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2. A look at the union attempt at Goldman Sachs

In the end, neither the government nor the private mortgage market could finish off the big housing GSEs of Fannie Mae and Freddie Mac.

These two institutions, which once loomed so large as facilitators of the mortgage bubble, were left for dead not too long ago as wards of the federal government. But with a retail housing recovery so paramount to any sort of economic revival, people have been loath to kill them off definitively, fearing large macro-economic repercussions.

It's hard to believe, but as of now, the smart money seems to be betting that these companies just might end up fully rehabilitated. Hedge funds are betting on the preferred shares of both Fannie Mae and Freddie Mac.

"The idea is eventually, as these companies have paid back their debt to the government, they could potentially be turned back on," one expert was quoted by Bloomberg. "From our perspective, you can only make an argument for this if you think the government's going to change the rules somehow to benefit the preferred shareholders."

The bet might be supported by the fact that Fannie Mae is back to boasting big profits. Recall that it posted record quarterly earnings of $7.6 billion last week and said that it expects to be profitable for the foreseeable future. By dint of a change to the GSEs bailout agreements, these profits are delivered to the Treasury Department.

GSE profits thus become an important source of income as the Department grapples with sequestration issues. In fact, they may provide enough funds in June to extend government operations for one full month.

The bet by hedge funds and other bulls is that eventually the government will essentially forgive the debts incurred as part of the government bailout or that the two GSEs will rack up enough profits to repay their debts to taxpayers.

My sense is that Congress will remain in go-slow mode on GSE reform with the economy poised to really feel the sting of sequestration. No one wants to do anything that might hamper growth. While a small Congressional group remains committed to the idea that these two entities need to be put to death, it looks like they'll remain on death row for a long time.

For more:
- here's the article

Read more about: GSEs, Fannie Mae
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By Jim Kim

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3. Big banks still in job-cutting mode

About a year ago, Goldman Sachs became the target of an unlikely unionization effort by former employees, who were unceremoniously laid off in Japan.

The news generated big headlines around the globe, as the group embarked a campaign to publicize their plight and to paint Goldman Sachs as a cold tyrannical employer. The campaign lasted a few months, before fading. Now, it has been revealed by the Japan Times, as a media ploy as much as anything.

"The public face of the Goldman Sachs Japan Employee Union was Timothy Langley of Langley Esquire, a former U.S. lawyer who consulted the laid-off employees. He now admits that generating interest and public support was a 'specific element of the negotiating approach to a reluctant Goldman Sachs,'" the Times notes.

It continues, noting that, "The arrogance and bluster of Goldman was overbearing," he was quoted. "One or two, even a roomful of employees would falter and run away under normal circumstances, so a different game had to be played with this huge gorilla."

But is there anything that can be learned from an HR perspective?

The article notes that "a key complaint was the manner in which the company laid them off. According to union members, targeted workers were called in for meetings with management, told that their position no longer existed — through no fault of their own — and asked to pack up their belongings. Access to the company computers was cut off and they were told to hand over their employee IDs, keys and security tokens for remote computer access to an HR representative."

That is fairly standard by American and European standards. But in Japan, it might be considered brusque. One union official said such behavior was almost unheard of in the tradition-laden country. So in the next round of layoffs, the bank may want to take culture into an account. Just a thought.

For more:
- here's the article

Related Articles:
In Japan, Goldman Sachs workers unite

Read more about: Goldman Sachs, Japan
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By Jim Kim

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4. Old issues creep up during earnings season

By this point in the banking industry business cycle, one might have thought that banks would have their expenses in control and would be in prime position to lift their top lines. But that's not happening. The reality is that most of the top banks remain revenue-challenged, with little hope for a turnaround soon.

The upshot is that the only way to keep earnings strong is to cut expenses even more, which means more pain ahead for employees.

Bloomberg reports that, "Even after the industry posted its best results since 2006, the six largest U.S. banks announced plans in the first three months of this year to eliminate about 21,000 positions, or 1.8 percent of their combined workforce…That's the most since 2011's third quarter. JPMorgan Chase & Co., whose 259,000 people produced three straight years of record profit, topped the list with 17,000 reductions scheduled by the end of 2014.

"Banks are under pressure to keep profit climbing amid weak revenue growth, and employees are among the biggest expenses after interest costs. The most vulnerable people work in units where demand is waning such as mortgage foreclosures. Their departures would come on top of 320,000 jobs culled from U.S. financial companies in the past five years, the data show."

We may hear more about head count plans when banks report first-quarter earnings later this week. Wells Fargo and JPMorgan Chase will report results on Friday.

The employment situation is less dire at banks beyond the top six. Still, the big question that remains is determining when revenues will again see a significant rise. Big, new drivers of revenues have proven elusive over the past few years. And as interest rates stay low and the economy remains weak, revenue relief may not be coming soon.

For more:
- here's the article

Read more about: jobs, banks
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By Jim Kim

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5. Bank of America overhauls retail channel for the future

Two big issues seem way too familiar as earnings season looms: Capital requirements and enforced bank break-ups.

These are old issues that always seem fresh, especially considering a bi-partisan bill has just been introduced that would lift Tier 1 capital ratios to 10 percent with a 5 percent surcharge for the biggest banks, going way beyond Basel III. The bill also seeks more separation between the insured deposit business and operations that carry high risks.

If such a bill were to become law, the requirements would certainly change the face of the industry.

Ive suggested before that the bill has no chance to become law.

Still, SNL notes that, "Analysts and investors are sure to seek reaction from megabank CEOs during earnings season, perhaps most notably from JPMorgan Chairman and CEO Jamie Dimon, who has defended the universal banking model.

"JPMorgan, Wells and BofA all grew in the wake of the 2008 financial crisis, despite the fact that BofA, Citi and others needed massive government bailouts to survive that period of gloom. Now, with JPMorgan's Dimon under lingering fire for the so-called London Whale mess of 2012 that cost the New York-based banking giant more than $6 billion in trading losses, the executive is facing investor calls to give up his chairman seat at the company's annual meeting in May. Dimon has dismissed the suggestion and railed against the notion of breaking up megabanks, but he could get pressed for further reaction on both fronts during earnings season."

There will be a host of bank-specific issues that command attention as well. But the old standbys are alive and well.

For more:
- here's the report

Related articles:
Big banks off to favorable start in 2013

Read more about: bank earnings
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By Jim Kim

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