Also Noted: Spotlight On... How much can the debt market bear? News From the Fierce Network:
Today's Top News1. A call for more litigation reserve info from JPMorgan
JPMorgan Chase's total exposure to enforcement risk remains somewhat murky, given that various actions are at different stages. Of course, investors and analysts would like as much clarity as possible. And some think JPMorgan Chase could be a little more forthcoming with information. Argues Lex, the confusion over the bank's total exposure "is made more acute by the absence of one key piece of information: the total amount of existing litigation reserves. Banks report new money that they set aside, but not the amount with which they started. From 2008 through June this year, JPMorgan has set aside about $18bn, according to regulatory filings. But banks do not disclose all of the particulars of how much money is going out of the door in settlement payments, either." The bank's CFO has disclosed that the bank expects to add more than $1.5 billion to its litigation reserves in the third quarter. In August, it estimated that its legal problems could surpass existing reserves by as much as $6.8 billion. But how much exactly does it have in reserves? One would have to think that the bank will take seriously analysts' need for more color on this issue. The biggest short-term earnings issue may well be litigation-related expenses. Right now, the sums are huge. The bank is on track to make about $23 billion for 2013. But it might settle a host of charges for $11 billion. Any specifics would be welcome as the investment community works through the implications. For more: Read more about: earnings, Litigation Reserves
The prognosis for bond funds was generally weak not too long ago. Indeed, many assumed a Great Rotation was fait accompli. But then came the Federal Reserve Board's announcement on Sept. 18 that it would hold off on tapering for a while. And all of a sudden these funds are looking better. Taxable bond funds raked in about $3.3 billion for the week that ended Sept. 25, according to data from Thomson Reuters Lipper service showed on Thursday. That "was the largest net cash flow into taxable bond funds since the week ended July 24. For the third straight week, investors committed money to taxable bond funds following months of selling pressure since the Fed signaled it might ease its monthly bond purchases." High-yield bond funds took in $3.1 billion in the week, also the most in nine weeks, and investment-grade funds received $1.3 billion, up from $420 million the previous week. The renewed bullishness was sweet music for managers -- including the likes of the Pimco Total Return Fund -- that saw performance tick higher, after some nasty losses in the second quarter. Given that the Fed will likely start tapering at some point, you have to wonder if all this is sustainable. For now, it might be premature to talk about the end of the Great Rotation, before it really even began. For more: Read more about: Bond Funds 3. Mark Cuban trial to get underway
For the SEC, things are looking up. It notched a win against Fabrice Tourre, formerly of Goldman Sachs, and it seems to be in strong position in its current fight against SAC Capital. All in all, the coming of Mary Jo White seems to have helped the agency make headway in its until-now futile attempt to put the Bernard Madoff fiasco behind it. Recall that the agency was roundly beaten up for missing the Madoff fraud, even though the case was all but spoon-fed to it over many years. Its current courtroom adversary is hardly a Wall Street power player. Mark Cuban is instead the owner of the Dallas Mavericks and the reality TV star of Shark Tank. He stands accused of insider trading for his move to sell his shares in an internet company after learning some information directly from an executive. The case has had a tortured history, as it was previously invalidated by a federal judge, only to be reinstated on appeal. The potential for theatrics is strong, and likely has the press giddy with anticipation. Notes DealBook: "the courtroom fight is not about the money. If found liable, he faces a fine of about $2 million. Having doled out about that much in fines to the National Basketball Association, Mr. Cuban is instead fighting to clear his name and dress down an agency…." He certainly has tried to embarrass the agency at every turn. Who know what he'll say when he takes the stand. This is certainly a mediagenic fight. But it perhaps ranks low in terms of actual importance in the context of all the SEC has on its plate right now. For more:
Read more about: insider trading, SEC 4. Another Goldman Sachs book on the way
