Editor's Corner: U.S., U.K. face off in subsidiarization controversy Also Noted: Spotlight On... SAC offers more time on redemption requests News From the Fierce Network:
Today's Top News1. FDIC suit takes aim at former small bank CEO
When it comes to stereotypes, we tend to think of big bank CEOs as hard-charging, winning-is-paramount types -- the quintessential Wall Street executives. People often think of small town bank CEOs as paragons of their community and champions of the local economy. The Cleveland Plain Dealer once ran a story titled "Small town banker is a source of calm, wisdom." It went on to describe the banker as "a therapist, to others a financial sage. To everyone, he is a church deacon who declines to wear his religion on his sleeve, a patron of the local Arts Center, a NASCAR fan, the centerpiece of a newspaper ad that says: 'Remember when you could meet your bank president for a cup of coffee? Good news! You still can!' " There are lots of calm and wise small town bank CEOs. But there are also many who ran their banks over the cliff, loading up on real estate and other economically foolish bets that drove their banks into the hands of the FDIC. The seamier side of small town banking has been highlighted in a recent suit by the FDIC against founder and former CEO of City Bank of Washington state, Conrad Hanson. The suit paints him as the antithesis of the good banker, one who bullies his directors in paying him undeserved fat paychecks and bonuses. Here are some choice emails from the CEO to the board, as noted by Seattle Times: "Let's Cut To The Chase!" Hanson wrote in a September 2006 email. "If the group thinks my request and recommendation are inappropriate for any reason, I'M PREPARED TO STEP DOWN!" "I'm asking each of you individually to also examine if you're comfortable with my style...because it has now worked for +/- 32 years." For any board member worried that "some third party might take issue with the business of the bank, you also can resign," he wrote. In the end, the bank failed, despite warnings from regulators that the bank was overly extended in real estate. The FDIC eventually sued the bank, seeking damages from two executives for negligence, calling the compensation exorbitant. For more: Read more about: CEO, FDIC
2. Lazard results reflect weak M&A market
In yet another sign that the merger advisory market has slowed, Lazard reported that net income fell 40 percent to $15.4 million, or $0.12 a share, from $25.6 million, or $0.20 a share a year ago. Excluding some one-time items, earnings were $0.28 a share fully diluted, compared with the consensus estimate of $0.31. While the merger market definitely seems soft, several boutiques were hit by tough timing conditions. Many deals were accelerated so they could be consummated in 2012, before possible tax changes linked to sequestration kicked in. That effectively front loaded the deal calendar, leading to higher than expected merger revenue in the fourth quarter and perhaps lower than previously expected revenue in the first quarter. Indeed, mergers and acquisitions advisory revenue at Lazard fell 37 percent over the first quarter last year. Overall financial advisory operating revenue fell 39 percent. "Our first-quarter results reflect the uneven pace of the M&A markets, balanced by the strength of the equity markets," said Kenneth M. Jacobs, CEO, in a release. As for the entire merger market, announced deals in the first quarter were weak, the weakest in nearly eight years. The ones that were announced were bigger, which typically favor the large diversified banks that can offer financing. In the first quarter, Lazard fell share of global deals volume fell 11 percent sequentially. Bigger banks have been able to offset the weakness in merger advisory revenue with other investment banking revenue. Fixed income and equity underwriting, in particular, have been strong. The boutiques in general are less equipped to generate those sorts of offsets. However, at Lazard, revenue from asset management managed to shine, rising 14 percent. Management fees rose 10 percent. Assets under management also rose 10 percent. For more: Read more about: earnings, Lazard 3. Krawcheck speaks on bank industry ROE
Sallie Krawcheck, who has plenty of experience in the banking industry, has hit the nail on the head with her recent comments on what ails America's largest banks. "What you saw this quarter as you look at these banks is there's some group of them that are earning single-digit ROEs (Return on Equity) and they are destroying shareholder value every day they go to work," she said on CNBC. "They really need to figure out how to get those returns up consistently." That's a pretty harsh assessment. No executive at a Wall Street bank wants to hear that he or she is "destroying" shareholder value every day at work. But rhetoric aside, Krawcheck makes an interesting point. The banks have to find a way to get their ROEs up, but it matters how they go about doing it. The easy way is to resort to tried and true tactics, such as enhanced risk and more leverage. "Increasing leverage and therefore increasing ROE is a false increase in ROE." She continued, noting that, "The real question is can they regain their customer and clients' trust, can they do more for them, better for them and grow the business the real old-fashioned way, as opposed to just increasing risk either through leverage or risky products." Banks are no doubt bent on revenue growth via good old fashioned sales of banking products and services. But that's proving a tough nut to crack, despite the best of intentions. Bank of America CEO Brian Moynihan recently convened to bank managers to figure out how to jack sales. Hopefully that effort will pay off measurably. For more: Related Articles: Read more about: banks, Sallie Krawcheck 4. Banks face challenges, opportunities with payday loans
