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2. When is inside trading not really insider trading?

In the wake of first quarter earnings, what can we say about the top banks?

Most banks are betting on wealth management -- as they should -- for more stable earnings contributions going forward. But that will take some time to materialize. At the same time, FICC-oriented activity seems to be powering down a bit, as does mortgage operations for consumer banks.

But not to worry.In the first quarter, the one of the biggest stories was the powerful comeback of investment banking. The performance surge has prompted the Daily Ticker to declare that "2013 is the year of the investment bank."

Consider Goldman Sachs' (NYSE:GS) investment-banking arm, which logged revenue of $1.57 billion, up 36 percent from a year earlier and 12 percent from the previous quarter. While revenue from advice on mergers and other deals fell 1 percent from a year ago, debt-underwriting revenue jumped 69 percent while equity underwriting revenue rose 53 percent.

In contrast, revenue from fixed-income, currency and commodity trading totaled $3.22 billion, down 7 percent from a year ago.

At Morgan Stanley (NYSE:MS), similar trends were evident. In investment banking, advisory revenues were down 20 percent to $251 million. However, equity underwriting revenues hit $283 million, up a whopping 65 percent from a year ago, reflecting higher market volume. Fixed income underwriting revenues were $411 million, up 12 percent from a year ago, reflecting a favorable debt environment.

Meanwhile, bond-trading revenue fell 42 percent in the first quarter and stock-trading revenue declined 19 percent.

For more:
- here's the article

Read more about: Underwriting, Sales and Trading
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By Jim Kim

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3. UBS aims to be a top asset manager

The big question in the fascinating case of Richard Bruce Moore, who had worked at Canadian Imperial Bank of Commerce, where he basically figured out a certain deal was in the works and made big bets on the outcome, is whether it constitutes insider trading.

No one tipped him off, and he didn't steal any information. Still, his trading ran afoul of regulators in the U.S. and Canada, and he later settled with both, paying $850,000 and agreeing not to work in the securities industry.

DealBook reports that, "one of Mr. Moore's clients was the Canadian Pension Plan Investment Board, which was planning an offer for Tomkins along with a private equity firm. Mr. Moore regularly dealt with one of the pension plan's senior representatives about providing investment banking services. He learned there was a significant transaction involving the pension board, but that C.I.B.C. would not be involved in it. Over the course of the next few months, Mr. Moore gleaned additional tidbits about the transaction from his interactions with the pension board representative. In this case, no one tipped him off about the deal, at least not in the traditional sense. In essence, he put two and two together after he saw the pension board representative speaking with someone at a charity event, and the representative refused to introduce them or even identify who he was speaking with. A short time later, another person identified the unknown person as the chief executive of Tomkins."

Moore then started buying the stock through an offshore account, betting a large chunk of his personal net worth.

The SEC deemed this insider trading, while its Canadian counterpart said this was simply improper trading. Either way, it seems wrong. The fact that he did all this via offshore accounts may be telling.

But let the debate begin. To stay on the safe side, it would be unwise to assume that making bets on stuff you figure out at work will not be looked on favorably by regulators.

For more:
- here's the article

Read more about: insider trading
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By Jim Kim

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4. Trustee sues Jon Corzine for MF Global failure

UBS stands as the prime example of a universal bank that aims to scale back in investment banking and trading.

Goldman Sachs president Gary Cohn, was recently quoted saying, "We are seeing capacity come out of our competitive landscape for the first time in 50 or 100 years…We are seeing the big international banks, outside of ourselves and JPMorgan, really taking pretty substantial steps back from the market and we haven't seen that in the entire history of banking."

UBS is leading the historic trend in a big way, betting that it can do better by shareholders if pulls back in capital markets and focuses on wealth management and asset management. While the new strategy is understandable, making it work will not be easy.

As Bloomberg notes, "UBS wants its wealth-management units, which lost 20 percent of assets under management during the financial crisis, to contribute half of pretax profit by 2015 compared with 32 percent a decade earlier. Profit has been squeezed since banking secrecy came under attack after UBS admitted in 2009 to helping Americans evade taxes. Customers pulled funds or have been reluctant to trade amid Europe's sovereign-debt crisis."

There has been progress, as the outflow of client funds has been staunched. The next step is to recreate itself in the mold of PIMCO and BlackRock. In terms of a turnaround, the best model might be the Harvard endowment.

"The transformation at UBS is akin to that of Harvard Management Co., which runs the university's endowment. Since losing 27 percent on investments after Lehman Brothers Holdings Inc.'s 2008 bankruptcy, Harvard, the world's wealthiest college, added staff and expanded the proportion of funds it manages internally to boost returns. The endowment lost 0.05 percent on investments in the 12 months through June 2012, cutting assets to $30.7 billion, after gaining 21 percent in the previous year and 11 percent in fiscal 2010."

It will be a long-time before UBS is seen in the same light as the industry leaders. It seems to be relying on organic growth to effectuate this, but there could some transformative deal opportunities in the near-term.

For more:
- here's the article

Read more about: Asset Management, UBS
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By Jim Kim

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5. Hedge fund billionaires vs. nature and neighbors

Louis Freeh, the former head of the FBI now overseeing the MF Global carcass, has decided to go ahead and sue Jon Corzine, the disgraced former chairman and CEO of the firm.

Two other ex-executives were also sued, including the former COO Bradley Abelow and former CFO Henri Steenkamp. "Defendants, in their capacities as officers, breached their fiduciary duties of care, loyalty, and oversight over the company, and failed to act in good faith," Mr. Freeh wrote.

The charges are essentially a follow-up to a report issued earlier this month that excoriated Corzine and other executives for essentially running the bank over the cliff. In that report, Corzine was singled out as the executive who perhaps was the most responsible for the reckless activity, detailing how he enjoyed nearly unbridled power to trade the firm's money and the firm's shocking lapses in risk management processes.

In the end, about $1.6 billion disappeared from customer accounts. Fortunately, the trustees have made great progress in recovering funds for customers. Creditors, however, are facing much bigger loses. They'll likely recover less than half of the value of their investments.

The suit by Freeh was something of a surprise. Earlier this month, he delayed plans to sue after discussing the suit with a mediator who is handling broader settlement talks. The mediator suggested that Freeh should be a participant in those talks as well.

Ultimately, Freeh and others will be asked to pay, though they are likely insured against large personal losses. That amounts will determined by the several private suits wending through the system.

Some critics are still dismayed that it Freeh has apparently escaped criminal, or even civil, personal charges. Corzine has maintained all along that he is innocent and that his trades eventually would've have paid off. He could still be barred from the industry.

For more:
- here's a Reuters article

Read more about: Trustee, Jon Corzine
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By Jim Kim

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