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Today's Top News1. Morgan Stanley's grassroots movement against default
Just how serious is the debt ceiling quagmire from the perspective of Wall Street? There have been signs that the Street no longer views the possibility of a default as something that can't happen. But as the politicians continue to fight, that once-bedrock conviction has weakened just a bit. To be sure, there is no real panic in the markets. Not yet anyway. But most in the industry agree that a default would be an unmitigated disaster, one make more painful by the fact that it could have been prevented. Morgan Stanley certainly wants to impress upon elected officials just how serious all this is. Morgan Stanley CEO James Gorman sent an email to every employee of the firm urging "them to write or call their congressional representatives to tell them not to jeopardize the nation's credit rating," notes MoneyWatch. "It is time to resolve differences and come to a sensible agreement to keep the government functioning and pay our obligations," Gorman wrote in his email. "I encourage everyone who is a U.S. citizen to contact your representatives in Washington and let them know that failure to raise the debt ceiling will have unacceptable consequences and cannot be allowed to happen." To be sure, as the Thursday default date approaches, we are skating way too close to the edge of calamity. Hopefully, clear thinking will prevail on this issue. But in this political climate, continued irrationality may be the best bet. The biggest banks are likely thinking about how to hedge against the worst case. A wise move. For more:
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2. Cohen selling some prized artworks
When Steven Cohen bought Picasso's "Le Rêve" for $150 million in 2012, it was interpreted by some as a thumb in the eye of prosecutors, a calculated move to tell them that he was little affected by all their efforts. So what will people make of his move to unload some pieces in his vast art collection? Cohen has put two major Andy Warhol works and a Gerhard Richter canvas up for sale, notes DealBook. Sotheby's is apparently scheduled to auction the works next month. Does this mean that Cohen needs to raise funds? Well, it's tempting to think so. After all, he's negotiating a massive settlement with federal prosecutors that will not be cheap. It could amount to more than $2 billion. But his fund, even after he honors all redemption requests, will likely have about $9 billion left in what is essentially his private fund. So it doesn't seem like he's in any real financial hardship, though he may have to get more liquid to make some big payments. His fund has reportedly been selling stock to honor redemption requests. To be sure, there are plenty of other reasons for a collector to sell art. "Cohen has hundreds of works in his prodigious collection and, in keeping with his trader's mentality, buys and sells them with frequency. Owners of fine art also often sell art for tax reasons, as they can defer their tax liability by exchanging one piece for another." For more: Read more about: insider trading, Steven Cohen 3. A look at Goldman Sachs internal training
Cynics tend to see Goldman Sachs' efforts to retool its internal culture as a naked attempt to merely appease regulators and critics. Those with a more positive view of the bank think otherwise. The truth may embody a bit of both extremes. The bank isn't about to change its hard-driving, trader mentality. That said, it may make some changes to help clients better grapple with the idea that it does. The Economist offers a fascinating and rare glimpse of a recent internal training effort, one that sheds "light on the efforts being made by the firm to burnish a badly tarnished reputation." To be sure, the firm has made some changes to the way it interacts with clients. "As important are its efforts to reprogram the firm's culture. As well as the hours of training—the programme is being run across the firm, and the first sessions were led by Lloyd Blankfein, Goldman's chief executive—internal incentives have been revamped. Pay and promotion are now tied more to whether employees work well in teams, for instance. There is less focus on rewarding staff for the revenue they generate," the magazine notes. "These reforms may not be enough, however, without deeper structural changes aimed at reducing the number of conflicts, real or perceived, with which it constantly has to grapple." Shifting from short-term greedy to "long-term greedy," a famous phrase coined by a Goldman Sachs executive, will not be easy. Clients will no doubt appreciate Goldman Sachs' efforts on the tricky issue of internal ethics and culture. But they are not going to be naïve about what the bank does. They should understand that there will be times when the interests of the client and the bank will fully align as well as times when their interests diverge. More transparency is about all they can hope for. For more: Read more about: Ethics, Internal Training 4. How much will Twitter pay for IPO?
Bloomberg reports that Twitter will pay its underwriters a fee equal to about 3.25 percent of the proceeds. How does that stack up against other high-profile IPOs? At first blush it might seem like the underwriters, led by Goldman Sachs, got a great deal. Facebook, after all, paid a fee of just 1 percent. Google may have paid even less on a percentage basis with its innovative Dutch Auction. But then again, Facebook's deal was a $16 billion behemoth, as it raised $16 billion. In contrast, Twitter aims to raise about $1 billion, if all goes well. Across the industry, IPOs this year have averaged 5.7 percent fees, according to Bloomberg data. "IPOs in the U.S. paid an average of 5.7 percent in fees to investment banks managing the sales this year, compared with 4.5 percent globally, data compiled by Bloomberg show. In 2012, IPO managers in the U.S. earned an average of 4.3 percent in fees, while globally they made 3.7 percent, the data show." All in all, the underwriting fee seems about right for Twitter. There are plenty of other questions that have yet to be answered. Will it really choose the NYSE over Nasdaq? It wouldn't be all that surprising. We'll learn a lot more once the road show gets underway later this month. For more: Read more about: IPO, fees 5. Is Jamie Dimon's job in danger?
Is it possible that the board of JPMorgan Chase would actually relieve Jamie Dimon of the CEO job? We speculated about that as of late, as have lots of other people. The conventional wisdom has largely held that he isn't in any such danger because he delivers in the area that counts most: profits. But now that the bank has posted its first quarterly loss in the Dimon era, driven of course by enforcement issues, the issue is alive and well all over again. New York headlines an article about this somewhat ominously: "Is this the beginning of the end for Jamie Dimon?" The magazine doesn't buy the notion that all these additions to legal reserves are one-off events. But how else can they be interpreted? The bank has painstakingly built a reserve of no less than $23 billion, which, the article notes, is more than all of earnings combined in 2012. Bulls would like to think that this amounts to taking the big hits now, so it doesn't have to when the actual bill comes due. The presence of a large reserve for legal losses should be seen as positive in terms of future earnings. We've suggested that the real issue is how much more the bank will have to add to reserves. There is always the possibility that the bank has overdone things just a bit in terms of building its reserve. A release is a possibility at some point in the future, if the negotiations in aggregate turn out better than expected. All in all, it's hard to think that Dimon's job as CEO is in immediate jeopardy. But it's easy to envision a raft of shareholders making another push next year to strip him of his chairman job. The issue exploded in 2013, though Dimon's won the ballot handily. This year, shareholders in favor a chairman/CEO split may have a better chance of winning. It will be interesting. For more: Read more about: Jamie Dimon, CEO Also NotedSPOTLIGHT ON... Miami lures hedge funds We'll pay you in sunshine! Would-be hedge fund employees may be hearing as much if the city of Miami is successful in its attempts to lure more hedge funds to the city. "The familiar trope of a year-round vacation looms large in the DDA's message, as does comparing Florida's lack of an income tax with the 13 percent levy paid by top-earning Manhattanites. But this campaign also rests on proving Miami's bona fides for some of the wealthiest executives in finance. With a new wave of celebrated restaurants, a growing downtown cultural scene and an ongoing embrace of the 'new Miami' by national media, the (City) sees an opportunity to make its message stick," notes the Miami Herald. Article Company News:
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Tuesday, October 15, 2013
| 10.15.13 | Morgan Stanley's grassroots movement against default
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