Greg Smith rocketed to infamy by departing Goldman Sachs with an incendiary opinion piece in the New York Times, one that generated a disproportionate amount of media coverage. He quit at a time of turmoil for the bank, and he found himself in heavy demand as an ex-insider willing to criticize the company. He even landed a book deal, which came out recently. Another book about the gilded bank is being published. The build-up couldn't have been more different. The author, Steven Mandis, worked at Goldman Sachs as an investment banker, primarily in its M&A department from 1992 to 2004, and is now a PhD candidate in sociology at Columbia. The core of his book, What Happened to Goldman Sachs?, was apparently his dissertation work. No one would be surprised if the book were judged to have a gravitas that Smith's book lacked. Mandis's book appears to be a rather sober look at how the culture and values of the firm shifted over time, and not necessarily for the better. From his own experience in working with the bank after he left, he ended up respecting Goldman Sachs for understanding his business model like few others. But then he started hearing rumors that the bank was approaching others with the same investment idea. He was never quite sure he could trust his former employer. For more: Greg Smith rocketed to infamy by departing Goldman Sachs with an incendiary opinion piece in the New York Times, one that generated a disproportionate amount of media coverage. He quit at a time of turmoil for the bank, and he found himself in heavy demand as an ex-insider willing to criticize the company. He even landed a book deal, which came out recently. Another book about the gilded bank is being published. The build-up couldn't have been more different. The author, Steven Mandis, worked at Goldman Sachs as an investment banker, primarily in its M&A department from 1992 to 2004, and is now a PhD candidate in sociology at Columbia. The core of his book, What Happened to Goldman Sachs?, was apparently his dissertation work. No one would be surprised if the book were judged to have a gravitas that Smith's book lacked. Mandis's book appears to be a rather sober look at how the culture and values of the firm shifted over time, and not necessarily for the better. From his own experience in working with the bank after he left, he ended up respecting Goldman Sachs for understanding his business model like few others. But then he started hearing rumors that the bank was approaching others with the same investment idea. He was never quite sure he could trust his former employer. For more: Read more about: Goldman Sachs, Greg Smith 5. Third quarter earnings expectations for banks move lower
It's pretty clear that all major banks suffered a big drop off in FICC-oriented activity in the third quarter. While there could be some big offsets in the form of mortgage loss reserve releases, these offsets will only take place at banks with massive consumer operations. Goldman Sachs and Morgan Stanley are out of luck on that score, and we're going to see more analysts move their marks south. The influential Brad Hintz, of Sanford Bernstein, just cut Goldman Sachs's third-quarter earnings estimate by 15 percent to $2.62 per share and the full-year estimate by 8.6 percent to $15.59 per share, notes Bloomberg. Hintz cut Morgan Stanley's third-quarter estimate 20 percent to 41 cents and the full year estimate 4.8 percent to $1.98. "While the third quarter is typically seasonally soft, Q3 2013 appears to be turning into a full-scale rout in trading as weak activity and limited risk-taking constrained performance," Hintz wrote in a note to clients. Fixed-income trading volume could decline 20 percent to 25 percent on average for the quarter. It's pretty clear that the Fed' decision to continue with QE for the time being didn't meaningfully alter the third-quarter fixed-income situation. (Some hoped that a "taper" announcement would lead to some rebalancing that would goose activity.) All in all, there are a lot of headwinds that have to be factored in. But the dominant tone remains bearish mainly because of the sales and trading environment. All that said, given the lowered expectation, we may yet see some upside surprises. For more: Read more about: bank earnings Also NotedSPOTLIGHT ON... How much can the debt market bear? We've seen some massive corporate bond underwritings as of late. Verizon's $49 billion deal followed Apple's $17 billion deal. Now that the Fed has decided to hold off on tapering, the conventional wisdom holds that the need for yield remain in force, despite rates that have crept higher. Most assume that the market can absorb much more in terms of fresh bonds. But don't expect Great Rotation fears to subside completely. At some point, the Fed will have to start tapering. That's a given. We may see more issuers try to rush deals to market to try to cash in before it's too late. Article Company News:
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Tuesday, October 1, 2013
| 10.01.13 | A call for more litigation reserve info from JPMorgan
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