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2. Florida's tough line against Wells Fargo and Bank of America

The Deal Professor takes a look at the IPO of Fairway Group Holding and draws some conclusions in terms of the JOBS Act, which was passed last year to spur IPOs among emerging growth companies.

Like a lot of legislation, the impact has been somewhat counterintuitive. "Fairway is classified as an emerging growth company and therefore arguably benefited from the relief offered by the JOBS Act. But the question is, did its I.P.O. success have anything to do with the legislation?," he writes. "Probably not. In fact, the law may have even harmed investors in this case."

To be sure, the company took advantage of the law, which gave it the right to file registration documents with the SEC in secret and the right to avoid extensive disclosure of executive compensation for five years. Companies tend to like both provisions, and many have shown a desire the take advantage of these benefits.

Regarding the former, secret registration in general might put "investors in the dark about possible problems. We saw the value of this review in the offerings of Zynga and Groupon, when aggressive accounting tactics exposed by an S.E.C. review alerted investors to problems at both companies."

Fairway's reliance on these portions of the JOBS Act "shows that it is being used to avoid disclosure of information that may cause embarrassment to the company or alert investors of problems. But at the same time, it shows that the law may have allowed companies to get away with not disclosing financial information that investors value."

The point: "None of this has anything to do with whether Fairway would have gone public. Investors bought the offering because they viewed it as the next Whole Foods and not the next Pets.com. The fantastic pricing is a bet that the company will continue to expand. The JOBS Act had nothing to do with this."

In hindsight, it's tempting to view the JOBS Act as a political exercise more than anything. In the end, the determinants of successful IPOs have little to do with the new law's provisions. Certainly, it has given the legal staffs of emerging companies and investment banks a lot to ponder.

For more:
- here's the article

Read more about: JOBS Act
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By Jim Kim

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3. Discount brokers look forward to retail rotation

State attorneys general are more willing to get involved with the somewhat troubled national mortgage settlement, if only to announce that the checks are finally in the mail. Pam Pondi, the Florida Attorney General, is taking an aggressive approach to enforcing the settlement, rivaled only by Eric Schneiderman of New York. Bondi has taken very public stances, making clear that she remains unimpressed with the compliance activity of the two mortgage giants in her state, Bank of America and Wells Fargo. In August, Bondi appointed a full-time analyst whose sole duty is to assist homeowners with the settlement. Recall that the national settlement between banks and regulators was signed after lots of wrangling in February 2012.

As noted by the Palm Beach Post, "Bondi wrote a stern letter to Bank of America with examples of homeowner concerns and problems her own attorneys have had in trying to help borrowers who are covered by the settlement. The letter preceded a June 5 meeting with the lender.

"But last month, the attorney general's office also met with Wells Fargo representatives in Chicago to discuss 'concerns about potential compliance issues surfacing in borrower complaints received by my office as well as other states.' "

Bondi has issued a deadline, demanding that Wells Fargo provide some answers this week.

Apparently, her office has heard from disgruntled homeowners about various bank lapses in terms of compliance. To be sure, compliance isn't going to be snap for behemoth banks, which simply lack the internal infrastructure to move with haste in many situations. To be sure, this is a bigger problem in states where the mortgage bust was most intense, like Florida.

For more:
- here's the article

Read more about: Bank of America
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By Jim Kim

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4. Could UBS revive the investment banking partnership?

For much of the year, people have been predicting that more money would rotate out of bonds and into stocks, which would ease the investing public back into the equities market.

The conventional wisdom since the market gyrations of the financial crisis has been that the public has been spooked. In particular, they've been turned off by market structure issues, notably the rise of high frequency trading and dark pools, which has generated a sense that the deck is stacked against them.

In truth, execution quality for retail investors have been at an all-time high. Spreads have never been lower narrower, commissions are low, and execution speeds have increased over time. Best executions have never been better.

But perception is everything.

Now, we may be at a turning point again, in which the public essentially gets over these issues. One indication: discount brokers are humming. In fact, publicly traded discount brokers have outperformed the market by a margin not see since 2003. According to Bloomberg, Charles Schwab TD Ameritrade, and E*Trade "have climbed 38 percent on average in 2013, beating the S&P 500 by 23 percentage points." They have bested Goldman Sachs and Bank of America among other so far this year.

It would be nice if this were to presage a strong move by retail investors back into stocks, as rallies have a hard time sustaining themselves without retail participation. It will be a thin rally indeed, if this sector doesn't eventually jump in wholeheartedly.

For more:
- here's the article

Read more about: Discount brokers
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By Jim Kim

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5. Jamie Dimon weary of apologizing

The notion of investment banking partnerships died a long time ago. To be sure, you can still "make partner" at Goldman Sachs, but that's basically a semantic nod to its roots. All this makes a recent item in Breaking Views all the more interesting. "Now activist investment firm Knight Vinke is suggesting that UBS might adopt something like a partnership structure as part of its plan to split wealth management from investment banking."

The idea is to spin off the investment bank as a partnership, freeing the wealth management business to soar as a public company.

But could it really work?

There are plenty of reasons to be skeptical. Funding requirements "would be an issue. Jefferies' reversal into conglomerate Leucadia last year means there are no standalone investment banks with large trading arms. Even Morgan Stanley and Goldman Sachs have large asset gathering operations. Before the Leucadia merger, the annual cost of insuring Jefferies' five-year bonds against default with credit default swaps - one of the best indicators of bank risk - was 130 basis points. That implies a big hike in funding costs: UBS's five-year CDS currently trades at around 90 basis points. And UBS's trading operation is many times larger than Jefferies. Even a standalone investment bank with relatively high level of equity would face higher funding costs. It might therefore need even more capital before it could fund itself without the benefit of an implicit state guarantee."

And then there's issue of financing a deal to separate the two entities. Management would likely have to borrow heavily, raising the issue of whether it would be worth it for the founding partners.

All in all, it sounds like a non-starter.

For more:
- here's the article

Read more about: UBS, Partnerships
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By Jim Kim

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