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2. Bank earnings strong but big questions remain

As it turns out, JPMorgan was definitely attuned to Foreign Corrupt Practice Act issues in its China operations way before the SEC's and the Justice Department's investigations got underway. The bank went so far as to create a "Sons and Daughters" program that was meant to bring some order and oversight to the hiring of so-called "princelings," according to DealBook. The goal was to bring these influential employees into the bank in a way that did not run afoul of the FCPA.

"Without the program and its heightened scrutiny of the candidates, the employees argued, JPMorgan might improperly hire the children of Chinese officials to win business. But in the months and years that followed, the two-tiered process that could have prevented questionable hiring practices instead fostered them, according to the interviews as well as the confidential government document. Applicants from prominent Chinese families, interviews show, often faced few job interviews and relaxed standards. While many candidates met or exceeded the bank's requirements, some had subpar academic records and lacked relevant expertise."

To be sure, brining sub-par employees into a bank via a special program isn't necessarily illegal. Prosecutors must still somehow link specific hirings to specific transactions, which will not necessarily be easy.

One fascinating question here is how the program lapsed from one with noble intent to one that might have facilitated wrong-doing. It may be that some managers were so bent on hiring specific princelings that they worked the "Sons and Daughters" system anyway they could, running roughshod over a program that they saw as a mere HR and compliance nuisance.

One has to wonder if a whistleblower is at work.

For more:
- here's the article

Read more about: Compliance, Fcpa
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By Jim Kim

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3. Fun advice for dressing well at work

There's little doubt that the banking industry remains in rebound mode. Just look at the latest earnings report from the FDIC. It shows that the banking industry generated record profits for the second straight quarter, powered by growth in noninterest income. Institutions generated earnings of $42.2 billion in the second quarter, a 23 percent increase from a year earlier and a 4.7 percent increase from the first quarter, which set a then-record of $40.3 billion.

As noted by the American Banker, "the FDIC again attributed the earnings growth largely to lower loan loss provisions and higher noninterest income, particularly trading income. Banks are also beginning to see clear effects from fluctuating interest rates."

The head of the agency said in a statement: "industry revenue growth remains weak, reflecting narrow margins and modest loan growth. And the current interest rate environment creates an incentive for institutions to reach for yield, which is a matter of ongoing supervisory attention. Nonetheless, overall these results show a continuation of the recovery in the banking industry."

All in all, you have to be impressed with the industry's recovery amid still tepid economic conditions.

But the biggest impediment to people pronouncing a full-fledged rebound is the somewhat disappointing growth in revenue. There just doesn't seem to be a real demand-driven revenue driver out there. Mortgages have recovered somewhat, but rising rates will mute that growth in the near future. Interchange fees remain under pressure for a host of reasons.

So I get back to the same question I've been mulling for years: what's next?

That is, what's going to drive the next big growth wave?

For more:
- here's the article

Read more about: bank earnings
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By Jim Kim

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4. Bank legal costs in perspective

Does it matter how you dress on Wall Street?

It absolutely does. There are only a few people in a firm that can dress like a slob and get away with it. They tend to be at the very top. Their fashion peccadilloes can even be cool. If Lloyd Blankfein starts sporting a shadow beard, others might soon follow.

These guys have earned the right to dress down. In fact, the big rainmaker sporting an untucked shirt, loose tie, creeping nose hair, and cigar ashes high on his belly hump is a classic Wall Street stereotype.

Most people are required to dress the part, which means a fairly sizable investment.

Business Insider offers some advice, which includes this anecdote:

"A few years ago, we had a 1st year analyst walk across the trading floor with a Gucci 'G' belt buckle. "Hey bubba, I didn't know The Gap made belts," bellows out a trader. "Um, it's Gucci," the kid snaps back. The words are barely out of his mouth before he realizes he's being mocked in front of half a dozen guys and just made it a lot worse. That was all it took; the kid was never able to earn even a modicum of respect after that, and ended up leaving the firm less than a year later."

So there you have it, dressing poorly is a career hazard.

"On Wall Street and in business, you can't go wrong taking this advice.

Just don't go out and break the law or get scapegoated… Ask any juror, Fabrice Tourre's 'fabulous'(?) and expensive-looking fashion sense was a coffin nail come deliberation time."

For more:
- here's the advice

Read more about: workplace
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By Jim Kim

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As banks increasingly resembled tobacco companies of old in terms of the sheer volume of litigation, they have responded by cranking up their earnings engines. Powered by effective cost cutting, opportune capital markets trends and favorable mortgage market conditions, some banks have been beating the estimates all year, which has been a boon to stockholders.

But think about what could've been.

There's no doubt that extreme litigation liabilities have held them top banks back. For some perspective, we turn to Bloomberg, which reports that the six biggest U.S. banks, led by JPMorgan Chase and Bank of America have racked up $103 billion in legal costs since the financial crisis. That's "more than all dividends paid to shareholders in the past five years."

At Bank of America, costs soared $3.3 billion in the first half to $19.1 billion. JPMorgan added $1.5 billion. The four other big banks added about $2.4 billion collectively in the first half of the year.

These costs are "equivalent to spending $51 million a day, is enough to erase everything the banks earned for 2012. The mounting bills have vexed bankers who are counting on expense cuts to make up for slow revenue growth and make room for higher payouts. About 40 percent of the legal and litigation outlays arose since January 2012, and banks are warning the tally may surge as regulators, prosecutors and investors press new claims. The prospect is clouding outlooks for stock prices, and by some estimates the damage could last another decade."

The issue here is whether legal costs have crested. People have been saying for years now that the worst is over. But then new enforcement actions seem to crop up every week. The big kahuna of course remains toxic securities-related actions. Once the big banks get past the FHFA legal claims, we'll get a lot more clarity on the issue.

For more:
- here's the article

Read more about: Litigation Costs, Legal Costs
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5. A unique VC fund

By Jim Kim

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