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Today's Top News1. Hactivist group steps up attacks on big banks
Cyberattacks on big banks have become the new normal. Management should expect these attacks --- coming from a wide variety of players, including profiteers, state-sponsored actors and "hactivists" -- to continue. It's hardly surprising that the group known as Izz ad-Din al-Qassam Cyber Fighters are stepping up their campaign to bring down bank web sites via a distributed denial of service (DDOS) attack. The group has published new demands on Pastebin, a text and code sharing site this month. According to The Exchange, "During what the group calls phase three of Operation Ababil, American banks should expect denial of service attacks on Tuesdays, Wednesdays and Thursdays. Distributed denial of service attacks are carried out when hackers intentionally overload targeted servers with traffic. If they create more traffic than the servers can handle, they can bring down a website and make it inaccessible temporarily. The hackers indicated that they would launch the bank attacks for several more weeks." The group has a very specific goal and want to impose losses of $875 million on banks as punishment for what they deem the banks' culpability for a movie on the Internet that portrays Islam in a negative light. The group used a formula "incorporating the total views of the movie and the number of likes or approvals it has on YouTube. The formula includes an offset for dislikes that lowers the total cost." Nine banks would appear to be in the cross hairs, including JPMorgan Chase, Bank of America and Citigroup. Banks need to be on guard, as some have speculated that other criminal groups might try to take advantage of these DDOS attacks to perpetrate their own attacks, which would aim to steal from customer accounts. This approach is not far-fetched at all, as some criminal gangs have been known to use DDOS attacks as part of their crime. For more: Related articles:
Read more about: Cyber Criminals, Cyber Security
2. JPMorgan shifts to less friendly payday loan practices
Part of the powerful current of negative news about JPMorgan Chase was a lot of publicity about its policies regarding payday lenders, which are able to directly withdraw payments from customer accounts at several big banks. Big banks were easy targets on this issue, painted as willing aiders of payday lenders, who are increasingly migrating online and offshore to evade regulations. More than 15 states have banned the practice. JPMorgan CEO Jamie Dimon was asked about the practice, and he responded that the practice was "terrible," and pledged to take action. Given the tsunami of negative press the bank has received over the Senate report about the London Whale "hedging" fiasco, now seems like a great time for the bank to make good on the CEO's words and create a more positive media stream. According to the New York Times, the bank is set to announce that it will give customers who have borrowed money from payday lenders more control over their accounts, allowing then to halt automatic withdrawals and to more easily close accounts. The bank will also limit the fees it imposes on customers who overdraw accounts due to automatic withdrawals by payday lenders. The goal here is head of any more criticism, and even regulatory action. Other banks will likely follow suit, including Bank of America and Wells Fargo. The last thing they want at this point is another PR fiasco on their hands. Like JPMorgan, they'll likely conclude that the added revenue is not worth the costs. That said, other banks are moving into this market with offerings they call direct-deposit loans. They will have to make sure they can adequately distinguish their products from usurious operators. More than two dozen regional banks and credit unions offer this type of service now. Given the lack of revenue at many banks, the number may only increase.
Related articles: Read more about: JPMorgan, Payday Loans 3. Asset allocation trend may soon die down
In the wake of the financial crisis, as the stock market remained mired well below its peaks, asset allocation funds struck many advisors as an idea whose time had come. Inflows to these funds rose to $25 billion in 2012 from about $14 billion in 2011 and 2010, according to Morningstar data. The appeal is intuitive. As the investing audience shifts its focus from performance metrics toward risk metrics, these funds stood out as way for advisors to allow investors to be defensive, to be able to shift among various asset classes, and to perhaps pick up a point or two in performance at the end of the year. According to Bloomberg, of the 263 U.S. asset allocation mutual funds now in existence, 130 have opened since the end of 2009. Financial Advisor reports that Janus has become the latest to embrace these funds. But is it too late to really capitalize on this trend? "Asset allocation funds returned a risk-adjusted 0.8 percent in the year ended Feb. 28, compared with 1 percent for the Standard & Poor's 500 Index and 1.3 percent for the Barclays U.S. Aggregated Bond Index. Over three years, the funds gained 2.3 percent, compared with 2.5 percent for stocks and 5 percent for bonds," according to Bloomberg data. The danger here is that the focus on defensiveness and risk management is once again giving way to a focus on performance, as the stock market reaches for pre-financial crisis high water marks. At some point, investors may be less willing to tolerate mediocre performance. Even within these funds, we may see managers being tempted by equities. For more: Related articles: Read more about: Mutual Funds 4. Did Wells Fargo get a stress test pass?
