Editor's Corner: Board must ponder Dimon's tenure at JPMorgan Also Noted: Spotlight On... Matt Taibbi on hedge funds News From the Fierce Network:
Today's Top News1. More regulatory angst over physical commodities and banks
Should Goldman Sachs stay in physical commodities? Once the controversy really got hot, JPMorgan wasted no time in announcing that it would exit the business of physically storing metals commodities. The issue is alive for other banks, notably Goldman Sachs, which has taken its lumps over its controversial Metro warehousing facility in Detroit. Reuters notes that regulators have some big decisions to make. First, the Federal Reserve must decide whether former investment banks Goldman Sachs and Morgan Stanley will "be allowed to continue owning and operating physical assets like oil pipelines and metal warehouses." Their right to own such facilities was granted via a 5-year grace period following their conversion to bank holding companies at the height of the financial crisis. That exemption recently expired. The Fed is also expected soon to release the results of an internal review of a 2003 move to allow commercial banks to trade in physical commodities. In addition, the Senate will hold another hearing on these issues soon. Ahead of all this, Sifma has released a ringing endorsement of the view that banks should be able to operate in these areas. The report was authored by a team led by Daniel Yergin, a known authority in energy. The report "warned that without the ability to trade in the real raw materials themselves, banks would likely either stop providing financial services to certain areas or industries, or be forced to raise costs." For more: Read more about: commodities, banks 2. Big winner from the crisis: Wells Fargo
The knee-jerk conclusion in the few years following the financial crisis was that JPMorgan Chase was the big winner, emerging as the bank that benefitted the most. But recent events have shown just how premature that conclusion was. We've suggested that big winner in truth was Wells Fargo. And The Economist agrees. It notes that the bank headed into the crisis as one that served about half the consumer markets in the country; it emerged as a true national bank with a powerful franchise in mortgages. The key to its success was savvy dealmaking, the ones that it didn't pursue as well as the ones that it did. "In August 2008 it decided not to buy Countrywide, which had been the country's largest mortgage underwriter and, as Bank of America would discover, a sinkhole for bad loans and litigation. Two months later, as panic consumed the markets, it gazumped Citigroup to acquire Wachovia, which had been assembled over decades of costly and disruptive mergers. It may have been the best bank acquisition ever. In a single move, Wells doubled its branch count and added the eastern half of the country. As John Stumpf, the chief executive, likes to point out, a Wells branch or ATM is now within two miles of half of America's homes and half of its firms." The bank was emerged as the dominant player in the residential mortgage market, but you have to wonder how it will respond to some dangerous headwinds, notably rising interest rates. The bank now is working hard to diversify its revenue stream, a push that will involves expanding in mid-market investment banking. For more:
Read more about: Wells Fargo, mortgages 3. Star witness on the stand in Bank of America trial
Is Edward O'Donnell the next Sherry Hunt? Recall that the latter filed a False Claims Act against her employer, Citigroup, and ended up with $31 million windfall. O'Donnell may have a tougher road to travel before he winds up with a massive paycheck. He is now embroiled in an on-going trial in New York, one pitting federal prosecutors against Bank of America over a Countrywide program that has come to be known as Hustle. The high Speed Swim Lane, or HSSL, was designed to produce more prime loans, as the subprime movement seemed to be fizzling. The HSSL loans, however, weren't much better apparently, as they caused Fannie and Freddie to suffer a gross loss of $848.2 million and a net loss of $131.2 million on loans that were materially defective, according to the prosecution, as noted by Reuters. O'Donnell was an executive at Countrywide at the time and spoke out against the HSSL loans. He claims he was then marginalized. He filed suit under seal in February 2012 under the False Claims Act. For him to cash in, the government will have to win. So he has a lot on the line personally as the trial continues. He'll be on the stand for quite a while as the key witness. It will be interesting to see how Bank of America lawyers try to undermine his credibility. Currently, he works as an executive at Fannie Mae, which some might find ironic. For more:
Read more about: Bank of America, Whistle Blower 4. JPMorgan settlement talks intensify
The fact that JPMorgan Chase CEO Jamie Dimon and U.S. Attorney General Eric Holder are personally negotiating a sweeping settlement means a lot. Obviously, staff has come to some broad agreements, leaving the final, determinative details to the heavyweights. And they don't get much heavier than Dimon and Holder. So at this point, a deal would appear to be on the way. Both have a lot on the line, to be sure. Each faces the possibility that the world will look back on their efforts with disdain. We love to pronounce winners and losers after all, and each will be sure to spin the deal in a way that suggests the other didn't each his lunch. All told, you have to think that this is a big win for the bank. The fact that it can end so much enforcement action with one fell swoop says a lot, though some on-going actions will likely survive. For the moment, it's unclear whether the high-profile action of the Eastern District of California will survive. At least one probe out of the Southern District of New York will remain active. But most of the most consequential cases will be settled quickly, allowing the bank to move on. It's hard to read the tea leaves, but it would appear that Dimon is not negotiating whether to admit to wrongdoing. That appears to have been resolved. My sense is that the bank will admit that it had oversight and compliance lapses. The main issue, according to DealBook anyway, is the size of the settlement. It'll be huge no matter what. For more:
Read more about: settlement, Enforcement Action 5. JPMorgan Chase executives spared personal charges
Critics of big banking practices have fumed for years that not a single top executive of a leading investment bank has been charged for their role in the financial crisis. The bitterness over this has been palpable. It certainly kicked up amid all the hoopla over the fifth anniversary of the Lehman Brothers implosion. Now that JPMorgan Chase is negotiating to bring myriad enforcement actions to conclusion via one sweeping settlement, the issue has been revived. ProPublica, which has been tough on the bank, offers a tough look at top bank executives, including a former CFO. "The Senate Permanent Subcommittee on Investigations, in its huge report on the trading loss, made a convincing case that the chief financial officer at the time, Douglas L. Braunstein, made several highly misleading statements in an April 13, 2012, conference call with shareholders and the public." Other executives made similar misstatements to analysts and others. The bank has consistently held that the executives acting in good faith based on the information they had at the time. The Senate report disagrees: "Given the information that bank executives possessed in advance of the bank's public communications on April 10, April 13, and May 10, the written and verbal representations made by the bank were incomplete, contained numerous inaccuracies, and misinformed investors, regulators and the public." In any case, this is fast becoming water under the bridge. It's highly unlikely that a JPMorgan Chase executive will be charged with anything criminal. For a while it looked liked Blythe Masters was vulnerable, but not really any more. You have to credit Jamie Dimon to some degree; he seems to have sought assurances in some cases that top executives would not be charged. For more:
Read more about: Enforcement Action, JPMorgan Chase Also NotedSPOTLIGHT ON... Matt Taibbi on hedge funds The man who coined perhaps the most all-time most famous epithet of Goldman Sachs has taken aim at a new target: hedge funds that he accuses of "looting" public pensions. He doesn't think much of current strategy of loading up on alternative investments in hopes of closing projected liability shortfalls. To be sure, there are different ways of spinning things. But we can all agree that some pensions are rethinking their alternative investments with an eye for investing more wisely and efficiently, not necessarily for cutting these investments all together. Article Company News:
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Monday, September 30, 2013
| 09.30.13 | Board must ponder Dimon's tenure at JPMorgan
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