Also Noted: Spotlight On... Did the Justice Department get the better deal? News From the Fierce Network:
Today's Top News1. Another look at Goldman Sachs vs. Morgan Stanley
It would be premature to say that the two big investment banks are at some sort of inflection point. But the third quarter earnings of each were interesting enough for Fortune to say that Morgan Stanley CEO James Gorman's "strategy is paying off, and Goldman suddenly seems adrift." To be sure, Morgan Stanley turned in a strong third-quarter performance. The bank posted earnings per share of 50 cents, compared with average expectations of 40 cents. The bank's top line growth was even more impressive. Unlike Goldman Sachs, it posted 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. As for Goldman Sachs, total net revenue in the quarter fell to $6.72 billion, about 20 percent lower than the $8.35 billion reported a year earlier. Sequentially, revenue fell 22 percent. The average revenue estimate was $7.36 billion. Both suffered big drops in FICC-oriented activity. But Morgan Stanley benefited from a business model that depends more heavily on wealth management activity. Wealth management contributed $3.5 billion in revenue, up a bit year over year and down a bit sequentially. The third-quarter revenue contribution was almost as much as the $3.9 billion revenue contributed from the institutional securities business. The results seem to "validate Gorman's plan to push Morgan Stanley away from Wall Street's more volatile businesses, and toward advising individual investors on how to invest their savings, which produces more consistent fees." Of course, one quarter does not a trend make. But is this the start of something? For more: Read more about: bank earnings
2. Big Board to test systems ahead of Twitter IPO
It would be easy to overstate the importance of NYSE's big victory in the Twitter sweepstakes. It was big news when the social media giant decided to list on the Big Board, shunning the Nasdaq, the traditional home of big tech stocks. Of course, the NYSE has been pursuing technology companies for years with notable successes, even in social media. LinkedIn chose the NYSE not too long ago. Still, anytime a tech company with as much brand awareness as Twitter bucks the Nasdaq, it's a big moment, one that the Big Board can ill afford to botch. If it can pull off a successful IPO, it truly will have stuck one to its great rival. Taking no chances, the Big Board has announced it will allow brokerage firms to test their systems ahead of the deal date. Trading systems testing with a mock opening auction of Twitter's stock has been scheduled for Saturday, Oct. 26. The deal will actually be priced sometime in November. According to media reports, such systems testing over a weekend is not unusual. What is unusual is a test around a specific deal. The point of course is to avoid the technical problems that plagued the debut of Facebook, a botched deal that ultimately landed Nasdaq OMX in regulatory hot water. It agreed to pay $10 million to settle enforcement actions in the wake of the deal. The Twitter deal is less likely to pose technical issues, as it is a much smaller deal. That said, it pays to be careful. For more: Read more about: NYSE, IPO 3. Succession picture at Goldman Sachs gets a little clearer
The news that J. Michael Evans will step down at Goldman Sachs was somewhat surprising. He was considered a top candidate to succeed CEO Lloyd Blankfein, whom many still see as primed to take the next step in his illustrious career fairly soon. At various points over the last few years, Evans was seen by some as the top candidate. He was tapped for a critical post-financial crisis assignment to co-chair of the firm's Business Standards Committee, which conducted the most extensive review of the firm's business standards and practices in its 144-year history. That was seen a job that might serve as a stepping stone into the top executive position. And when he relocated to New York from Hong Kong in 2011, it seemed that a change at the top of the firm imminent. Instead, Evans will retire from the bank and become a senior director at the end of the year. So what does this mean for CEO succession? It's possible that he's been told that he will not become the next CEO. So there would appear to be one prime candidate: Gary Cohn, the current president. That said, the issue now is timing. When will Blankfein step down? There is no clarity on that, despite years of rumors. The conventional wisdom earlier this year is that Blankfein had survived the financial crisis and its awesome aftermath, emerging in fine shape. The bank had healed, and his personal reputation had been restored. He's now the top executive on Wall Street, just as he was before the crisis. The problem is that it's unclear what he'll do next. While some sort of high-profile public service job was a natural step for previous outgoing Goldman Sachs CEOs, such possibilities never quite opened up for him. So he has had little choice but to bide his time. We can only hope the earnings situation doesn't deteriorate on his watch, this late in his tenure. For more: Read more about: Goldman Sachs, CEO succession 4. Bank of America faces more Countrywide probes