The conventional wisdom holds that Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM) fared the worst in the Federal Reserve Board's Dodd-Frank mandated stress tests, the results of which trickled out over the past few weeks. But Fortune is asking if Wells Fargo perhaps managed to skirt by under the radar and pass the tests despite some dubious results. "Unlike JPMorgan and Goldman, Wells was given an unconditional passing grade on the Fed's test -- the best grade possible. JPMorgan and Goldman, on the other hand, were told they would have to take the test again. It's not clear why.The test was supposed to be about whether banks had enough capital -- that is the money a bank has to cover bad loans and investments -- to survive another financial crisis. Wells was deemed to have enough. But so were JPMorgan and Goldman. Nonetheless, a senior Fed official hinted that the central bank was unhappy with the numbers that JPMorgan and Goldman submitted on its test results. They were too rosy. That seems to be the reason that the Fed is forcing JPMorgan and Goldman to resubmit their capital plans. It's not clear why Wells isn't being forced to do the same," Fortunte noted. Indeed, Wells Fargo said it would lose $1.7 billion in the adverse conditions envisioned by the test. That's significantly below the Fed's loss estimate of $26 billion. Only JPMorgan recorded a bigger bank-Fed estimate differential. Speculation holds that the key issue surrounds proprietary trading, something that's been a hot potato in the news as of late, especially in light of the scathing Senate report on JPMorgan. Wells Fargo, which aims to build in capital markets activity, as of now doesn't have nearly the trading operations that the other two banks have. Some think that's what separated it from the other two. Whether you buy that argument or not, it seems clear that the recent stress tests play into the criticism that the tests have become a bit opaque and overly subjective. For more: Read more about: Goldman Sachs, Wells Fargo 5. Not all hedge funds embroiled with insider trading scandals
The Financial Times makes a provocative point regarding the pursuit of Steve Cohen, the founder of maligned hedge fund firm SAC Capital. It argues that the reputation of the entire hedge funds industry now hangs in the balance and is on the verge of being discredited by the illegal behavior of a few bad apples. "Hedge funds need only look at banks – or Fleet Street – to witness the severe effects of an industry being discredited over the sins of some institutions. The same is in danger of happening to them," FT notes. But one could easily argue that this guilt-by-association argument is way overblown. In fact, it seems to me that hedge funds are thriving, despite the insider trading drama playing out at SAC Capital. The fact is that institutional investors' appetite for hedge funds has not been slaked. If anything, they are as hungry as ever for such products. Assets under management have soared to well over $2 trillion, and it wouldn't surprise anyone if it goes even higher. Of course, the financial crisis and the insider trading investigations has had a profound impact on the industry. Fortunately, many of the changes have been salutary. Institutions have been able to swing the power pendulum back in their favor. They are taking a harder line than ever on compliance, administrative and regulatory issues, making demands of fund firms that wouldn't have been taken seriously before the financial crisis. At the same time, the Dodd-Frank reform law has ushered in a new era of registration and disclosure, notably in Form PF and the new, more detailed Form ADV Part 2. In the aggregate, it may be more accurate to say that despite the scandals at a relatively few funds, the industry has managed to become more transparent to investors and more diligent about compliance and related issues. For more: Related articles: Read more about: SAC Capital, Limited Partners Also NotedSPOTLIGHT ON... Bank trading revenue fares well According to the OCC, U.S. commercial banks and thrifts reported trading revenue of $4.4 billion during the fourth quarter, up from $2.5 billion in the same period a year earlier. Interest-rate products were a big driver. Commodities and forex products were much weaker. The report also demonstrated that the notional amount of derivatives held by U.S. financial institutions fell to $223 trillion, a 2 percent decline sequentially. Article Company news:
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Thursday, March 21, 2013
| 03.21.13 | Hactivist group steps up attacks on big banks
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