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Today's Top News1. Bank of America debunks class action claims
Bank of America has debunked claims by former employees, arguing that they relied on tawdry practices to deny people home mortgage modifications. The claims, part of a suit seeking class action certification, were simply untrue, the bank said in court papers. "The declarants wildly misrepresented their duties at the bank, and most had only minimal involvement with HAMP — or none at all," as noted by the Charlotte Business Journal. In addition, most of the workers were fired and did not work in a capacity that would give them knowledge of various practices. Of the seven ex-workers that were part of the suit, Simone Gordon, Theresa Terrelonge and Recorda Simon "were call-center operators whose only involvement with HAMP would have been to forward calls to other departments," the bank says. "Gordon even spent most of her tenure in a credit-card department unaffiliated with the HAMP efforts." The bank also says contractor Bert Sheeks "was responsible for processing customer complaints, not HAMP applications." And William Wilson "did not work as a loan underwriter as he claimed." "The declarants' wild misrepresentations about their roles lead to impossible claims about what they did and saw," according to the bank. As for the so-called blitzes, in which people were said to be denied modifications en masse, the bank says: "Blitzes were used to help approve applications, not deny them: A 'blitz' describes the use of overtime hours on evenings and weekends (when CRMs had the greatest chance of reaching borrowers) to call large numbers of borrowers to obtain outstanding documentation needed to process their applications." And what about steering people to other programs? The bank said the charge does not make sense, as HAMP offered higher profits. All in all, it's impossible to predict how this case will fare well in court. But the plaintiffs' lawyers have some work to do already if the bank's claims are true. For more: Read more about: Bank of America, class action suit 2. Bank of America revenue growth strong
One of the big themes in earnings season has been the ability of banks to bump up their top lines. Revenue growth was troublingly scarce last year, but that has reversed. Bank of America became the latest bank to post decent top line growth. For the second quarter, revenue increased 3.5 percent to $22.7 billion from $22 billion a year ago. Net income rose to $4 billion, or 32 cents a share (diluted), from $2.5 billion, or 19 cents a share, a year ago. Analysts were expecting roughly 25 cents a share. So this represents yet another upside surprise this season. The second quarter results were driven by year-over-year improvements in NIM, investment and brokerage income, investment banking fees, sales and trading revenue, equity investment income and credit quality as well as expense reductions. In something of a surprise, the bank was able to boost its NIM, which was 2.44 percent in the second quarter, compared with 2.43 percent in the first quarter and 2.21 percent a year ago. Other big banks, notably Wells Fargo, saw their NIM decline sequentially and year over year. Among the business segments, consumer and business banking, the biggest contributor to revenue, reported net income of $1.4 billion, up $184 million, or 15 percent, from the year-ago quarter. Average deposit balances of $522.3 billion increased $47.9 billion, or 10 percent, from the same period a year ago. The increase was driven by growth in liquid products in a low-rate environment and an $18 billion average impact of transfers. Interestingly, the company also noted that its sales force "of financial solutions advisors, mortgage loan officers and small business bankers" rose to more than 6,800 in the second quarter, up 21 percent year over year. As for global banking (which included investment banking, sales and trading and global commercial banking), the bank fared decently, as revenue increased. However, net income was flat, mainly due to higher provision for credit losses, mainly for commercial loans. Investment banking fees rose 36 percent from a year ago, mainly due to debt and equity underwriting. For more: Read more about: Bank of America, bank earnings 3. Has the SEC blundered already in the trial of Fabrice Tourre?