JPMorgan Chase has nudged Bank of America off the front page when it comes to news about enforcement activity related to mortgage activity. Certainly, the news that JPMorgan Chase is willing to pay $13 billion to settle a wide array of mortgage sins was eye-catching. But Bank of America still faces a bevy of enforcement action, mainly due to Countrywide mortgages before the ill-fated merger. Bloomberg reports that Bank of America, which was sued by U.S. attorneys in August over an $850 million mortgage-backed bond, faces no less than three more Justice Department civil investigations over MBSs. U.S. attorneys in Georgia and California are taking a look at potential crimes by Countrywide, while U.S. attorneys in New Jersey are looking into deals involving Merrill Lynch, which Bank of America purchased in 2009. Part of these probes concerns potential violations of the Financial Institution Reform, Recovery and Enforcement Act of 1989, a relic of the savings-and-loan crisis known as FIRREA. Bloomberg notes that "the Justice Department cited that statute in its August lawsuit against the firm, which is the nation's second-largest lender after JPMorgan." Regarding FHFA claims in particular, JPMorgan's deal has led to concerns about how much Bank of America will be asked to pay settle similar charges. Some have suggested it will be asked to pay in the $6 billion range, compared with $4 billion for JPMorgan Chase. In the end, Bank of America would be wise to negotiate a global settlement in the manner of JPMorgan Chase, though it will not likely be cheap. For more:
Read more about: Enforcement Action, mortgage backed securities 5. Securities jobs few in NYC, but pay is higher
So has the securities industry recovered fully from the financial crisis? It depends of course on how you measure it. An interesting analysis from Thomas DiNapolit, the Comptroller of New York State, notes that the securities industry is smaller in New York City than before the financial crisis. The industry employed 163,400 as of August 2013, a 13.5 percent drop. He also predicts the industry will continue to "streamline" in the face of trying economic, operating and regulatory environments. Certainly, as a jobs machine, the industry has flagged. "Unlike prior recoveries, the current economic recovery in New York City is being driven by industries other than securities, many of which offer substantially lower pay. While New York City has added 335,000 private sector jobs, or more than twice as many jobs as were lost during the recession, Wall Street accounted for less than 1 percent of these private sector job gains." At the same time, it remains lucrative to work in the industry. The average salary (including bonuses) paid to securities industry employees in New York City has held steady at $360,700 in recent years. The 2012 average salary was actually higher than before the financial crisis and was the highest among New York City's major industries. The disparity between the average in the securities industry and the rest of New York City's private sector narrowed slightly but remains at 5.2 times greater than the rest of the private sector ($69,200). To put it in perspective, the securities industry accounted for 21.9 percent of all private sector wages paid in the city, even though it accounted for 5.1 percent of all jobs. The bottom line is that employment has been tough to come by in the industry, and it may get tougher. But if you can find your footing, the pay is quite good. For more: Read more about: Employment, jobs Also NotedSPOTLIGHT ON... Did the Justice Department get the better deal? The New York Times offers an interesting blow-by-blow account of how JPMorgan Chase and Justice Department struck their historic deal. The bank was willing to pay substantially to settle all charges. It arrived at one critical meeting with an offer to pay $11 billion, $4 billion of which would serve as relief to struggling homeowners via a specific FHFA settlement. But the bank wanted a specific non-prosecution agreement that would scuttle a criminal probe in California. The Justice Department was not willing to agree to that. In the end, the settlement value came in at $13 billion with no NPA attached. The big question outstanding is what exactly the bank will admit to. Article Company News:
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Tuesday, October 22, 2013
| 10.22.13 | Another look at Goldman Sachs vs. Morgan Stanley
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