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2. Is this the end for debit cards?

As expected, Carl Icahn, the activist investor, has taken his fight against the approved Dell buyout proposal to court. He has asked for an expedited proceeding in Delaware, arguing that the Dell board has breached its duties to shareholders by approving a dividend-sweetened offer by Michael Dell and private equity concern Silver Lake.

Icahn wants to prevent the board from modifying the voting rules as it has said it would, which most think will aid Michael Dell. Icahn also has asked the court to compel the company to hold its special meeting to vote on the deal (Sept. 12) and its annual meeting (Oct. 17) at the same time.

At this point, it's too early to declare the battle for the computer maker over. Nothing can drag out a transaction quite like a legal proceeding. Plenty of shareholders hope the battle drones on, as it just might yield an even higher bid.

Fortune speculates where the Dell battle might rank as one of the most protracted ever. In a post called, "The Never-Ending Dell Deal," a columnist writes: "The Dell buyout seems to have been dragging on forever, but it has a long ways to go before calling the folks at Guinness.

"From what I can tell, the longest formal buyout process of all time belongs to Bain Capital and Thomas H. Lee Partners' pursuit of Clear Channel Communications.

In that case, Clear Channel announced on Nov. 14, 2006 that it would be acquired by Bain and THL for $37.60 per share (total value of around $18.7 billion). But the deal did not close until more than 20 months later (July 30, 2008), at a price of $36 per share."

We can only hope it ends before 20 months.

For more:
- here's the article

Read more about: Leveraged Buyout, Dell
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By Jim Kim

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3. Wall Street less attractive to the best and brightest?

A federal court ruled last week that the Fed did not go far enough with its Durbin Amendment-driven push to lower interchange fee rates. The widely publicized move to lower interchange fees from 44 cent to 21 cents wasn't good enough for the judge. That raises an obvious question: how low will rates go?

That question will not be answered for some time. There is a decent chance that the Fed will fight the ruling.

But the ruling nevertheless raises some big revenue issues about debit cards. Credit Suisse predicts that for large-cap banks, a reduced interchange rate to 12 cents would negatively impact 2014 earnings per share by 2 percent, with the largest impact at Bank of America (about 4 percent) followed by PNC Financial Services Group (3 percent).

For issuers, the future seems a bit cloudy. They have to consider the possibility that they will lose another big chunk of interchange revenue, which means they will be pressured to find offsetting revenues from other areas. They'll have to thus consider a wide range of fees at a time when raising fees or imposing new fees is difficult. Consumer advocates will not doubt be on alert for more fee increases.

We've long suggested that credit cards are due for a comeback, as the interchange fees for those products have yet to be crimped. Banks might be wise to focus more attention on credit and prepaid card options.

For more:
- here's a Dow Jones article

Read more about: Debit Cards, Durbin Amendment
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By Jim Kim

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4. New York steps up battle against online lenders

FOX Business columnist Charles Gasparino's sources at Bank of America tell him that "a higher percentage of the incoming class of investment bankers this year failed their entry level exam than in previous years, perhaps as high as 40% compared to 30% in the past." The columnist says other big banks are seeing similar results.

So what's going on?

It might be tempting to argue that Wall Street looms as less of a beacon to top students coming out of college and business schools. "The best and the brightest are increasingly looking at other industries such as technology, science and private equity, where they can make good money and feel good about themselves, banking executives say."

He goes on: "What makes the growing failure rates particularly worrisome for Wall Street managers is that the test itself measures basic financial knowledge. The specific exam being discussed is known as the 'Series 79,' which covers broad investment banking issues such as mergers and acquisitions, buyouts, and financial restructurings."

Frankly, I'd be surprised if there was a permanent falloff in the caliber of new recruits. My sense is that there is a cyclical element going on. The best and brightest, for better or worse, tend to follow the money. If the Wall Street machine get cranking again, they will come flooding back from Silicon Valley and other destinations. That's my guess anyway.

The other interpretation would be that we're at a historic inflection point, marking a permanent change in how young people view the street life. Some marketing at the trade group level may not be a bad idea, if only as a hedge.

For more:
- here's the column

Read more about: recruiting, jobs
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By Jim Kim

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5. Bank of America sued over residential MBSs

Online lenders, which are synonymous with payday lenders in the eyes of many, have been controversial to put it mildly. No fewer than 15 states have essentially banned the practice. New York has never been shy about getting involved in these issues.

In fact, New York's top financial regulator, the controversial Ben Lawsky, has just sent letters to 35 online lenders, demanding that they cease and desist from offering loans that violate local usury laws. Lawsky ordered these companies to halt their allegedly usurious loans within two weeks, according to the New York Times.

On an ominous note, the state of New York has targeted companies beyond the online store fronts that dominate the landscape. State regulators are also taking a very close look at big banks, which have been painted as willing abettors in some circles. Some banks have already moved to reduce their associations with these dubious lenders.

In the face of tough criticism, JPMorgan Chase for example announced plans recently to give customers who have borrowed money from payday lenders more control over their JPMorgan accounts, allowing then to halt automatic withdrawals and to more easily close accounts. The bank will also limit the fees it imposes on customers who overdraw accounts due to automatic withdrawals by payday lenders.

The goal was to head off more criticism, and even regulatory action. At the time, we suggested that other banks will likely follow suit, including Bank of America and Wells Fargo.

This is a tricky issue for banks, who are starved for fee revenue right now. Some have eyed the direct loan market, which is nothing if not profitable. They risk being labeled high-end payday lenders, but some banks are willing to take the PR hit as the revenue is that good. At some point, however, the collective action of state and federal regulators will make direct loans an increasingly untenable business.

For more:
- here's the article

Read more about: Online Lenders, Direct Loans
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By Jim Kim

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