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2. Higher leverage ratio would impact top banks

If you are going to successfully run an independent research shop, you have to find ways to differentiate yourself on Wall Street. You've got to raise brows however you can. For Meredith Whitney, that has never been hard. She has always drawn attention, often for reasons that have little to do with her work.

This is how a Financial Times columnist introduced her in a recent profile: "Meredith Whitney arrived early for lunch at the Wolseley and so, alas, I didn't see Wall Street's most notorious analyst making her entrance. I bet the other diners stared, though. They may not have known that this was the woman who predicted the U.S. banking crisis but they couldn't have failed to clock her fishnet-clad legs, one ending in a patent leather high-heeled shoe with a diamante buckle, the other in a blue-and-pink trainer.

"When I get there, the portion of Whitney visible above the starched white tablecloth looks exactly as a woman known as the "dollar dominatrix" ought to. A long position in gold is festooned around her neck and clamped to her ears; her hair is big and blonde and her sweater black and expensive.

"Yet the smile is warm and girly. Please like me, it begs."

To be sure, the piece goes on to discuss her views of the muni market and other important market issues. Still, you have to wonder: Is the persona she cultivates as "dollar dominatrix" merely promotion?

My sense is that she doesn't need any added marketing pizazz beyond her work. But if that's who she really is, then she deserves credit for being real.

"I'm not a victim," she tells the FT. "I'm grateful that I've got name recognition – not since then (the housing crisis) has there been anyone with name recognition. Analysts are not really a sexy community."

For more:
- here's the article

Read more about: Meredith Whitney, Stock Research
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By Jim Kim

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3. VIX is big index business these days

The move by the FDIC to propose a higher-than-Basel III leverage ratio has ignited a lot of analyst talk about the ultimate implication. Under the new proposal, the eight largest bank holding companies would be required to retain capital equal to 5 percent of non-risk-weighted assets. Banking units would have to hold at least 6 percent. These proposals compare with 3 percent, the ratio suggested by Basel III.

Most analysts would agree that the largest banks in the United States are in strong position to comply by the 2018 deadline. Many would be able to comply much earlier. That said, there are some risks here.

For one thing, building capital may not be a snap.

As noted by Bloomberg, September data from top banks show that holding companies fell short of the new requirement by $63 billion. And insured lending units fell short by $89 billion. The best ways to raise capital is to retain earnings or issue shares. The latter will not likely be palatable. The former, however, seems to be a decent bet, as earnings has recovered at many of the largest banks. Banks could also rid themselves of certain assets that would reduce the ratio denominator.

Retaining earnings could have some implications in terms of dividend growth. That said, banks rallied on the FDIC proposal news. The conventional wisdom is that they will be in compliance quite soon, and that they will likely be better off because of it.

It will be interesting to see what the public comments will say about this issue.

For more:
- here's the article

Read more about: banks, Leverage Ratio
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By Jim Kim

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4. Just how much is at stake in the Fabrice Tourre case?

The VIX has long been thought of as a relatively crude but highly visible measure of market volatility, befitting its nickname, the "fear index." The goal of the index is to take the current prices of out-of-the-money puts and calls and estimate the implied volatility of the S&P 500 index.

This indicator of options activity has found a home in the market for licensed indexes. To the delight of the CBOE, which licenses rights to the index, it has become a winner in the index market.

Recent research by Citigroup has shown "tens of billions of dollars' worth of assets under management linked to the VIX through structured notes."

The data also show that VIX-related products account for about 34 percent of overall volatility trading on the S&P 500 and as much as 44 percent of the short-term, 2-month volatility. The VIX has been in bull mode even since the Fed hinted in late May that it may taper back on its QE3 efforts, though it has given up some gains most recently.

Mike Pringle, global head of equity trading at Citigroup, told Reuters that the VIX should properly been seen less as a pure measure of volatility and more as a traded product.

"A big mistake the market makes is looking at the VIX as an indicator of stock market risk. Why? Because it's an asset class and it's more traded for yield than protection," he was quoted. "The growth of structured products around VIX drove that move. In most cases, the VIX is sold to generate yield but during some stress periods, the weakness in the spot level triggers significant computer-generated technical buying from these products."

At the extremes, however, the index would definitely indicate market stress. But on a day-to-day basis, it perhaps shouldn't be seen as an index that offers a lot of granularity.

For more:
- here's the article

Read more about: indexes, Vix
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By Jim Kim

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5. Assets under management soared in 2012

DealBook suggests that the trial of the former mid-level executive at Goldman Sachs represents the culmination of an entire era, one that featured a near-mania in structured products built spun from residential mortgages.

In some ways, that seems like overselling the trial. If a higher level executive had been charged, someone at the partner level or even higher, then we could all legitimately conclude that this is the defining trial of the era.

But Tourre was not such an executive. The other way to interpret the trial is that it's a mere replay of the previous Brian Stoker trial. Recall the mid-level Citigroup executive was acquitted of charges of wrong-doing for his role in a controversial Citigroup CDO sale. The big questions that at least one juror put on the table in the wake of the acquittal: Why is he on trial? Shouldn't higher level executive be put on trial as well?

It will be interesting to see what tack the Tourre defense will take. But it might gain some traction with jurors if it can couch Tourre's role in sale of the ABACUS CDO as a small-ish one and couch his job as part of a larger apparatus approved by top executives.

In the end, if Tourre prevails, no one will argue that Goldman Sachs is de facto guilty. The bank has already settled charges, without admitting guilt. However, if the SEC loses, the invective will be loud and long. It needs to demonstrate competence, which will go a long ways toward putting the Bernard Madoff-induced woes behind it.

It will be interesting, though not brimming with cosmic significance.

For more:
- here's the article

Read more about: Fabrice Tourre
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By Jim Kim

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