Also Noted: Spotlight On... Credit ratings gun-shy on U.S. debt? News From the Fierce Network:
Today's Top News1. Goldman Sachs compensation drama shaping up
So when it comes to employees or shareholders, which takes the top priority? Goldman Sachs has come down on the side of shareholders—for the third quarter anyway. The bank's earnings ended up beating the estimates. Diluted earnings per common share came in at $2.88, compared with $2.85 for the third quarter of 2012 and $3.70 for the second quarter. The third-quarter average estimate from analysts was about $2.43 a share. The big news of course was that revenue was weaker than expected. The bank reported net revenues of $6.72 billion, about 20 percent lower than a year earlier. Sequentially, revenue fell 22 percent. The average revenue estimate was $7.36 billion. The key to maintaining its profitability was compensation. The bank was willing to reserve less for employee pay to preserve its margins, a very shareholder-friendly move. "The amount that Goldman set aside for compensation dropped by over a third, taking the ratio of compensation to revenue to 35 per cent. Had Goldman instead kept this measure at the 43 per cent level of the first half, its net profit would have been $356m lower. The bank would have missed earnings expectations instead of beating them," the Financial Times notes. The full-year picture remains a bit cloudy. The compensation ratio for the first nine months of the year was 41 percent, compared with 44 percent for the first nine months of 2012. That's a not a huge change, thought the absolute numbers are definitely lower than last year. It will be interesting to see how the fourth quarter turns out. A spike in FICC-activity may salvage the year. But it wouldn't be surprising if the bank decides to simply pay out less for 2013 in hopes a better 2014. For more: Read more about: Goldman Sachs, Compensation
2. Jamie Dimon's move at operating unit debated
In a little discussed move, JPMorgan Chase's Jamie Dimon stepped down as chairman of the bank's main operating subsidiary in July. As Bloomberg makes clear, the move was prompted by the OCC, which was concerned with corporate governance practices at the big bank. Of course, Dimon remains chairman of the parent company. Recall that he won a resounding victory this year against shareholders who championed a move to split the chairman and CEO positions at the parent company. "We also looked at all other subsidiaries and found out this was an outlier," Dimon was quoted. "I wasn't on any of the other boards. We thought we should adopt the same approach here." The big issue here is whether the JPMorgan Chase board sees any value in making a similar move at the parent company level. You could argue this in different ways. On one hand, the massive build-up of enforcement actions has been a bitter pill for shareholders to swallow, and some will no doubt cite the actions as a reason to split the top jobs. But it's fair to say that many of the mortgage-related liability stems from companies that JPMorgan acquired at the height of the financial crisis. We'll likely see more resolutions effectively requesting a new chairman, but I doubt they will garner a lot of support, unless something dramatic happens between now and the 2014 annual meeting. Still, the board would be wise to reach out to shareholders early, an approach that has worked well for rival Goldman Sachs. For more: Read more about: corporate governance, board 3. SAC Capital nearing deal to settle criminal charges
It was huge news when Department of Justice prosecutors decided to file criminal charges against beleaguered hedge fund SAC Capital. Such prosecutions are rare, as they make some regulators quite skittish, but the evidence against SAC Capital was considered strong. Many took the view that the prosecutors were convinced that the firm founded by Steven Cohen was essentially a rogue outfit, one that deserved to be put out of business. For SAC Capital, the best play all along perhaps was to find a way to settle, preferably before the insider trading trials of former employees Mathew Martoma and Michael Steinberg. Media reports now hold that the two sides have reached an agreement in principle. SAC Capital will pay a fine that will likely exceed $1 billion. One issue is whether this fine will be reduced by the $616 million that SAC has already paid to settle civil charges with the SEC. The government is likely in the driver's seat in the settlement talks. According to DealBook, prosecutors "threatened to pursue a much larger fine against the fund. And time was limited. Michael S. Steinberg, one of Mr. Cohen's former employees who is central to the indictment of SAC, will stand trial for criminal insider trading charges next month. The government, according to one of the people briefed on the matter, was contemplating doubling its demand to more than $3 billion if SAC refuses to settle and Mr. Steinberg was subsequently convicted." There are some big questions outstanding. The conventional wisdom seems to be that SAC Capital is prepared to admit guilt, but it's unclear exactly what it will admit to. The conventional wisdom also holds that Cohen will not be allowed to manage other people's money. For more: Read more about: insider trading, SAC Capital 4. Morgan Stanley beats estimates handily