The trial of Fabrice Tourre has already generated some heated exchanges. Unfortunately for the prosecution, the heat emanated from one of its own witnesses. For whatever reason, the prosecution decided to put a former executive of Paulson & Co. on the stand, and the results were disastrous. By the end of the day, the prosecution was asking to treat its own witness as a "hostile" one, according to media reports. This is the stuff of bad movies frankly. The point that the SEC was aiming to drive home via the witness, according to DealBook, was that big broker-dealers were "wary of working with hedge funds like Paulson & Company that wanted to bet virtually exclusively against the investments' success." In hindsight, it seems that somewhat minor point could have been made in other ways. "During questioning by a government lawyer, Mr. (Paolo) Pellegrini said that he was not sure what 'C.D.O.' — the type of security, which the hedge fund stalwart helped construct, that is at the heart of the government's civil lawsuit against a former Goldman Sachs employee — stood for. After several minutes of verbal sparring, he conceded that it might stand for 'collateralized debt obligation.' "Over around two hours of testimony, Mr. Pellegrini, a tall, imposing investment executive, repeatedly paused and claimed he could not remember what he previously said. At one point, he complained that his questioner, Matthew T. Martens of the Securities and Exchange Commission, was being too imprecise in his queries, making them hard to answer. 'It's a bit of a trick question, but I'll try to answer it,' he said." At one point, the questioner and Pellegrini sparred over the meaning of custom CDO. All in all, this isn't a great start for the prosecution, but it may not necessarily be fatal to their case. The trial still has a long way to go. For more: Read more about: Goldman Sachs, Fabrice Tourre 4. Michael Dell, Silver Lake will not boost bid
So who will blink first? That's the question as the Dell leveraged buyout drama nears a critical milestone, the July 18 shareholder vote. At this point, it's clear that the Dell board's special committee does not think that the offer it has supported---the one from Michael Dell and Silver Lake---is a sure-fire winner. It is definitely not in the bag. The fact that the committee has let it be known that it is willing to postpone the vote speaks volumes. It clearly wants Michael Dell and Silver Lake to boost its bid. At the same time, Michael Dell is making it clear that he will not do so, as noted by Reuters. He's working behind the scenes to convince shareholders that a price hike isn't going to happen and that he's willing to walk away from the deal, leaving them much worse off. The exact views of Silver Lake are unknown, but no one would be surprised if it walks away as the PC maker (and the entire PC market) continues to founder. The stock price remains below the $13.65 offer prices, indicating that arbs are not necessarily expecting a bump. For Michael Dell, a defeat would hurt, quite personally. It's still possible, however, that he has one price bump in him. At this point, the buyout battle has lapsed into high stakes poker. Someone has to blink. Carl Icahn may be smiling. But he too has a long road ahead. He would love the special committee to put his leveraged recap proposal to a vote, though the committee remains disdainful of the offer. If the Michael Dell offer were to implode, he would be one step closer. For more: Read more about: Leveraged Buyout, Dell 5. Are ethics always relative?
On Wall Street specifically, is there such a thing as definitively right or wrong? We could debate that philosophical question all day long. But it is a worthy topic these days, especially in light of all the insider trading scandals. We raise the issue in light of the second annual report from Labaton Sucharow, in which the authors come to some troubling conclusions. "We uncovered astonishing data about the state of our markets and, notably, an abject decline in the three forces that, individually and together, have the power to serve as safety nets for the economy: individual integrity, leadership and corporate culture. A particularly troubling and consistent finding throughout the survey is that Wall Street's future leaders–the young professionals who will one day assume control of the trillions of dollars that the industry manages—have lost their moral compass, accept corporate wrongdoing as a necessary evil and fear reporting this misconduct. This is a ticking economic time bomb that responsible organizations must immediately defuse or pay a heavy price." Here are some conclusions of the study:
You could argue that the study amounts to great marketing, as surveys of this sort often are, for a whistleblower law firm. But it does touch on a big issue. One question is whether this willingness to break the law is anything new. Wall Street has always been willing to play on the edge. The highest moral virtue for many is to enrich people, shareholders, limited partners, clients, even themselves. We can only hope the regulators are up to the task. For more: Read more about: Crime, Ethics Also Noted
SPOTLIGHT ON... Brian Stoker shows support for Fabrice Tourre I have suggested before that Fabrice Tourre is the Brian Stoker of Goldman Sachs. Recall that the latter was a relatively low-level Citigroup executive who was the only person charged for CDO shenanigans. He fought the SEC in court and walked away with an easy win. Ever since, I have suggested that Tourre was poised to win in similar fashion, as the only human charged along with Goldman Sachs, the corporate entity. To think that Tourre was the mastermind is about as fanciful as thinking that Stoker was the mastermind at Citigroup. One gets the feeling that both were charged because it would have looked bad to not charge an executive, and the evidence they had would only support a low-level executive. Most likely, the SEC wanted to settle. But that wasn't to be. Article Company News:
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Thursday, July 18, 2013
| 07.18.13 | Has the SEC already blundered the Fabrice Tourre trial?
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