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2. Cantor employee's unfortunate dispute with management

The Justice Department will charge JPMorgan Chase over London Whale issues. (UPDATE The charges have indeed been filed).

That's a virtual certainty. The actual indictment may be complicated just a bit by the fact that authorities cannot readily arrest two former employees who appear to be in line for personal charges, Javier Martin-Artajo, a former executive who supervised the London Whale, and Julien Grout, a trader who helped mark positions, according to media reports.

Bloomberg notes that Grout may be in France, which does not have a history of extradition. As for Martin-Artajo, he is "away on vacation and 'received no communication from any governmental regulators, including the Financial Conduct Authority in the U.K. with whom he has fully cooperated, which would indicate that he should not be on vacation at this time,' according to the statement from his lawyers," according to Bloomberg.

As for Bruno Iksil, the London Whale himself, he has secured a deal with prosecutors. He will not be charged apparently, as long as he testifies. He has been cooperating with the FBI and the Manhattan U.S. Attorney's Office for months, prepping to be the star witness.

The key issue is whether documents were falsified to mask trading losses. It will be interesting.

For more:
- here's the article

Read more about: Enforcement Action
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By Jim Kim

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3. William Ackman on the defensive

We've all seen this sort of thing: An employee dispute with management becomes a test of egos and spirals out of control, to the detriment of both parties. This all-too-common occurrence is usually avoidable, if only cooler heads could prevail. In the heat of the moment, however, cool heads unfortunately are hard to come by. That's when the lawyers get involved.

We raise this in light of a Bloomberg article about Gavin White, who worked for Cantor Fitzgerald in Singapore. He has become embroiled in a war with his former employer over---what else?---compensation. From there, the parameters of the battle spread grossly.

The roots of the spat: mired in poor performance, Cantor asked that White, a derivatives trader, take a 20 percent cut in pay. He was making a $580,000 salary. White refused. That's where things get murky. At some point, he was let go and launched a wrongful dismissal claim in local courts. In a counterclaim, the company argues that White threatened the company, saying he might go public with damaging information. White of course says that is baloney.

It's basically a case of he said/he said that make all parties look bad.

The rule of thumb in tough situations is never to start issuing threats or anything that evenly resembles a threat. One might quibble with Cantor management asking an employee to take a massive pay cut.

Would it not have been cleaner to just lay him off?

For more:
- here's the article

Read more about: Layoffs, jobs
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By Jim Kim

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4. Wells Fargo faces big rate risks

William Ackman has made adroit media usage a key aspect of his communications plans. But of course the media is a two-edged sword. And right now, the media is having field day with him.

His defeat at the hands of JCPenney has been termed "an embarrassing retreat." DealBook opines: "The fiasco may highlight not only the flaws of Mr. Ackman's approach and his force of personality but also the limits of what shareholder activists can achieve. Though many of these investors have grown bolder in recent years, taking on bigger targets and winning, being the loudest voice inside and outside the boardroom does not always promise success." Many outlets have noted that his returns so far this year have been paltry, compared to the Standard & Poor's 500 anyway.

In situations like this, a good PR move is to get around the reporters and pundits and go straight to the people. Perhaps as a move in that direction, Ackman sat for an interview with Charlie Rose.

"Ackman admitted he was worried that he was getting — as Rose put it — 'an image that¹s not necessarily helpful.' He then quickly reminded the TV host that 23 out of 26 of his investments in the past 10 years had been home runs,'" as noted by the New York Post.

He'll have to be careful about what he says. "As for Herbalife, Ackman called it 'a moral outrage' and said he was doing "millions of dollars worth of research" for the government, including the SEC, the FTC and several attorneys general." That may be true. But if you are trying to get them to shut down a company so you can make money, a more diplomatic approach may be in order.

Ackman said also that if he weren't an investor, he might go into government. "I think about government, if I could effectuate change the same way I could effectuate change in the private sector." These sorts of statements tend to go over better after great victories.

For more:
- here's the article

Read more about: William Ackman
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By Jim Kim

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5. As Dell battle drones on, operating challenges escalate

When it comes to Basel III capital ratios, the large banks remain on track to hit critical targets over the next few years. For a glimpse of the interest rate issues, look no farther than Wells Fargo.

In a quarterly filing, as noted by TheStreet.com, Wells Fargo disclosed that if interest rates rise 200-basis points, the bank could face a writedown of up to $11 billion to its portfolio of MBSs. Such a scenario would likely wipe out gains made in Wells Fargo's $144-billion sized portfolio. Unrealized gains currently stand at $2.6 billion, Wells Fargo disclosed recently.

Already, rising rates have hit the bank's balance sheet. For the second quarter, Wells Fargo reported a $6 billion writedown to its AFS portfolio, bringing total unrealized gains to just over $5 billion. The bank started the year with unrealized gains on the portfolio of about $11.2 billion.

The reality is that in an extremely low-rate environment, banks faced lots of portfolio pressures. As NIMs compressed, banks had no choice but to embrace higher-yielding securities, potentially including corporate bonds of varying ratings, CMBS, CLOs and the like. That has left them somewhat exposed to interest rate hikes. Other banks face big risks as well. Bank of America, for example, has a $315 billion securities portfolio, 90 percent of which is parked in mortgage-backed securities and Treasuries.

For more:
- here's the article

Read more about: Wells Fargo
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By Jim Kim

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