Morgan Stanley, like its rival Goldman Sachs, posted an upside earnings surprise for the third quarter. Net income, excluding the DVA, came in at $1 billion, or 50 cents a share, for the quarter. The average analyst estimate was 40 cents a share. Unlike Goldman Sachs, the bank was also able to post an upside revenue surprise as well. Excluding the DVA, Morgan Stanley's total revenue came in at $8.1 billion, up from $5.29 billion a year ago. The results trounced analysts' expectations of $7.6 billion. To be sure, FICC activity was weak, as it was at all banks. "Fixed Income & Commodities" sales and trading net revenues were $835 million compared with $1.5 billion a year ago. However, equity sales and trading net revenues came in at $1.7 billion, up from $1.3 billion in the prior year quarter. For all institutional securities businesses, revenues came in at $3.9 billion, up modestly year over year but down from $4.2 billion sequentially. Wealth management contributed $3.5 billion in revenue, up a bit year over year and down a bit sequentially. Asset management fee revenues were $1.9 billion, a 6 percent increase from last year's third quarter primarily reflecting an increase in fee based assets and positive flows. There was nothing in the results to dispute the value of Morgan Stanley's model, which is to emphasize wealth management as well as traditional investment banking. "Our results point to the increased consistency, strength and balance we are deriving from our business model," CEO James Gorman said in a statement. "Our strategy to combine a world class investment bank with the stability of the largest U.S. wealth management franchise and strong investment management is enabling us to deliver exceptional advice and execution for our clients as well as stronger returns for our shareholders." For more: Read more about: Morgan Stanley, bank earnings
Just about anything can be securitized, as long as it has a future income stream. The idea of celebrity bonds has been around a while, as a way for celebrities who generate big predictable income streams to pocket the proceeds of the deal in exchange for a cut of the future income. Now we're seeing the rise of the equity equivalent. Fantex Brokerage Services has created a lot of interest in its plans to allow big-name athletes to essentially go public. They agree to give up a percentage of their future earnings in exchange for the proceeds of a public stock offering. The initial deal will be for Houston Texans running back Arian Foster. Fantex estimates it will raise about $10.5 million by selling shares that will confer a collective 20 percent stake in his future income, including contracts, endorsements and other related business revenue. The share will trade in a marketplace run by Fantex. Foster himself will receive about $10 million of the initial proceeds. The expectation is that the Foster stock will rise or fall based on his athletic performance and on his prowess in lining up business deals. There will no hostile takeovers, as no single entity can own more than 1 percent of a stock. In addition, shareholders have no real governance rights; they will not be able to dictate career moves for Foster. The idea is the brainchild of Buck French, the co-founder and CEO. It will be interesting to see if this takes off with the legions of sports fans who relish betting on games. It might realty take off on Wall Street, where French would be wise to consider various derivatives markets to allow people to turbo-charge their wagers. Options and futures on the athlete shares stand as a big money maker. But there's a huge wildcard here. The SEC will have to bless the concept at some point. That may or may not be a hard sell. For more:
Read more about: IPO Also NotedSPOTLIGHT ON... Credit ratings gun-shy on U.S. debt? The conventional wisdom about the credit ratings companies is that they are gun-shy about making negative ratings moves regarding United States sovereign debt. Some believe, rightly or wrongly, that when S&P downgraded U.S. debt in 2011, it paid a steep price. Some think the government retaliated with a thinly disguised prosecution for misdeeds related to subprime mortgage bond ratings. In any case, the tip-toeing by the S&P and Moody's in the recent default drama was striking. Article Company News:
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Friday, October 18, 2013
| 10.18.13 | SAC Capital nearing deal to settle criminal charges
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