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2. Private equity exit activity to remain strong

The saga of Sergey Aleynikov stands as a stark reminder of just how painful a trade secrets theft case can be.

Aleynikov was accused by his former employer Goldman Sachs of stealing computer code for use in his new job. Aleynikov was eventually charged by federal and state prosecutors and sentenced to 97 months in prison before his case was overturned on appeal. He spent several months in jail, however.

In truth, these scenarios are pretty common in financial services. While we tend these days to think of computer code theft as the instigator of most of these cases, brokers and wealth managers have long been accused by firms of similar infractions, though these incidents do not often turn into criminal cases. Indeed, the brokerage industry has sought to self-regulate a bit by setting some standards governing brokers departing for new employers.

The issue has cropped up again in a very high profile way, as a departing Credit Suisse employee has been accused of stealing trade secrets for use at Goldman Sachs, where she has accepted a position.

In a complaint filed in Manhattan state court, Credit Suisse accused Agostina Pechi of sending "confidential and highly sensitive company documents to her personal email account in the months leading up to her resignation, including databases, client contact information and sales team targets," reports Reuters.

It notes as well that, "The Swiss bank also accused her of conducting an 'after-hours document raid' when she was scheduled to be on vacation in which she allegedly copied transaction documents related to a longtime Credit Suisse client."

There will likely be no jail time in this case. Credit Suisse is merely "seeking a temporary restraining order, barring Pechi for 30 days from seeking business from the company's clients. In addition, it asked the court to order Pechi to return all confidential Credit Suisse information and trade secrets."

For more:
- here's the article

Read more about: Trade Secrets, Agostina Pechi
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By Jim Kim

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3. ISS presses for new directors at JPMorgan Chase

The industry appears to be in the midst of a private equity-backed IPO boom.

Nearly 20 companies are said to be in the pipeline, and more companies may queue up soon. Warburg Pincus and TPG for example, are exploring a sale or a public offering of Neiman Marcus Group, which went private in 2005 for $5.1 billion. The odds of a public float are fairly good, one would think, given the performance of PE-backed IPOs so far this year.

This is a welcome change after years of disappointing IPO activity. The chances of good outcomes are pretty likely for these companies – a fact that explains the warm response they are receiving.

As noted by Lex, "A study of 1,500 IPOs by Mario Levis of Cass Business School found that, while the average IPO underperformed the FTSE All-share by 13 percent over the next three years, those backed by PE funds outperformed by a similar amount. Larger PE-backed IPOs outperformed by even more, as did those where the fund retains a significant stake. And while they come to the market with more debt, this falls away rapidly – from an average of 46 percent of assets just before the float to 20 percent after three years. Finally, margins tend to be high and stable while those for average IPOs are lower and falling."

Exit opportunities in general are looking better. Strategic buyers, many flush with cash, may be warming up to more deal making right now. And sponsor-driven deals will not soon shrivel up. This could end up being a banner year for exits, which is what large private equity firms have been hoping for.

For more:
- here's the column

Read more about: Portfolio Companies, Exits
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By Jim Kim

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4. New York AG takes special aim at Wells Fargo for settlement lapses

For ISS, the case against the current risk policy committee of the JPMorgan Chase board boils down to experience.

Three of four current members simply lack the experience, and the proxy advisory firm doesn't buy the explanation that qualified risk committee members are scarce.

"In comparing director experience across several large financial institutions, specifically of those serving on the respective risk committees, we found that many of those directors had relevant experience with strong backgrounds in risk management, financial services, financial regulation, economics, or credit/audit, to name a few examples. The legacy RPC members, on the other hand, appear to lack robust industry-specific experience," the report states, referring to David Cote, James Crown and Ellen Flutter.

"Mr. Cote hails from the industrial sector and Ms. Futter heads a not-for-profit organization. While Mr. Crown leads a privately owned investment company and has three years of investment banking experience, it is unclear if his experience is sufficiently robust for a large and complex institution like JPM," it notes.

The report also notes that, "Shareholders should note that, in the wake of the financial crisis, Citigroup added a total of eight directors with relevant skills including regulatory and risk management expertise. Moreover, in 2010, Bank of America added five new independent directors possessing extensive financial industry experience, including a former Governor of the Federal Reserve System, a former CEO of a commercial bank holding company, and a former Chairman of the FDIC. It is odd that JPM would find it difficult to find new directors with relevant industry experience in light of what two of its largest peers – each of which incurred far greater losses in the financial crises than JPM – have done in the past."

There's still time for the board to cut a deal with the proxy services and other advisory services as well as shareholders. The board would be wise at this point to pledge a dramatic re-do of the risk committee. The current four members may be all eminently qualified, but why risk a real debacle if the vote goes against it? The easiest thing to do would be to promise to pad the committee with more qualified members. That will likely appease various critics, at least in the short-run.

For more information:
- here's MoneyBeat's take on the issue

Related Article:
Directors at JPMorgan in crosshairs

Read more about: JPMorgan Chase, directors
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By Jim Kim

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5. Bank of America and MBIA settle nasty legal dispute

Wells Fargo has emerged without question as the big boy on the block in the residential mortgage market. It has vanquished all others, notably Bank of America, en route to roughly one third of the market, amid predictions by some that it could hit 40 percent.

I've made the point on several occasions that as the market leader, the bank is now a huge target for the media and regulators. Case in point: New York Attorney General Eric Schneiderman singled the bank out in his office's press release about his intention to sue Wells Fargo and Bank of America for noncompliance with the National Mortgage Settlement.

"The problem is all too real for Joyce and Alton Harden who have lived in their home in the Rockaways for 35 years, and who have been trying to negotiate with Wells Fargo for a loan modification for the past three years. After suffering a series of setbacks, starting with an on-the-job injury that kept Mr. Harden out of work for several months, and culminating with suffering massive damage to their home when Hurricane Sandy hit, the Hardens ended up in foreclosure. The Hardens reached out to MFY Legal Services who helped them prepare a full loan modification package that was submitted to Wells Fargo in early March," the release stated.

It continued, noting that, "Under the Settlement, Wells Fargo is required to respond to the loan modification request within 30 days. Despite that requirement, the Hardens did not hear a word back until late last week when Wells Fargo wrote to ask them to start the process over again and to resubmit a new application. Meanwhile the Hardens remain in foreclosure, uncertain about their future and desperate to move past this process."

"My husband and I are heading into our 70's and we want to move past this and enjoy this part of our lives without this constant threat hanging over our heads," said homeowner Joyce Harden. "We hope Attorney General Schneiderman's actions will finally help us settle this case and save our home."

That may seem a tad gratuitous -- a bit too much personal narrative for a press release -- but Wells Fargo has to expect as much.

For more:
- here's the release

By Jim Kim

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