Over the next eight decades, the tax was revised up and down nine times, including a large increase in the middle of the Great Depression."

And what has been the ultimate effect?

The professor notes that a study of New York State's tax by Anna Pomeranets and Daniel Weaver "found that it increased the cost of capital for investors and reduced trading volume. Most important, they found the tax actually increased trading volatility by as much as 10 percent."

That conclusion on the surface would seriously undermine the intent of the law today.

One of the biggest issues in this debate, also highlighted by the study, is the extent to which trading volume will simply migrate to other markets. In Sweden, such a tax in the 1980s sparked a mass move to the British markets, for example.

The European tax planners think they have solved the issue, as taxes would be paid no matter where the trade occurred, as long as a European security or European institution was involved.

Still, it would be unwise not take previous experiences into account. It's fair to say that the European experiment will be fascinating to watch. There will likely be some unintended consequences.

For more:
- here's the essay

Read more about: Europe, New York
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By Jim Kim

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