On a day when mortgage rates tumbled to new lows, the Washington Post published a story about some fast-growing loan products, which happen to be anything but low-interest-rate. Payday loans, pawn shop loans and other high-cost methods of financing have grown tremendously as of late, as nearly one in four Americans have used them, according to the article, which cites a study from the National Bureau of Economic Research. This is a vexing issue. Critics of high-rate products have excoriated these lenders as shady and anti-consumer, but the fact remains that there is massive demand for them. The economy has yet to lift all ships, and desperate people will often have little choice but to turn to usurious lenders. A big question at this point is whether legitimate banks have a role to play in rectifying truly terrible financial products. Regulators are planning to issue new rules for banks that offer payday loans that are tied to direct deposits of salaries, government benefits or some other payment. The new rules just might be game changer for companies like Wells Fargo and U.S. Bancorp. Of course, 15 states have banned such loans all together. The industry would be wise at this point to differentiate their product from the traditional run-of-the-mill, Internet-based payday loan. It shouldn't be that hard to come up with a product that steers a middle ground, offering a less abusive product, allowing banks to generate some much needed fee income. For more: Related Articles: Read more about: Payday Loans 5. Now may be the time to press ahead with regulation
At the height of the anti-bank movement, regulators and consumer advocates were baying for more regulations. Lawmakers latched on, and many promised tough action. But the original imperative to punish and control the banking industry quickly gave way to the goal of promoting economic growth. A good example of this dynamic is the angst over what to do about the big housing government-sponsored enterprises (GSEs). In the wake of the retail real estate implosion, you could almost hear the critics screaming for blood. They wanted executives of Fannie Mae and Freddie Mac to be criminally prosecuted, and they wanted Congress to pass laws winding these entities down permanently, and of course they wanted taxpayers to be paid back. That's going to take time, as Fannie Mae has paid back just $36 billion of the $116 billion in bailout funds it took. As the economy turned jittery and fears of a double dip emerged, GSE reform promptly went on the back burner, where it now remains. Consider also the issue of enhanced capital requirements. One answer to Basel III was that banks would suffer due to the new capital ratio requirements, crimping lending and job growth. Now that the economy and industry is in rebound mode, the zeitgeist seems to be reversing. The New York Times notes that, "As welcome as such profits are to the banks, they may also become a source of discomfort. The ballooning bottom lines could embolden the lawmakers and regulators who want to introduce additional measures to overhaul the banking system…Despite industry opposition to new rules, the buoyant bank profits could add to the ammunition that influential figures in Washington are using to advocate for more radical ideas to overhaul the banks." The pro-regulatory crowd seems to be stepping up just a bit, as evidence by the recent bi-partisan bill in Congress that would significantly hike capital ratios, even beyond Basel III. The bill, as of now, has little chance of making to a vote. For more: Read more about: GSEs, banking, regulation Also NotedSPOTLIGHT ON... SAC offers more time on redemption requests Bloomberg reports that embattled SAC Capital is giving limited partners an opportunity to redeem 50 percent of their stakes in each of the third and fourth quarters. The company said in a statement that, "We are offering our investors additional time to make their decisions as we are hopeful that the next few months will bring greater clarity surrounding the resolution of pending regulatory matters." Article Company news:
©2013 FierceMarkets This email was sent to kumaresan.selva.blogger@gmail.com as part of the FierceFinance email list which is administered by FierceMarkets, 1900 L Street NW, Suite 400, Washington, DC 20036, (202) 628-8778. Contact Us Editor: Jim Kim Advertise Advertising: Jack Fordi or call 202.824.5040 Email Management Unsubscribe from FierceFinance Explore our network of publications: | |||||||||||||||||||||||||||||||||||||||
Monday, April 29, 2013
| 04.29.13 | Subsidiarization controversy heats up
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment